The last five years have seen growing demand for highly skilled professional consultants across Europe according to a report by the Von Essen Group (providers of tax advisory services to international contractors) as more and more employers recognise the benefits of using consultants to gain greater flexibility over costs, and to buy in specific additional expertise for a limited period. These contractors are rewarded with higher pay and usually a smaller tax bill. Along with the stimulation that comes with working for a range of employers, often internationally, this is making contracting an increasingly attractive career choice.
Recruitment agencies placing and advising consultants also need to understand how the various expenses systems work so that they can provide consultants with informed career counsel, and assist them in preparing to work overseas.
Key findings of Von Essen’s White Paper include:
• France has the most generous allowable expenses followed by Belgium, Germany and the UK
• Norway and Spain have the least generous allowable expenses
• A third of the 12 countries allow consultants to claim the payment of their partner for administrative help as a deductible expense
• Three of the countries allow claims for relocation costs, with a further three permitting it if the consultant’s family moves with them
• Norway, Sweden and the Netherlands provide a fixed personal deduction for expenses as well as specific expenses
Allowable Expenses at a Glance
*Relocation expenses can be claimed if a consultant bases their family in the country
**A consultant can apply to claim against relocation but each claim is considered on a case-by-case basis and not necessarily granted.
Countries with the most generous allowable expenses
France has the most generous and simplest expense rules, allowing consultants to claim in all 13 expense categories. Consultants can claim 100% of their professional costs against tax, aside from relocation costs.
France is followed by Belgium, Germany and the UK in offering generous allowable expenses. Germany is the only one of the four that does not allow consultants to claim against the wages paid to their partners for administrative assistance.
It is not surprising that some of the economies with the most attractive expenses regime are also some of the most popular locations for consultants. These countries offer a wide variety of specialist roles, and recognise the importance of attracting overseas talent to certain key industries.
When considering a country’s expenses regime it is important to take into consideration other factors. For example, while France has a generous expenses system, it is important for consultants to understand how much they would pay in income and corporation tax.
Countries with the least generous allowable expenses
Norway’s allowable expenses are the least generous of the 12 European countries examined. The country’s system has two elements. Norway allows consultants to claim for work-related hotel & accommodation, airline travel and subsistence costs. Ex-pats working as consultants are entitled to a standard tax deduction equivalent to 10% of their taxable earnings up to £4,206 per annum, if they are working in Norway for 2 tax assessment periods consecutively.
Spain has the second least generous system. Consultants can only claim for travel, subsistence costs, telephone usage, business premises and motor fuel, car insurance and road tax.
When consultants are considering working in either Spain or Norway, it is worth bearing in mind the limited allowable expenses and how that might be offset by higher pay or other benefits.
Wages – payment to consultant’s partner for administrative assistance
Four of the 12 countries examined allow wages paid to consultants’ partners for administrative tasks related to the contractor’s work to be claimed as a business expense. Three of these countries, France, the UK and Belgium have generally favourable expenses regimes.
Consultants should be aware that the other eight countries (Norway, Spain, Netherlands, Italy, Sweden, Hungary, Denmark and Germany) do not allow for wages to a partner to be claimed as an expense.
Relocation costs
Only three countries allow relocation expenses to be tax deductible without any qualifications; the Netherlands, Germany and France. France and Germany both allow consultants to claim relocation costs for the renting or purchase of a property while living in the country. In Germany the non-national must have their primary home outside the country for relocation costs to be tax deductible, whereas in France the French home can be the consultant’s primary residence. The UK and Belgium do not allow a consultant to claim for relocation costs.
Variations in the rules
Consultants and recruitment agencies should be aware that even when a particular type of expense is allowed, how much and exactly what qualifies as a deductible expense varies from country to country.
Here are some examples of the variations:
• In Sweden airline travel can only be claimed twice during the year
• In Denmark hotel expenses are capped at £5,556 per year
• In Hungary a consultant can only claim up to 70% of the cost of buying and using a telephone
• In Belgium up to 75% of the cost of any work-related motor fuel, car insurance and road tax is allowed, whereas in Sweden a consultant cannot claim for the daily commute to their workplace
• In the Netherlands newly arrived consultants in certain specialisms may be eligible to receive 30% of their earnings tax free. However, this lump sum can impact on what tax deductions consultants claims for.
The growth in demand for the skills and flexibility of consultants means that many are now in the position to pick and choose from a range of international opportunities, and will weigh up the pros and cons of different opportunities in greater detail than was once the case.
Consultants may well look to recruitment agencies for advice on allowable expenses so that they can compare the likely net earnings from a particular role. Recruitment agencies that can navigate a consultant through the maze of expenses will be seen as skilled and credible advisers, and the goodwill created should lead to the consultant returning to, and recommending, the recruitment agency.
Massive thank you to Von Essen for sharing their report with us. Their experience in advising consultants with the many challenges they face when setting up in a country means that they are in an excellent position to help consultants, and the recruitment agencies that work with them, to understand the complexity of allowable expenses.
