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Im in the US and Ive contracted with an Australian company

I'm in the US and...
I'm in the US and I've contracted with an Australian company to develop software. They have a programmer working in my office. Their monthly invoices are from Australia and I pay by wire transfer to their bank account in Australia. Is there anything different I should be reporting to the IRS because they're a foreign company or should I just treat them the same as a US vendor, except I don't believe I need to issue a 1099 for them. I'd greatly appreciate a sounding board. Thank you.
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Answered in 26 minutes by:
7/30/2013
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Verified

Anne :

Hi

Anne :

good question

Anne :

are you paying the individual that is currently working in your office, or are you paying the company in Australia that he works for?

Customer:

Hi Anne,I'm paying the company that he works for.

Anne :

ok.......give me a minute to look at the treaty

Anne :

ok.......

Anne :

I'm back.........

Anne :

by the way, here's the treaty:

Anne :

http://www.irs.gov/pub/irs-trty/aus.pdf

Anne :

Although there was nothing in it that I found that changed my initial answer, which is ....since you're paying the company, and NOT the person, the money is not subject to the 30% withholding, ..........and I agree with the rest of your statement

Anne :

The only connection you will have with this foreign company is the purchase of their software, is that correct?

Customer:

Correct. I have no financial interest in them.

Customer:

I'm an arm's-length customer.

Anne :

and when their job is over..........they go back to Australia, and you go on with your business.........correct?

Customer:

Not sure about their local person. He's a resident alien. He'll probably go to another customer. The project has been going for a year and will continue for another 1-2 years.

Customer:

There are other programmers involved, but they not on site and not in the USA.

Anne :

What kind of business are you going into?

Customer:

I'm developing a software app that's used by an insurance company. I expect to find more customers.

Anne :

Ok........so you are not selling for that company in Australia, they are simply doing the software part, so yes, you report the expense, they are not subject to the 30% income tax withholding by you, and you will want to save your wire transfers for proof of the expense for the IRS

Customer:

Right. Copies of the transfers are in my "bank file."

Anne :

hold on just one minute more, ok?

Customer:

ok

Anne :


Thanks.......was just reviewing one more web site re: foreign corps and effectively connected income.........and neither applied to you

Anne :

I always test myself by finding all of the info I can...........and nothing I have found makes me change my original answer

Anne :

I think you're good

Customer:

Thank you so much. I guess this session concludes.

Anne :

yes, if you have further questions, you may come back here and post them, even after payment.

Customer:

Thank you.

Anne :

you mentioned having a sounding board............so if you need me again....that's fine

Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Anne
Anne
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Satisfied Customers: 2,439
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