Science: Why Britain is IT abroad: From Saudi Arabia to San Francisco, our computer contractors are in demand. Lynne Curry reports
Monday 15 November 1993
Over three issues he thrilled readers of the Freelance Informer, the contractors' trade publication (which coined the expression 'Bryan of Arabia') with cameos of life as an ex-pat contractor. Kamikaze waiters who pranged his car, the random nature of pay day, the shock of being burnt by a hot car steering wheel . . .
This month the magazine used a piece from Chris Rooney, who spent five months of a year-long contract in Volgograd, living in a Portakabin in a fenced compound, covering his nose in temperatures of -22C, wiping his feet on a cardboard doormat and every morning sweeping from his disk-drive the clouds of steelworks dust that had blown in through the ventilators.
Nothing so bleak awaits those whose contracts take them to San Francisco. Only the IRS lurks there, the Stateside cousins of the Inland Revenue, armed with sheaves of papers detailing the nightmarish US tax laws and President Clinton's benedictions on netting more for the collective fund. Even old hands in the exported labour market tread gingerly through the labyrinthine regulations.
Still, Europe is bound to be painless, seeing as we're all semi-resident in the Dordogne and consuming liver sausage by the kilo? Not exactly.
On arrival in Germany, the conscientious contractor who has accepted perceived wisdom and formed a limited company is obliged to declare that he owns and controls his company. If he or she fails to do this, it is an offence punishable by a fine or imprisonment. If he or she does claim ownership, the Germans promptly declare the company non-existent (they do not recognise single-person limited companies) and tax the gross earnings.
All true. So why are British agencies happily recruiting contractors to send abroad? Why are British contractors happily stepping on aircraft for a year away from home, possibly in a seafront apartment in Nice but also possibly for a mobile home in a blizzard?
Why did Philip Swinstead, chief executive of the recently merged CSS/Comac, the biggest information technology (IT) contract staff agency in Britain, declare Europe was its focus for future expansion? Moreover, why should companies in Europe or the United States be interested in British computer contractors?
Chad Neal, an American, of Brighton- based Eurolink, thinks that British contractors are well worth exporting. 'The English IT market tends to experiment a lot more than its counterpart on the Continent. The US is probably ahead in new hardware and software but not in terms of taking risks and adventure.
'One area that illustrates this is that of client-server. Forty-one per cent of British companies have plans to go over to this (away from mainframe systems), compared with 25 per cent in the US and 30 per cent in Europe.'
British contractors, he says, are admired overseas for being 'very technically minded and for having a strong work ethic'. In the US, they can also be cheaper to the company, but even if they earn lower rates than their American counterparts, says Mr Neal, they can still enjoy a pleasant standard of living.
'I often tell people that even if they're going on a lower rate, they're still within the top 5 per cent of all American earners.' They would usually earn between dollars 35 and dollars 40 ( pounds 21 to pounds 28) an hour, with some receiving dollars 50, giving a basic weekly wage of at least pounds 900.
Eurolink, a small player, has fewer than 100 employees but has an annual turnover of pounds 25 million and offices in New York, Los Angeles, San Francisco and Sydney. 'The majority want to go for the location, the standard of living, the weather, the educational opportunities, the wish to work for an American company, which has a different corporate culture,' says Mr Neal. But it is Australia that attracts the most emigrants, although the pay rates are lower than almost everywhere else.
Hestair Computer Group, based in Harrow, has offices in Amsterdam and Germany, covering France, Germany, Benelux and Scandinavia. It sends contractors to the US and has taken its first steps in Eastern Europe. Julian Nicholls, managing director, said that, increasingly, Europe was perceived as one market.
'Multinational global companies will have one or two system centres in Europe. If you want to do business with Company X in the UK, its main system development or processing may be in another country altogether. If you want to work long term, you must provide it with a service spanning more than one country.
'If you're in a complex skills area, the number of customers using those skills may not be a handful, but they are certainly not common.' Airlines worldwide use TPF, a complicated software system little used by anyone else. An agency that can call on contractors familiar with TPF has a particular strength to offer abroad.
Britain also has a longer history of contracting - in France, freelancing is hardly recognised, and there are few established agencies. 'In many other countries there hasn't been a big pool of contractors,' said Mr Nicholls. 'They have typically worked through software houses. We are now building a comprehensive database of German, French and Dutch nationals.'
Agencies that send contractors abroad usually have information packages to minimise the inevitable painful bits of going to an interesting foreign country and earning (hopefully) lots of money and having (hopefully) lots of interesting and enriching experiences. The packages cover visas, work permits, residency and accommodation and give basic guidance on unavoidable obligations such as tax.
Tax abroad - a dirty phrase in any contractor's book - is a jungle so tangled that many turn to international tax consultancies, which are obliged to tell them that many of the old loopholes for skipping tax have been closed.
Simon Weeden, a consultant to the tax consultancy TSW International, said that Britain retains the right to tax anyone who spends fewer than 183 days out of the country on a contract. Between 183 days and 365 days, primary taxation passes to the host country, with Britain still having a right to secondary tax if any is payable (the tax paid abroad is counted against this).
The most lucrative arrangement is for contractors to spend a whole year out of the country, not returning for more than 62 days. In this case, the host country has the right to tax income earned under a properly structured remuneration package.
Unearned income and dividends, however, often remain taxable here. Self-employed people have to stay out of the country for an entire tax year to qualify for exemption on these. Contractors with a limited company agree a contract with that company. It takes expert advice to maximise earnings.
'There is more and more anti-avoidance legislation coming out of Europe,' said Mr Weeden. The French have particularly draconian powers, imposing taxes of up to 56 per cent and arguing that as the single-person limited company is being managed and controlled in France, it should pay the same, considerable, contributions as French companies.
Germany, Holland and Switzerland have their own bespoke minefields. But, generally, higher rates are among the compensations, said Mr Weeden. TSW offers ex-pat packages for pounds 500 plus VAT to look after an individual's finances for a year. Set against earnings of pounds 1,500 a week in tax-free Saudi Arabia, this can look quite piffling.
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