Hello JA Customer,
If the services performed by the company in India are all performed in that country, and no services are physically provided here in the United States, then you are not required to withhold any taxes from these payments.
Publication 519 discusses the taxes owed by nonresident aliens. Chapter 2 of that publication discusses the sources of income, and states that a nonresident alien is subject to U.S. income tax only on U.S. source income. The publication also provides a table which identifies US source income. That table specifically provides that the source of income for wages, personal services and other confirmation is determined by where the services are performed. So if the services are performed in India, then this is not considered US source income and is not subject to US withholding.
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Thank you JA Customer
Thank you for your help!
So as long as everything he has done is in India, we don't withhold any taxes from him at all? Do we send him any kind of forms like 1099s? One reason I'm a bit confused with this is because of the stipulations on this site (as an example)
In that case, what would make royalty payments different from paying someone for services rendered?
I guess I misunderstood U.S. source income as income coming from our company (U.S. based) rather that money earned as a result of doing business in this country.
Hello again JA Customer,
If all of the work is performed in India, then no withholding is required and there are no tax forms to be sent.
Royalty payments do not follow the same rules as wages or other compensation paid for personal services. Publication 519 states that the source of income for royalty payments is considered to be the location of where the property is used.
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