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What are the tax implications of a foreign entity?

I'm thinking about utilizing a foreign entity to do some design work for us. Has anyone done this before directly? (not a US company like Elance which issues 1099s). If so, what are the tax implications here? They cannot fill out w-9s or anything like that.

6 Replies

Gopi Mattel
0
1
Gopi Mattel Advisor
Director, Chennai Area at The Founder Institute
We use foreign entities regularly. Mostly it is for software development services and marketing services. There is no W9 requirement and there is no 1099 requirement.
Within your accounting system, you still have to categorize the expense correctly for tax purposes.

Benjamin Olding
2
0
Benjamin Olding Advisor
Co-founder, Board Member at Jana
Ditto to Gopi's response; use them all the time. If you want to be super (i.e. unnecessarily) careful, ask them to complete a W-8BEN for you (just google the form to find pdf). You don't file a W-8BEN. You just hold on to it in the very unlikely scenario you're audited by the IRS and they have evidence the foreign entity was not actually foreign. As long as it is though, you are in the clear (with or without the W-8BEN).
Matthew Campbell
0
0
Matthew Campbell Entrepreneur • Advisor
General Purpose GO Hacker at DigitalOcean
Make sure their country has a tax treaty with the IRS, most countries have this. Only scam countries like St Kitts don't do this (I've ran into this) . If their country doesn't have a tax treaty with the US you may be liable for 30% witholding of their taxes. At minimal you should make them do a W8-BEN. Also non-us entities can get us tax ids (TIN), they suggest this, but not sure how much this actually helps.
Bhakti Soneji
0
0
Bhakti Soneji Advisor
Principal at Bhakti Soneji Tax Services
Agree with everyone above. In addition, countries like India may charge an additional 14% service tax on the invoice which may add to total cost...
Karl Schulmeisters
0
1
Karl Schulmeisters Entrepreneur
CTO ClearRoadmap
you contract with it as you would with an other Contract service provider. You don't have to issue a 1099 or W9 for services contracted from Amazon.... ibid an overseas company. However you DO need to look at the laws on business vs. individual contracting in the country you are contracting with.
Brian Chong, CPA
0
0
CPA, EA, MST
The rule is that if a US company pays a foreign company and the work is performed outside the US, then the US company does not need to withhold taxes.
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