Have you ever hired a contractor on Craigslist or Elance? Perhaps you hired a copywriter or programmer...
from a foreign country? Hiring a foreigner poses many inherent risks, and a couple of probably never thought of...
...
like TAXES! As if hiring a foreign firm wasn't tricky enough, the tax implications are also a little bit more difficult.
For example, did you know that in certain circumstances you MUST withhold taxes.
Yup, you heard it right.
In certain cases when dealing with a foreign firm, you MUST withhold taxes.
And what cases might that be? When the firm you are dealing with hasn't submitted Form W-8BEN, Form W-8ECI, or Form W-8EXP you may have to withhold taxes.
And let me tell you something..
..
..
they often don't like having a portion of their fee being withheld for tax purposes.
In fact, they might be downright mad! So what do you do? BEFORE hiring a firm, ask them if they are comfortable submitting Form W-8BEN, Form W-8ECI, or Form W-8EXP to you.
These forms are available online at irs.
gov.
There are 3 different forms that are used in 3 different situations.
If the firm isn't OK submitting, then strongly consider not using them.
That being said, if they don't want to submit that form, you may have to withhold up to 30% of the fee and submit it to Treasury Department.
Why is that?Because the income was earned the US.
US law says, "If you make money here, you pay money here" More importantly, if they say they are okay it (submitting form), make sure you receive the proper form BEFORE they start doing work on your project.
It is important to ask your accountant which form you need to have signed.
So bottom line: when dealing with foreign firms, make sure they are willing to send you Form W-8BEN, Form W-8ECI, or Form W-8EXP PRIOR to starting on your work.