Does a US employer need to pay any taxes for a non-US freelancer hired online?

We own an International Web Development company and get hired from all over the globe. We need to know if one of our US clients, needs to pay taxes for hiring us.

They paid us $750.00USD via PayPal. How are taxes handled in this case for him?

Outsourcing Payments Legal Tax

asked Jan 13 '13 at 15:08

Juapo2 Services
13 points

Get up to $750K in working capital to finance your business: Clarify Capital Business Loans

Sales tax? Payroll tax? Your question isn't quite clear. – Tim Post 12 years ago

2 Answers

My accountant told me that payments to foreign persons or companies are subject to 30% federal withholding unless:

Form W8-BEN is filed to claim a reduced rate or exemption due to a tax treaty with the foreign country

Form W8-ECI is filled out to connect the income to a U.S. entity

I obviously can't give accounting advice, but this is the process I have been following. Also, in my research it appears some marketplace websites such as oDesk may do away with the need for a W8-BEN since you are paying oDesk instead of paying the contractor directly.

answered Jan 16 '13 at 09:05

Rob Walling
179 points

Thank you! The W8BEN was the one I needed. – Juapo2 Services 12 years ago

If I'm understanding the situation correctly.

Assuming you are working as an independent contractor then the US company will just pay your invoice. Your US client would not pay US taxes or money on that $750 they paid you. Depending on your country you will have to pay taxes on that 750 received and maybe should be charging a service/sales tax on some items. But, you US client should just be paying the $750.

answered Jan 14 '13 at 02:57

Ryan Doom
5,472 points

That's not entirely true. If the payment is directly to a foreign entity, then taxes should be withheld (See 26 USC Sec 1441). When paying through Paypal - Paypal deals with the withholdings (see 26 USC Sec 6050W). – Littleadv 12 years ago