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Second opinion] When I read the tax treaty between the US…

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Second opinion] When I...

Second opinion] When I read the tax treaty between the US and India, it feels like Article 12 applies to non-resident workers (ex: an Indian resident does work in the US for several months). How does the treaty apply to an Indian contractor who provides works on software development for a US company with no presence in India?

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Submitted: 11 months ago.Category: Tax
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8/10/2017
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,609
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Hello my name is ***** ***** I will be happy to assist you in answering your question.

First I would like to better understand you US tax status.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

A nonresident alien is a classification assigned to a non-U.S. citizen, or foreign national, who doesn't pass the green card test or the substantial presence test.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for the calendar year (January 1-December 31).

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

Which would be your current filing status?

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

If you are filing US taxes as a non resident alien then you may be taxed in the other state.

If you are a resident for US tax filing purposes, then you would file and pay taxes in the US

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

If you have no further questions I would appreciate if you would rate my service so I may close the question.

A positive 5 star rating is appreciated!

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Customer reply replied 11 months ago
Not the question - we are about to use an Indian contractor for some software programming and want to make sure there are no US tax consequences.
The consultant lives and will perform services from India.
We are a US based company with no presence in India.
thank you.
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

If the Indian contractor is being paid by a US company, then the US company must withhold 30% tax

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

The Indian consultant would have to file and claim a treaty exemption.

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Customer reply replied 11 months ago
sorry, but you gave me the opposite advice I got from the first opinion I got from this site.
so now i'm confused. the consultant will complete a w8-ben and the US has a tax treaty with India. the previous answer said the consultant services could fall under Article 15 - personal services. This seemed odd to me but Article 12 you are referencing seemed like it applied more to contractors/non-resident employees who performed services in the US for us. What are your thoughts?
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 11 months ago

As always the foreign vendor must provide you, the withholding agent, with
a properly completed W-8 or Form 8233.

You then withhold according to how the independent consultant completed the paper work

" In order to reduce the amount that is required to be withheld on a payment of U.S. sourced FDAP income to a foreign person (foreign vendor), or to exempt such a payment from withholding tax, the withholding agent must have documentation from the foreign vendor to certify its non-U.S. status and, if applicable, its eligibility for the treaty benefits claimed. Such documentation must be submitted by the foreign vendor in the form of a Form W8-IMY Form W-8 or Form 8233."

https://www.irs.gov/businesses/international-businesses/u-s-withholding-agent-frequently-asked-question

Directly from the IRS - U.S. Tax Withholding on Payments to Foreign Persons

"Most types of U.S. source income paid to a foreign person are subject to a withholding tax of 30%, although a reduced rate or exemption may apply if stipulated in the applicable tax treaty."

"The form to use depends on the type of certification being made. As used in this discussion of NRA withholding, the term "Form W-8" refers to the appropriate document.

How much withheld and whether the consultant is eligible for a reduced withholding under a treaty is the obligation of the consultant to give to you, the employer.

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