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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11586
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am Srinath VP at Aptude - We are an IT services company

Customer Question

Hello - I am Srinath VP at Aptude - We are an IT services company - We are primarily based out of US. We have to pay one consultant who is a resident of Canada and working from Canada. He likes to get paid through payroll and wondering on how we can do without we having presence in Canada?
Submitted: 1 year ago.
Category: Tax
Expert:  Tax.appeal.168 replied 1 year ago.
Welcome. Thank you for choosing us to assist you. My name is ***** ***** my goal is to help make your life, a little... less taxing.
You will need to set up payroll in Canada. The easiest way to do this is to partner with a Professional Employment Organization (PEO). SEE BELOW:
A very popular partnership in the U.S. is utilizing a Professional Employment Organization (PEO) to act as the employer in all aspects of payroll, human resources and government compliance. The PEO specializes in ensuring the employees are paid correctly, all payroll administration including government remittances are complete and on time. They are experts when it comes to employment standards as well and ensure that proper policies and procedures are in place to satisfy all government agencies.
This employer of record type of partnership has now moved across the border into Canada with payroll and HR support companies like our partners at The Payroll Edge. A Canadian employer of record company can help U.S. companies expand their sales force without the risk and complication of registering a business presence here. The sales person is still controlled by the U.S. firm in regards ***** ***** and expectations but because the Canadian payroll provider has taken on the employee as one of their own, they ensure that all legal and government compliance is in place and continues for as long as the worker is in their employ.
With the right Canadian payroll service like The Payroll Edge, a U.S. company cannot only satisfy the needs of their Canadian clients with face to face interaction, but expand their book of business without much complication.
REFERENCE SOURCE:
http://tinyurl.com/pghekhh
Let me know if I can be of further assistance to you regarding this matter.
Expert:  Lane replied 1 year ago.
Hi Srinath,
I am a different expert with a different answer.
Nonresident employees WHO PROVIDE SERVICES from abroad are NOT subject to U.S. withholding.
Why? Because the source of income from services is where the services are performed (not where payment is made).
Further, Non-resident aliens are NOT subject to tax on foreign-source income.
What you SHOULD do is request that the employee document this/her foreign status on Form W-8BEN.
http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
And for this purpose, there's no Taxpayer Identification Number required.
Another best practice is to be sure to delineate the location of the services in their contracts.
And finally Comp. to nonresident employees working abroad is not subject to FUTA.
You do not need to go to the expense of farming this out.
Your constraint will likely be simply NOT withholding (a possible payroll system constraint).
But again, get the W-8, document in every way possible that this person does not provide services from within the US.
Your paying him does NOT create a presence in Canada ... UNLESS he is selling there, you provide an office there, etc.
If this person is comply providing a service to you and not doing something himself that would created presence (and given your business category, not likely) you would have no presence.
let me know if you have questions ...
Lane
Expert:  Tax.appeal.168 replied 1 year ago.
I stand by my original answer.
Expert:  Lane replied 1 year ago.
Perhaps a third party reference would help here:
(This is from a tax attorney, well schooled and experienced US tax, as it relates to foreign persons (the issue here), AND international tax ... I have no association with this firm and am not recommending them, but completely concur with their opinion:
http://intltax.typepad.com/intltax_blog/2012/10/form-1099-for-payments-to-foreign-contractors-for-services.html
Let me know if you have questions ...
Lane