Tax for US company hiring offshore consultant

What are the Tax implications for US company hiring offshore software consultants?
How different is it from hiring a consultant from US in tax filings?
Are taxes higher for a US Company to hire an offshore consultant?

Consulting Tax Offshore

asked Sep 13 '12 at 10:14

All Spark
11 points

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2 Answers

What are the Tax implication for US company hiring offshore software
consultants

The main implication is the withholding of taxes from the payments. You must withhold and remit to the IRS 30% of the payments sent to the non-resident contractor.

How different is it from hiring a consultant from US in tax files vice

If you're asking about the difference between the resident and non-resident contractors - then that's the difference: for non-residents you're required to withhold, for residents you're not required to withhold (unless there's a specific withholding requirement for that particular person).

Is taxes hire for US Company to hire offshore consultant

Higher, you mean? No, there's no tax on hiring consultants (as contractors, that is), whether on-shore or off-shore. The withholding is from the money you pay to your consultant, its the consultant's tax, not yours.

answered Sep 13 '12 at 10:18

Littleadv
5,090 points

Thanks for the fast response. Is this refundable tax from IRS? In another words is this something that could be filled for a return at the end of the year by the consultant? – All Spark 12 years ago
@AllSpark the contractor will have to file his own tax return using form 1040NR, and report the withheld amount as taxes paid. If the withheld amount exceeds the actual taxes due (which is likely), the contractor will get the refund from the IRS. – Littleadv 12 years ago
@littleadv *You must withhold and remit to the IRS 30% of the payments sent to the non-resident contractor.* how did you arrive at such exact number? – Karlson 12 years ago
By the manner of approximation. I don't remember the exact number, I think its 28% but I'm not sure. You can check on the IRS site. – Littleadv 12 years ago
I don't think this answer is right. I have worked for several different US foreign companies from my base in Europe. Tax was never withheld: whether I contracted as an individual or as a non-US company. I only ever had to file 1040NR when I moved to the US for 6 months as an employee there. Consultant generally pays taxes where he / his company resides. Get pro advice. – Paperjam 12 years ago
@paperjam the answer is right. In some cases treaties supersede the law, in others people ignore it. – Littleadv 12 years ago
OK, in my case a treaty applied so perhaps that explains my experience – Paperjam 12 years ago

Agreed the answer is completely incompetent.

You don't withhold any taxes from the pay to your offshore consultants because they are not us citizens,they are not on us soil thus the income is NOT considered us sourced.

http://www.irs.gov/pub/irs-pdf/p515.pdf

answered Nov 15 '13 at 16:01

User29678
1 point