International Contractors

Not only it is perfectly legal to hire contractors abroad, with high labor costs in the United States, foreign contractors and employees can provide significant savings to the company. The payments made to them are fully tax deductible and there are very minimal reporting requirements for the company in the USA. It is important to understand that foreign contractors and employees are subject to rules and regulations in their local jurisdictions. For example, if a business hires an employee in Canada, it may create reporting requirements in Canada. From that perspective international contractors are a much more convenient option since, typically, the employer is not responsible for reporting in their country of residence. When hiring an international contractor a form W8-Ben must be completed and signed by the contractor or form W8-Ben-E if the contractor is a legal entity. Sole proprietorships are considered individuals and fill out form W8-Ben. The from does not need to be sent to IRS but must be kept for company's records. The forms provides all essential information about the contractor and certifies that the employer does not have to make a 30% withholding from the contractor's pay. Since most international contractors work in their country of residence, their income is not subject to US taxation or withholdings even if it's paid directly by a US company. Foreign contractors are responsible for figuring out and paying tax on their earnings in their country of residence. To satisfy IRS' record keeping requirements contractors must send invoices specifying full name of the contractor, name of the company, billing period and amount billed. The amounts billed must be reasonable and consistent with rates contractor typically charges for his or her services.