Being taxed in a third country

This could upset you! It is possible for a British contractor to work in one foreign country and discover that a third country is expecting him to pay income tax there!

A friend worked for many years in Germany. He had been out of the UK for years and years and his contract earnings were totally ignored by the UK authorities. He was paying tax in Germany just as the law said he must.

He was happy in Germany, he enjoyed it but eventually, the work ran out and he took a contract in The Netherlands. He worked there for some while and was paying tax there. However, after a while, he decided that he missed Germany and, when his old site decided that they had some work for him, he returned.

On his return, he was rather surprised to discover that the German authorities had quietly deemed him liable for German tax on his earnings in The Netherlands!

Now that is not as unreasonable as it sounds. Imagine if he had been a German citizen and had worked for several years in the UK. He would certainly have been deemed to be Ordinarily Resident in the UK. Now, suppose our putative German had then worked outside the UK from say, June 1997 to February 1999 and, during that time had not once reentered the UK. If in March 1999 he had returned to work in the UK, the tax authorities could point out the he had not done enough to have lost his Ordinary Residence in the UK and therefor, he was liable to UK tax on his earnings in a third country.

There is a moral to this tale. International tax law is very complex and you always need to get good advice on your own circumstances before you make any commitments.

Home My home page
Countries Guides to different countries
UK tax My UK tax for overseas workers page