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What are the tax issues involved with "employing" a (part-time) worker in a different country?

For example, I have a Virginia, USA-based Limited Liability Corporation (LLC) through which I handle revenue and expenses for my freelancing work.

If I wanted to, say, pay someone in India (or France or Canada) $30/hour to provide user interface consulting, would the payments to that worker be considered wages? Would I need to pay payroll taxes, and to whom? What documentation would I need to claim the payroll expense?

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    $30 USD? What about them being a company and you paying their invoices? Would that be a viable option? – Canadian Luke REINSTATE MONICA Jul 31 '13 at 4:53
  • I think it will help if you say if you are paying someone as a company or as a individual (your savings money)! – Peter MV Jul 31 '13 at 7:12
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    Difficult to answer generically - and depends very much on the tax laws of each country. Also depends on whether you are employing (as an employee) or engaging (as a freelancer/supplier) – Andrew Jul 31 '13 at 7:28
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    While this is difficult to answer, that could be exactly what we want (a difficult question); I'm planning to do work outside of the UK in a bit, and I have no clue what to do for taxes. – Amelia Aug 1 '13 at 17:53
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    Jeremy, what about subcontracting? Is that an option? That's different than hiring actual workers and has advantages and disadvantages. – jmort253 Aug 3 '13 at 23:21
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So this is an interesting question and I decided to do a little research. It seems that non-resident employees (those who are residents of one country but work in another) are subject to double taxation (being taxed by both their country of residence and country of work) unless they obtain special dispensation by filing a lot of paperwork.

New Zealand
UK

The United States IRS has special tax codes specifically for U.S. residents who are employed by an international organization or foreign government.
Source

The UK also specifies particular tax requirements for employees in offshore areas, including the specific stipulation that "Most offshore areas are now designated as part of a particular country. Both employers and employees will almost certainly have to meet the taxation requirements of that country."
Source
More Info

Clearly the details of the taxation are going to be unique to each specific tax code of the two countries involved. Also note that these links apply to employees, not to independent contractors or suppliers (as Andrew mentioned). For contracting, you're actually purchasing a product/service so the taxation likely falls under trade agreements rather than employment tax law. Outsourcing to/from another country may be liable to import/export taxes. This blog post has some useful advice in it regarding international independent contractors, though hard numbers are again going to be impossible to lay down without research into the specific countries involved.

Your best bet is to talk to an accountant who is already familiar with these tax situations. Otherwise, spend a lot of time reading the tax code for each country where you plan to outsource.

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    Surely this question isn't about non-resident employees ("those who are residents of one country but work in another") because the client remains in the US and the worker remains in India? The person in india would be a considered a non-resident alien by the US and would not be subject to US tax because they're not physically present in the US while performing their work. – user152 Oct 23 '14 at 15:00

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