I realize that this question is more suitable for a lawyer, but perhaps someone has already been in a similar situation. I'm in the process of setting up a software company (registering as Delaware LLC), and I have a question regarding paying for contract work. What are the general implications involved with hiring a contractor to do work for a US corporation when the contractor is not a US citizen? The contractor in question would NOT have to work in the USA, they would remain at their current residence. As a basic scenario, let's say my firm payes for a UK resident to do website development for the company. Does it make things easier if the contractor in questions were a 'business' as opposed to an individual? As I stated earlier, I realize I need to acquire some information from experts, but I always like to gain as much information as possible prior to speaking to said experts. Thanks for any insight.

You're right in saying you should see a lawyer.
This is the only advice you should take if you want to do things professionally. While someone may have experienced the same thing, laws may have changed since then, or you maybe in a slightly different situation.

Take your business seriously, see a lawyer.

A word of warning: if this concerns international work, most lawyers haven't got a clue. You're going to be paying for incorrect information in most cases.

The case you mentioned can get very complicated, I don't even really want to get in to it since it'll take way too long, but to give you a head start:

- Depending on the way you incorporated, LLC or .Inc, there are different withholding requirements. (You must withold taxes on payment done overseas).

- Witholding varies from country to country, i.e. Japan can be 10 or 20 percent, etc. Some European countries are 10 percent, others may be 0.

- You may need to submit the company/person you are paying overseas with a seperate declaration form in the US, not just declared as an expense. I.e. the IRS has to be told about who this person/company overseas is with a seperate form, due on a different date than your companies tax return, not just 'xxx amount went overseas to yyy'. You also have the duty to mail them their tax declaration overseas. You'll need their TaxID or equivalent and submit it to the IRS.

- There are limits to what you can pay overseas and how you declare it. Basically there to prevent you from storing money overseas if tax there is lower.

- Different tax rates may apply to what you have paid overseas and to the amount you witheld.


In all, its a reasonably complex issue to undertake with 2 different tax return forms to file apart from your company's. I have no experience with an LLC since it's not a completely proper corporation though; things may be a little easier although since it isn't a corporation you may not have a lot of the deductions or different tax brackets.

HTH

Mark

Thanks for providing some details Mark. This is the type of information I'm looking for, it will give me some things to research before speaking with a legal adviser. Considering your other comments, does anyone know of a lawyer who could help with the situation I described? I am willing to spend the money required for proper legal advice, but I would very much like to avoid wasting money.

Thanks again.

Quote: Original post by Mark Tanner
- Witholding varies from country to country, i.e. Japan can be 10 or 20 percent, etc. Some European countries are 10 percent, others may be 0.

- You may need to submit the company/person you are paying overseas with a seperate declaration form in the US, not just declared as an expense. I.e. the IRS has to be told about who this person/company overseas is with a seperate form, due on a different date than your companies tax return, not just 'xxx amount went overseas to yyy'. You also have the duty to mail them their tax declaration overseas. You'll need their TaxID or equivalent and submit it to the IRS.

- There are limits to what you can pay overseas and how you declare it. Basically there to prevent you from storing money overseas if tax there is lower.

- Different tax rates may apply to what you have paid overseas and to the amount you witheld.

Most of the things you enumerated applyes for HIRING someone overseas. If it's contract work, you don't have to pay their taxes and such. It's their responsibility.

What? Who is talking about paying their taxes? Witholding is not the same as paying taxes.

Mark

Hello,

Im really interested in this topic because last year I contracted out over $1500 worth of development to overseas contractors, just listed them as business expenditures on my tax forms. I didnt refer to no lawyer, but did talk it over with a guy from the IRS. He seemed to imply listing it as a standard business expenditure is fine if it is on a per-project basis. But then again, I live in ohio, and the people around here dont know much in the way of legal mumbo-jumbo.

Richard

Witholding is the same thing your day job does to your check. They take some money out, and go ahead and give it to the government as taxes. Later, when it comes time to pay your taxes, it's already done!

Quote: Original post by Mark Tanner
What? Who is talking about paying their taxes? Witholding is not the same as paying taxes.

Mark

Like Deyja said, witholding is taking part of your money and giving it to the state. For a contractor, you can't do that. You have to pay him/her/it all the money, and it is their responsibility to declare it and such.

As happens in my case as well. (I am a freelance artist)
I got the full money and I pay my taxes (it is my responsibility).
I worked for many US firms (smaller ones), once for the US Army, but
never met anything of the complications you mentioned. :-)

But it is only my experience.