Have a Tax Question? Ask a Tax Expert
Where is the business incorporated?
What is its product and service?
Where are products and services delivered to? (where are the people who are receiving the products and services located?)
Based on your infomration, i can only say this:
If she is marketing to person in the United States, and persons in the United states are buying product, then the money is earned in the united states. The term used in taxation and the tax treaties is called "exploiting the U.S. Market place".
But it becomes more complicated.
I really need to know:
1. Is your sole proprietorship currently registered with any U.S. state, as an LLC, or S corp, or as merely doing business as? does it have an Employer ID number.
2. What is the service or product. This is important, because even though it is an internet based business, it may be encurring an obligation to collect and pay sales tax in the U.S. and VAT taxes in other countries.
I just had a really big answer and it disappeared.
OK. Here is a more succinct answer.
1. If you remain DBA and retian the EIN number wihtout discontinuing the business in the U.S., then it is consdered u nder these terms to have a physical presence and must report earning to the IRS (and state). So to avoid this, you need to discontinue the business. This means re-establishing a busines in Thailand under Thai rules.
2. Once established as a Thai business under thai rules, she now becomes a foreign business operating in the U.S. She has to do it as a business. If she does it as an individual, she may run into immigration issues.
She will be a foreign owned business, single proprietorship, prividing personal services either business to business or business to consumer.
So, if she is palcing U.S. Citizens in U.S. jobs, then a majority of the work is most likley going to be determined to be U.S. based, and she will have established a physical presence, even though she does not have equipment or facility in the U.S.
Your situation is very difficult to judge at this stage, because we do not have a volumen and income analysis to determine the apportioned time spent doing business in the U.S.
Further, even though she may not have a tax liablity to the IRS, she may still have a tax liability to the state in which she provides the personal services. This is because the states do not follow the U.S. tax treaties. For example: if she operates in NY, NJ or Nebraska, for sure, she will owe some taxes to those states based on the number of business to business placements of U.S. Citizens into those job. However, business to consumer may be a harder stretch to prove you are exploiting the market place.
NOTE: business to business here means that a business has a need for the an employee, and you place the employee, and the business pays for the service. If the employee pays for the service, then it is business to consumer.
IN any case, unless you are taking advantage of tax treaty provisions, she will encur a tax liablity.
The complexity of the situation can be appreciated by viewing this information paper. I am providing it to you because, regardless of whether she is operating as a corporation or single proprietorship, the rules are the same. All that changes is the form numbers:
for an unincorporated business, she needs to be aware of these forms:
YOu will also need to see the tax treaty. Check the protions concerning delivery of personal services.
Please note: that establishing a physical presence does not have to include a physical location. It can be established because of the length of time of doign business and receiving incomed from us businesses and customers.
IN your situation, you will be placing U.S. citizens who have a physical presence in the U.S.with U.S. businesses in the U.S., which means the IRS may determine that this constitutes a physical presence; or based on eploitation of the job labor market place.
this is why you need to complete the forms, in order to get the determination and approval of excemption.