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U.S. Withholding For Outsourced Foreign Workers

If we outsource some of our bookkeeping function to an individual in India, who is not a US citizen or resident, and all the work is done in India via remote to our computer here in the USA, do we have to withhold taxes? Individual will sign W-8BEN form

Answers

Marc Schwartz
Title: Partner
Company: Schwartz International
(Partner, Schwartz International) |

Generally speaking, there is no US withholding on payments for services rendered outside the US. I am assuming (hopefully accurately) that the individual is not an employee. W-8BEN is fine and treaty benefits do not need to be referenced if services are rendered outside the US.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Actually, you don't even need a W-8BEN, since none of the services will be done on the US soil.

Checks (wire) that go abroad make it a cleaner audit trail, but it isn't 100% necessary.

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

Might want to read this. http://www.irs.gov/Businesses/U.S.-Tax-Withholding-on-Payments-to-Foreign-Persons

Also look at W-8ECI publication.. http://www.irs.gov/pub/irs-pdf/fw8eci.pdf

I would interpret this that withholding is required unless the tax treaty with India says otherwise. I am not familiar with the tax treaty with India so I can't tell you for sure.

The fact that he/she is probably connecting to data held on servers in the US may be the key.

I don't specialize in taxes, so you may want to get some additional guidance from your CPA firm that does your corporate income taxes.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Scott - If no services are done on US Soil, you don't need to withhold taxes.

In two paragraphs in the instructions (telling you which form to file) they clearly state:

"...personal services performed in the United States..."

And

"... effectively connected with the conduct of a trade or business in the United States..."

Both of these situations are not present. They (the bookkeeper) is offshore and all the work is performed offshore, so the are not "in the US".

Anonymous
(Independent Distributor / Wellness Coordinator / Cert. Nutritionist) |

My problem with this whole scenario is it is taking jobs away from people here in the USA who desperately need the work.
Plus, having people in India having vital information about our businesses and how they are struggling. The people in India are not stupid and are able to work cheap to get their savings together and a ticket to come to the USA and buy up Franchise hotels and Mini-Marts.
I absolutely refuse to outsource any of our work to any foreign country. Call me crazy, but my Clients privacy is the most valued asset in our Firm and I am not going to give it to anyone that I do not have complete control over and have done a back-ground check on. Of course I may be the only CPA who has been hit really hard by an employee who worked for us and stole almost $100,000 from 9 of our Clients payroll accounts over a years time by paying herself a check right along with all the other employees.Then, right in the middle of tax season decided she was going on vacation to Hawaii, which set off our investigation and when she arrived back we had the law enforcement guys standing there waiting to greet her as she stepped off the plane.
This gal was even keeping books for a couple of her own clients on our time, using our resources and being paid by us, plus her Client.
I guess you can guess from that point on, things changed in our Firm and it is totally a different place now.
BT - Tidewater, VA & Albemarle NC

Ern Miller
Title: Co-CEO
Company: Miller Small Business Solutions
(Co-CEO, Miller Small Business Solutions) |

Trust is a key for me as well. I won't give anyone not directly involved in my company (or the government) any information that can put my company in jeopardy.

I disagree about being all USA. Our government is straining the camel's back of business. Any straw we can safely remove and put on the backs of foreign camels means it will be that much longer before the camel's back is broken.

The state of Maryland is experiencing what the nation will deal with, if government insists on pressing rules and laws that make it harder to conduct business. Businesses of all sorts and sizes moved out of Maryland in the past 5 years. Many businesses are leaving the USA, not because of a lack of patriotism or nationalism. They are leaving because the IS laws make it impossible to stay in business.

Businesses are in business to make money, not to be a social welfare provider.

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