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I'm a full time software developer in a US company with H1 visa in Texas, USA. A few weeks ago I developed a small software (for around $6,000) for a European company as a side work (freelance work). Now, they want to get an invoice to pay my money. I don't want to do anything illegal. I want to report it to IRS and pay the tax of it.

  • Can I send a hand made invoice with my name and address? Is it legal or should I setup a company or get a DBA status? As I said I want to report it to IRS as an additional income but I don't know how to do.

  • How can I get my money? Should I give them my bank account or should I accept the payment from PayPal or other methods of payment?

  • Do I need to pay any tax to European Union in addition to USA?

  • As far as I can know, there is no VAT in Texas, is there any applicable tax for EU? In other words, for $6,000 service agreement, should I add any VAT amount to invoice?

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I think your H1 status (H1-B?) is likely to be your biggest pitfall here (see later comments). Technically, the H1-B visa names the (single) company for which you are allowed to work in the US. Of course, your client is not in the USA so you may be in a grey area.

On the other issues:

  • Yes, just prepare a typed invoice, with your name and address, and send it to the client. Be sure to declare it on your next 1040. You don't need to set up a DBA or company.
  • As far as payment goes:
    • do not give them your bank account details. That's just basic security.
    • Instead, agree an exchange rate from a reputable source, and ask them to send you a cheque drawn on a US bank for the amount in US$, then just bank it.
  • You do not (in fact, legally, can not) charge them VAT. You need to be registered with the relevant country's Customs and Excise department to do that.
  • Similarly, you do not charge US/TX sales tax, unless you are registered as a taxable supplier.

As another poster said, you should have sorted this out beforehand, and had a contract to work to. If you have protected yourself with a time-limited demo, then your chances of getting paid are good.

At this point you are on the horns of a dilemna ... if you collect the money, you can't risk not declaring it on your tax return. And if you declare it on the tax return, and your visa precludes such work, you could be packing up to go home real soon now.

So I really suggest you do some research into the H1-B status thing. An hour or two with an immigration lawyer may cost you $500 -- but compare that to having your visa revoked. If the lawyer says "you can't do this" ... you may just have to forego the $6,000 and decide whether you deliver the product pro bono.

UPDATE:

I've done a bit of googling and found statements (from self-identified immigration attorneys) that doing work for companies OUTSIDE the USA does not affect your H1-B status. You may still want to confirm this for yourself, but it makes things easier.

The other consideration is ... what does your sponsoring company in the USA think about this?

  • Thanks for detailed explanation. I'll accept your answer. As far as I can understand, I should transfer this money to my own country directly to stay safe side. Regarding with your question, after business hours everyone can do anything, right? I don't bring this work to my business hours, it's after business, so in my opinion I don't have to report all my activities after business hours to my sponsoring company. – Jack Houston Nov 3 '15 at 4:11
  • Regarding after hours work, did you sign a rights transfer agreement with your full-time employer (this is standard in the US)? If so, there are no "after hours" and it depends on the State you live in whether they actually own the rights to the code you are delivering to your client. And you are only safe on immigration because your client is outside the USA. – kdopen Nov 3 '15 at 15:44
  • Thanks for reminding me this detail. Actually I'm not sure but I'll definitely check it when I go home. – Jack Houston Nov 4 '15 at 20:07
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You don't have to set up a company. But you don't seem so bright at not having worked this out BEFORE you started work on this contract. $6,000??? I wouldn't be surprised if you never got paid on this one, because you really didn't do this very well.

Payment terms and methods are something you should never be working out after-the-fact.

You can send a Paypal invoice, but note that the Paypal fees are going to cost you about $150.00 when the payment's made. The company in Europe could do a wire transfer to you, but that's also going to cost (I'm guessing $30 USD). They could also send you a check drawn on a bank in their location, but your local US bank may have challenges in cashing it.

This is stuff you should have worked out much sooner. You also should have done this in milestones, because if the company decides to not pay you, you've lost a LOT of money, and getting your money may be near impossible.

Best of luck.

  • Thanks for the comments. Actually, it's a very special solution and I gave them a demo version for a trial period. They tried it for 10 days and decided to go with that. Now, I need to send them an invoice and I'll deliver them a full, licensed version after I received my payment. No worries about the payment :) The actual problem is if this is legal as an H1 employee and how should I move to be completely legal and stay safe about my visa. – Jack Houston Nov 2 '15 at 16:42

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