Tax question about paying a colleague in another country
Inițiatorul discuției: Kristopher Brame

Kristopher Brame  Identity Verified
Statele Unite
Local time: 23:36
Membru (2018)
din germană în engleză
+ ...
Apr 2

Hello,

I'm an American citizen living in the US. Let's say I need to outsource a French transcription to a colleague living somewhere outside the US. I've spoken to a tax professional who said I would have to withhold 30% tax in this situation, but she said her knowledge was limited on this subject because her clients always subcontract to people within the US. I've looked into it a bit more, and it seems that most countries have a tax treaty with the US, but I was unclear as to whe
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Hello,

I'm an American citizen living in the US. Let's say I need to outsource a French transcription to a colleague living somewhere outside the US. I've spoken to a tax professional who said I would have to withhold 30% tax in this situation, but she said her knowledge was limited on this subject because her clients always subcontract to people within the US. I've looked into it a bit more, and it seems that most countries have a tax treaty with the US, but I was unclear as to whether these treaties simply reduce the tax rate or exempt it entirely. This is all massively confusing.

Does anyone have any experience with this?
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Sadek_A  Identity Verified
Local time: 23:36
din engleză în arabă
+ ...
Try this one Apr 2

“As a general rule, wages earned by nonresident aliens for services performed outside of the United States for any employer are foreign source income and therefore are not subject to reporting and withholding of U.S. federal income tax.”
https://www.linkedin.com/pulse/us-companies-can-legally-hire-foreigners-living-other-rich-mba/... See more
“As a general rule, wages earned by nonresident aliens for services performed outside of the United States for any employer are foreign source income and therefore are not subject to reporting and withholding of U.S. federal income tax.”
https://www.linkedin.com/pulse/us-companies-can-legally-hire-foreigners-living-other-rich-mba/

And, not to forget that performing the service for a US-based business or individual without enjoying any local benefits is in itself a contribution enough to the US or any other country involved.
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Samuel Murray  Identity Verified
Ţările de Jos
Local time: 05:36
Membru (2006)
din engleză în afrikaans
+ ...
@Kristopher Apr 2

Kristopher Brame wrote:
I've spoken to a tax professional who said I [may] have to withhold 30% tax in this situation...


I'm not a US citizen or resident and I work outside of the US, but I do work for many US clients. Not a single one of them have ever withheld any percentage of the agreed upon amount, and certainly not while citing withholding tax as a reason. US clients sometimes deduct transaction fees from the amount that they transfer, but those aren't taxes (and it's typically something like $10, regardless of the full amount paid).

It is possible (and I can't help answer that) that the reason why none of my US clients have ever deducted taxes is because they are registered companies (I mean, perhaps there are different rules for companies vs the public).

I'm sure that whenever you buy anything from an overseas vendor, you don't withhold 30%. If you tried that, no foreign vendor will deliver anything to you, ever, because your payment for the thing you're buying will always be 30% short. But who knows... perhaps the regulations depend on whether you're buying a product or a service...?

It seems that most countries have a tax treaty with the US, but I was unclear as to whether these treaties simply reduce the tax rate or exempt it entirely.


It is as you suspect: a "tax treaty" simply means that **something** was agreed. Different countries would have agreed different things with the US.


[Edited at 2021-04-02 14:19 GMT]


 

Peter Shortall  Identity Verified
Regatul Unit
Utilizator
din română în engleză
+ ...
Exemption form Apr 2

It's several years now since I last did this, but I used to work regularly for a US-based company that asked me to fill in a form (I think it was W-8 or something like that) to confirm that I was not subject to tax in the US, and they didn't withhold any tax at all.

Angie Garbarino
 

Samuel Murray  Identity Verified
Ţările de Jos
Local time: 05:36
Membru (2006)
din engleză în afrikaans
+ ...
Re: Peter Apr 2

Peter Shortall wrote:
I used to work regularly for a US-based company that asked me to fill in a form (I think it was W-8 or something like that) to confirm that I was not subject to tax in the US...


Yes, some of my clients also require[d] the W8 form (also known as "W8-BEN" or "W-8BEN"). Clients who ask for this form usually ask for it only once.
It is a very simple form that you can download from the IRS web site, and it's simple to fill in (some versions of this form come with brief instructions). The form is not customer-specific -- so a foreign translator can fill it in once, sign it, scan it, and then send the file to all of his US clients. The translator does not submit the form directly to the IRS -- the translator submits it to the client, and the client then gives it to his accountant, who in turn does something with it.


Jorge Payan
 

Kristopher Brame  Identity Verified
Statele Unite
Local time: 23:36
Membru (2018)
din germană în engleză
+ ...
INIŢIATORUL SUBIECTULUI
Thank you Apr 2

Thank you both for your input. Hopefully, this will lead me to the answers I'm looking for. Both the UK and the Netherlands have a tax treaty with the US. It appears you were both fully exempt.

 

The Misha
Local time: 23:36
din rusă în engleză
+ ...
This is not even your problem - it's your party's Apr 2

There's nothing in IRS regulations that would prevent you from paying any amount to any party, foreign or domestic, for the services they provide you with in the regular course of your business (you do know you ARE a business, don't you?) and then claiming a legitimate cost of labor deduction for it on your tax return - as long as your payee remains a contractor rather than an employee. What the payee does with that money and how/whether he or she accounts for it or pays tax on, and to what juri... See more
There's nothing in IRS regulations that would prevent you from paying any amount to any party, foreign or domestic, for the services they provide you with in the regular course of your business (you do know you ARE a business, don't you?) and then claiming a legitimate cost of labor deduction for it on your tax return - as long as your payee remains a contractor rather than an employee. What the payee does with that money and how/whether he or she accounts for it or pays tax on, and to what jurisdiction, is entirely their problem. It has nothing to do with you.

The 30% withholding your tax "professional" mentioned may apply to payments of certain investment income to foreign parties. It has nothing to do with payments for services, i.e. labor.
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Jessica Noyes
 

John Fossey  Identity Verified
Canada
Local time: 23:36
Membru (2008)
din franceză în engleză
+ ...
W-8 BEN Apr 2

I agree with Samuel, the W-8 BEN form is the way to go. I have many clients in the US and none withhold tax (I would consider them a bad payer if they did). Many require me to send in a W 8-BEN form, which they keep on file in case the IRS wants proof.

Kristopher Brame
 

texjax DDS PhD  Identity Verified
Local time: 23:36
Membru (2006)
din engleză în italiană
+ ...
Form W-8 BEN is fine. However... Apr 2

...make sure that your colleague is not a US citizen living abroad. In that case things are a little different.

Kind regards,


Kristopher Brame
Kevin Fulton
Jorge Payan
Fatine Echenique
 


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Tax question about paying a colleague in another country


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