We are a U.S. based business and we are looking to hire a sub-contractor based in the Netherlands. Does anybody know the legalties and tax implications of such an arrangement?
My accountant is double checking and getting back to me, but I wondered if anybody here with a U.S. business has experience hiring foreign workers.
His initial understanding is that we need to pay 33% of his fee directly to the U.S. government, and that he then has to file a 1040NR return to get his money less any U.S. income tax he owes. This did not sound right to me, especially if he then gets double taxed in his own country.
You won't be hiring them as a W2'd employee, they will technically be a "vender" of yours. Remember that. You will be contracting them and paying them for services offered, the same if you were to purchase from a foreign business. At least that's how I understand it.
It would depend on weather you are hiring this subcontractor as a private individual or as a company. If you are hiring his company to perform a service for you, it's basically the same as if you were buying widgets from some foreign country - you pay them for what they sell you, and that is where your responsibility ends.
If you are hiring this subcontractor as an individual, then things get extremely complicated. Since he is technically performing this service outside the US, he would probably owe no tax here, but your accountant may be correct in thinking that the IRS would want a piece of his income and would force him to ask for it back by filing some type of return.
If it were me, I would look for a solution where I were hiring a company rather than trying to work through the tax puzzle that would come from attempting to hire an individual in a foreign land.
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This topic interested me a great deal, and I coudn't believe how difficult it was to find solid information about this. The only thing that I could find is a US gov site that talks about the employee regulations it has with 20 or so nations in good standing. The one for the netherlands is at: http://www.ssa.gov/international/Agr.../netherld.html
Scroll down a bit to a nice "Your Work Status Coverage And Taxes" chart. Hopefully this will point you in the right direction.
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