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My client is a foreign corp in Slovakia with no PE in the US…

My client is a...

My client is a foreign corp in Slovakia with no PE in the US and does not want a US subsidiary but would like to hire 2 US persons - what is the best way to do that?

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11/17/2017
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,044
Experience: 15years with H & R Block. Divisional leader, Instructor
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If you employ US workers then your company would have to register and withhold tax for the US Treasury. U.S. citizens, resident aliens, and nonresident aliens employed within the United States by a foreign employer are generally subject to Social Security and Medicare tax withholding by the foreign employer.

On the other hand if you use self employed individuals that are in the US providing a service for your company then your company would not withhold. The individuals would report and pay their own US taxes as self employed.

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Customer reply replied 7 months ago
I understand the employment tax withholding and reporting on the US employees - does the hiring act alone create a PE for the Foreign Corp and make them subject to US Corporate income tax? Or create a PE for the Foreign Corp in the US?

It does for employment taxes but it also may for state tax. Some states see an employee as the corporation having nexus in that specific state.

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Customer reply replied 7 months ago
I am more concerned about the foreign corporation - if it hires employees in a state that does not consider employees as nexus, does the IRS consider it a nexus and therefore makes the FC subject to filing an 1120F?

Yes, generally that would place you in a position to file the 1120F.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience: 15years with H & R Block. Divisional leader, Instructor
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