Purpose

This research topic covers comprehensive guidance on US tax compliance, deduction requirements, and withholding obligations when hiring foreign contractors from any country. It includes detailed analysis of tax treaty implications, Form W-8BEN requirements, and practical compliance procedures for businesses hiring international talent.

Contents

  • form-w8ben-requirements-all-countries.md - Complete guide to Form W-8BEN requirements for foreign contractors from treaty and non-treaty countries, including sourcing rules, withholding scenarios, and treaty benefits
  • south-korea-contractor-tax-deductions.md - Step-by-step guide for US companies to properly deduct contractor expenses when hiring from South Korea, including documentation requirements and compliance procedures
  • argentina-contractor-equity-compensation.md - NEW Comprehensive guide for Argentine contractors receiving stock options, RSUs, or equity from US companies, covering US & Argentina tax obligations

Key Findings

  • W-8BEN is required for ALL foreign contractors regardless of whether their country has a US tax treaty
  • The location where services are performed determines tax treatment, not the contractor’s home country or treaty status
  • Services performed 100% outside the US incur no withholding regardless of treaty status - treaty countries and non-treaty countries are treated identically
  • The 30% withholding rate applies only to US-sourced income (work physically performed in the US), not foreign-source income
  • Form 1099-NEC is generally NOT required for foreign contractors performing services entirely outside the US
  • Form 1042-S is generally NOT required for purely foreign-source contractor income
  • Treaty benefits matter primarily when contractors work IN the US - for remote work, treaty status is largely irrelevant
  • Currency conversion to USD is required for all foreign payments using transaction-date exchange rates or IRS published rates
  • Income deductibility depends on ordinary and necessary business purpose, not on contractor’s country of origin or treaty status

Quick Start

For South Korea Contractors (Most Common Case)

When hiring a contractor in South Korea performing all work remotely from South Korea:

  1. Collect Form W-8BEN - Have contractor complete before first payment
  2. Get written contract - Document scope of work, payment terms, location where services performed
  3. Request detailed invoices - Monthly invoices with service descriptions and hours
  4. Process payments - Use wire transfer, Wise, or similar platform
  5. Track records - Keep W-8BEN (3 years), contracts & invoices (7 years)
  6. Report on taxes - No 1099-NEC, no 1042-S required; report on Schedule C or business tax form

Result: No withholding, full payment to contractor, expense fully deductible

For Any Foreign Contractor (General Approach)

  1. Verify foreign status - Confirm contractor not US citizen/resident
  2. Confirm work location - Document that services performed in contractor’s home country
  3. Collect W-8BEN - Essential for all foreign contractors
  4. Get written documentation - Contract, invoices, payment records
  5. Apply withholding rules - Only if work physically done in US
  6. Organize records - 3-7 year retention for compliance

Core Concepts

Source of Income Rule

The critical distinction is where services are physically performed:

  • Services 100% outside US → Foreign-source income → No withholding → No 1042-S
  • Services 100% in US → US-source income → 30% withholding (or treaty rate) → Form 1042-S required
  • Mixed location → Allocate by time/effort spent in each location

Treaty Status Impact

ScenarioWith Treaty (Korea, Germany, etc.)Without Treaty (Brazil, UAE, etc.)
Services outside USNo withholdingNo withholding
Services in US0-30% (treaty may reduce)30% withholding
Bottom lineTreaty only matters for US-based workSame as treaty for foreign work

W-8BEN Form

  • Part I - Always required: Personal information, citizenship, foreign address
  • Part II - Only for treaty countries: Claim specific treaty benefits if applicable
  • Validity - 3 years from date received, update if circumstances change
  • Filing - Keep on file, do NOT submit to IRS

Common Mistakes to Avoid

  1. Not collecting W-8BEN - Exposes you to 24% backup withholding
  2. Issuing 1099-NEC to foreign contractor - Not required; creates compliance confusion
  3. Poor invoice documentation - IRS may disallow deductions without substantiation
  4. Not converting currency properly - Use transaction-date rates, document source
  5. Assuming no treaty = always 30% withholding - Only applies to US-source income
  6. Not documenting remote work location - Essential for audit defense
  7. Letting W-8BEN expire - Renew every 3 years
  8. Mixing employee vs. contractor classification - Different rules apply to each

Sources

IRS Official Resources

Treaty Resources

Payment Platforms

  • Wise - International money transfers with competitive rates
  • Payoneer - Cross-border payments
  • PayPal - International payments
  • Tax deduction strategies for remote teams
  • International contractor classification (employee vs. contractor)
  • Currency exchange accounting and reporting
  • State tax nexus for foreign contractors
  • Payroll vs. contractor for international hires

Decision Framework

Should I hire from a treaty vs. non-treaty country?

Treaty status matters ONLY if:

  • Contractor will work physically in the US
  • Dealing with passive income (royalties, dividends)
  • Complex cross-border arrangements

Treaty status does NOT matter if:

  • Contractor works 100% remotely from home country
  • Standard contractor relationship
  • Services performed entirely abroad

Bottom Line: For typical remote contractors, country’s treaty status is largely irrelevant. Focus on skills, not tax treaty availability.

Last updated: 2025-11-24

This README summarizes the research documents in this topic. For detailed guidance on specific scenarios, refer to the individual research documents listed above.