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by byoung2 4607 days ago
As far as I can tell, the IRS (US tax collecting agency) requires a tax withholding on anything a US company pays an employee/contractor abroad

That can't be true for contractors, or sites like Elance and oDesk would not be able to operate as easily as they do. A contractor is responsible for paying his own taxes, whether that is to the IRS in the US, or the tax authority in his own country.
1 comments
pmjordan 4607 days ago
You'd think so. Read up on W-8BEN if you don't believe me. I've been on the receiving end of this for doing a tech review of a book for a major US tech publisher. The amount of paperwork required on my end to satisfy the IRS meant I just gave up and effectively told the publisher to keep the money. (I did it for fun/experience anyway - tech reviewing books isn't a way to make a living.)
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byoung2 4607 days ago
You'd think so. Read up on W-8BEN if you don't believe me

You proved my point:

Foreign persons are subject to U.S. income includes: tax at a 30% rate on income they receive from U.S.

http://www.irs.gov/pub/irs-pdf/iw8ben.pdf

The burden is on the foreign person, not the US company. The US company can pay you as a contractor and not withhold any tax (just as they could with a US citizen 1099 contractor). The foreign contractor would have to file the W-8BEN (or not, since the US likely can't prosecute offenders in their home country).

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pmjordan 4607 days ago
The burden is indeed on the foreign person to fill out the W8-BEN etc. and pay any taxes due. However, as the withholding agent[1], the US company is liable for any unpaid taxes. So in practice, until the contractor proves to the company that they've sorted the situation, the company will need to withhold that portion of the payment as they may have to pay it to the IRS.

In any case, the whole thing is a pretty arduous procedure in international comparison.

[1] http://www.irs.gov/publications/p515/ar02.html#en_US_2013_pu...

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phonon 4607 days ago
Yes, but most industrialized countries are parties to a tax treaty, right? So Table 2 would apply, I think. http://www.irs.gov/publications/p515/ar02.html#en_US_2013_pu...
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pmjordan 4607 days ago
Possibly. I couldn't get any conclusive answers when researching this originally. It's complicated enough that you'll almost certainly need to find an expert in the subject to help you or do the filings for you. (in my case it wasn't worth the few hundred dollars to follow it up)
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joelreymont 4606 days ago
Just mark the "tax treaty" checkbox and be done. Been doing it for over 10 years, including with my offshore company.

The offshore bit was pointed out to me recently and so I had to set up a proper European Union company in a hurry. Now all is well.

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