I'm running a small and single-member LLC and trying to hire a few artists as independent contractors. However, some are foreigners living abroad. I started researching potential ramifications and, given my very small scale, everything I am reading points that it's a very bad idea.

• I would need to request documents for information they will not have (i.e. W2s asking for SSN/EIN)
• I might have to file special host country legal forms (which means having to get an attorney that specialized in said law)
• I might be hit with additional hostcountry taxes or penalties

This is really bumming me out since I found a great guy abroad, but being just a small startup could not afford all the extra legal costs in researching their local government jurisdiction/attorneys.

Just looking for any advice/other viewpoints/others' experience. Maybe I missed something and there is some better way to go about it?

(aside from "under the table" which I'd rather not do, or getting the guy to apply through a temp agency which would probably be just as much hassle).

And yes, I contacted my attorney but she has not been getting back to me for a while so I figured I'd do my own research in the meantime.

IANAL of course... but you should deal with contractors as businesses, not as people.

If you sign a contract with another business, saying that you will give them $$$ if they give you a particular service, then that's a standard business transaction. The employees of that business are not your employees.

When you transfer the $$$ to the other company, it's their responsibility to declare it as income and give the right amount of tax to their local government.

Make your invoices out to a business number and trading name, not a person. e.g. When I (as a contractor) send invoices to clients, I am Business #48854388494.

And actually, I'm the one sending the invoices. We make an agreement on what work needs to be done and how much it will cost. I do the work. I send an invoice, stating that they now owe money to business #48854388494. They pay me. I then fill out tax forms

The important thing is that I have that business number (sole proprietor, but could be any type), which lets other businesses sign agreements with me, without me being an employee.

Does your contractor have a sole proprietorship (or another kind of business)?

As in your link, the contract should not dictate how the contractor will go about their job. Don't mention how many hours you're paying for, don't dictate the equipment they must use, or who must perform the work -- give them independence to complete the task as they want. Do state that they are being paid a fixed amount of money for a pre-agreed result.

* Employees have regular, steady compensation, and are provided with tools and told how to work and when to work, and they definitely can't sub-contract.

* Contractors get paid for results, or sometimes for time/labour.

Yes, as with any legal issues, there's still risks. Anyone can sue you for anything. Even if you hire a local contractor, they could sue you and claim that they're actually an employee and not a contractor! And actually, in that case, the complaint would be heard in a local court, instead of a foreign one, so it's probably more likely to actually impact you

[edit]

Also, check out http://docontract.com/

If you sign a contract with another business, saying that you will give them $$$ if they give you a particular service, then that's a standard business transaction. The employees of that business are not your employees.

Correct. You're paying B2B, so you don't need no steenkeeng W2s or SSNs.

Agreeing with Top and Hodg here.

Also, as you type your contract (or your lawyer/attorney does), be sure to mention legal grounds for your contract (local if possible).

That way, you always know which jurisdiction will apply :)

Thanks for the response but are you guys sure about this? My accountant already informed me i must issue 1099s to all my contractors, which i cant really do if they dont have an SSN or EIN. Then there is also the thing that a foreign government may not have the same concept of independent contractors as a US one, and demand i treat them as regular employees paying for my share of tax. No?

are you guys sure about this?

I'm not in the US, so nope Trust your accountants / lawyers.
A quick google says that yes, you have to issue 1099s to your contractors...
But another quick google says that foreign service providers are exempt, but that you might have to withhold tax anyway, and use a 1042-S (Foreign Persons' U.S. Source Income Subject to Withholding).

What do you do when using non-contractor foreign services? e.g. what if you pay a German data-center to host your game servers? Do you have to fill out tax forms explaining those payments?? Here, I only have to report my income, not any payments I make to others.
What if instead of hiring a person who is a contractor, you were making a payment to a giant outsourcing corporation who has their own sub-contractors? Does that affect the way you'd report the transaction? Damn the IRS...

Then there is also the thing that a foreign government may not have the same concept of independent contractors as a US one, and demand i treat them as regular employees paying for my share of tax. No?

That's a risk, but it's a much bigger risk for the other party (your contractor), as they're the one living under that government, so they're the one most likely to be affected by such a decision.
Again, you can minimise this risk by treating it as a transaction between your business and theirs -- use their business number and trading name in contracts, not their actual name.

Also, for you to employ a foreigner, they'd have to have a US work visa, which is hard to get, making it pretty unlikely that they'd be eligible to be your employee.

The most common form when dealing with payments to foreigners is the W8-BEN, which is meant for non-resident, non-US-citizen inviduals for services performed abroad; and hence this form has the appropiate fields to fill in foreign data (e.g. doesn't expect the person to have an SSN number).

You need your contractor to sign the W8-BEN and return it to you so you have proof that he is non-resident, non-US-citizen and that you did right in withholding / not withholding tax when you paid him (you may still have to fill other forms to inform the IRS).

I might have to file special host country legal forms (which means having to get an attorney that specialized in said law)

The foreign country doesn't have jurisdiction over you, and most laws reflect this. Having that said there are crazy countries with crazy laws that pretend otherwise (that's why I said "most"); they could only apply them if you travel to that Country, or try to claim that you have a foreign debt and cause you a few headaches in your own country (which should be easy to challenge in Court since they don't really have jurisdiction there; but it will give you headaches)

I might be hit with additional hostcountry taxes or penalties

The "other guy" is responsible for that. And yes, surprise costs can appear.
Even the big companies just put a clause that states that the independent contractor is responsible for declaring all of their tax work in his local country and that he is not doing anything considered illegal by his local laws by doing business with you.

I would treat it as a high business risk, good that you are contacting your business lawyer.

I've worked with various international groups before and dislike it. Details matter, but cultural barriers, communications difficulties, time zone frustrations, and other concerns tend to be secondary costs you might not consider. I cannot recall how any bad drafts needed rework, how many times people said they would fire off some emails and hear back in the morning which turns into a week of back-and-forth, how many times the work ethic was different and caused problems.

Once we had a QA house working on test passes and certification, it was located in Chile so in a good time zone and several people at the company were fluent in spanish... but our own two full-time QA reported nearly quadruple the bugs the company of supposedly 30 full time testers reported, and the locally reported bugs were also much higher quality.

Personally I would prefer local for many reasons. It is easier and often cheaper to hire from local colleges and universities, or even pick up some high school students. If their portfolio of work looks good generally the artwork they produce is presentable at a reasonable cost, they're happy because they can report that they worked on a game. Best case is you find someone with great skills who commits to work with you long term.

I'm definitely with frob on this.
At work they hired a remote development team in Bulgaria.

They delivered over budget, over schedule, and delivered a buggy solution with no referential integrity, no data validation and half the features missing which we're still living with now as massive technical debt.

On the plus side I was hired mainly to fix and maintain it so it's not all a loss, for me anyway.

Koobazaur, on 28 Mar 2015 - 11:05 PM, said:
are you guys sure about this?

I'm not in the US, so nope laugh.png Trust your accountants / lawyers.
A quick google says that yes, you have to issue 1099s to your contractors...
But another quick google says that foreign service providers are exempt, but that you might have to withhold tax anyway, and use a 1042-S (Foreign Persons' U.S. Source Income Subject to Withholding).

Yes. We aren't lawyers or accountants here. Sounds like you've got a cautious one, which is good. This is an example of a drawback to the hive mind - we (including myself in this case) may be quick with free answers, but if you really want the best advice, go to your paid professional.