Does a European country take out tax from paycheck for a contract employee who is a US citizen?
If a US citizen works in a European country whose currency is Euro for a European company on a contract job (which pays by the hour), does the company take out tax deductions in advance from the paycheck?
This question could best be answered by US consultant who actually worked in Europe on contract job.
The consultant is temporary contract employee (working for European technology company) who sends the client (which is also European recruiting agency) invoice lets say once every week like hours worked 45 hours amount payable = 4500 Euros ( @100 Euros per hour) and the consultant is physically working in Europe but since he is US citizen so all his prior taxes for working in USA was paid to IRS (US tax authority).
So the question is would I get a check for exact amount of 4500 Euros or it would be less than that because substantial advance taxes were taken out of it by the client and I may end up with a check for something like 2934 Euros and not 4500 Euros.
There are two scenarios:
(1) In the invoice the employee sends the check is payable to employee himself. In USA this is called W-2
(2) In the invoice the employee sends the checks is payable to a company owned by the employee which in USA is called corp to corp.
I would like to know what is the answer in both scenarios?
And what is the answer in case the consultant works directly for the European company i.e. the middleman the recruiting agency is out. This part of the answer is not important because as for as I know it is very rare in Europe, a temporary employee works directly for the company.
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Short answer - YES
Long answer - as a contractor - you'll have to handle your taxes on your own, you'll get charged VAT (wherever its charged) on your invoice, but the income tax is your personal responsibility.
Now, depending on the country (and the relevant tax treaty with the US and the local tax laws) you can, or cannot, deduct your taxes from the US IRS tax liability. You will also have to report to the local tax authority about your earnings, and pay (depending on the local laws, if you're considered resident, etc).
Bottom line - get a local accountant and a CPA to handle the IRS and state taxes in the US, to minimize the damage. The rules change from country to country, and different countries in the Euro zone may have different rules.
In your scenario, as a contractor in Europe you usually invoice the recruitment agency under your own company or an umbrella company (that handles the taxation issues for you). As its temporary you should Google for an umbrella company agency that will charge per week for rending such services, they'd be better placed to advise you on your situation and minimize taxation.
Most recruitment agencies wont let you just bill in your name for audit reasons, IR35 (if UK) etc., and because you'll be expected (in most) to have liability insurance (esp in software dev etc..)
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