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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
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Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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If a business in the United States contracts with a independent

Resolved Question:

If a business in the United States contracts with a independent contractor offshore, such as in India, and pays that contractor for defined project work (either via wire transfer, bank to bank or PayPal), does the US-based business have a reporting requirement for the dollars paid, like a 1099 wage earner would in the United States.

Or is it the obligation of the offshore independent contractor to report their income and earnings in the jurisdiction where they live?
Submitted: 5 years ago.
Category: Tax
Expert:  Arthur Rubin replied 5 years ago.

Arthur Rubin :

In the absence of a treaty, and a W-8BEN form indicating the country and treaty benefits, a US company is required to withhold 30% of any payments to an independent contractor who is not a US entity (citizen or resident), regardless of where the services are performed.

Arthur Rubin :

The withholding is reported on form 1042-S, although I don't recall whether that's analogous to the 1099 or the 1096 transmittal form.

Arthur Rubin :

The contractor is undoubtably responsible to pay takes where they live and where the work is done; in many countries, the 30% withholding may be used for that country's foreign tax credit, so it can be partially credited against that country's taxes.

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