WalterMcGinnis.com

Topic: Explanation for non-US remote devs of paperwork to work with US companies

Topic type:

• Topic

I'm a remote software developer that is based in New Zealand, but often get full-time gigs with US companies. People wonder how best to handle the paperwork for taking on a foreign worker. Here's what I do.

Based on a what I posted to Elixir team Slack on October, 4th 2017

Disclaimer

I'm not a tax, contract, or employment lawyer. This is what I have found in my research and experience working this way for many years. However, I 'm just another bozo on the internet. Your mileage may vary.

If you are versed in tax and employment law and find errors in what I outline, please get in touch and I'll update it.

Background

I tend to focus on getting work with early stage startups. I'm usually one of the first ten people they take on. They are nimble enough to be able to roll with my situation more than more established organizations.

My arrangements

All of my remote gigs from NZ have been as a contractor where the company contracts my company (where I’m currently the only employee, but I may expand at some point) for my services. My company then handles benefits. I do consider the cost of fulfilling benefits comparable to those offered to employees at the contracting company when negotiating the terms. Sometimes an equity offer comes into play, that's basically handled separately.

Not having to deal with benefits simplifies things for the contracting company, but also simplifies things for me. Many startups fail, but I get stable employment and continuity of things like contributions to my retirement plan. Healthcare coverage comes from being a resident of New Zealand.

Almost always the company spends some time investigating how they could officially employ me. It’s never actually worked out. It’s much more straightforward to just have a company to company contract.

To summarize:

• I have my own company based in New Zealand where I'm an employee
• The company that needs my skills contracts this New Zealand company

Basically I have a consultancy which has been contracted to work for the startup.

So the following assumes you are not a sole-trader/self-employed contractor. If you want to follow what I do, you need to set up a company in your country.

Paperwork

US companies contracting foreign vendors don’t issue a 1099, but the contracted company, i.e. you, have to fill out FORM W8-BEN-E and the contracting company has to hold that form on file in case it is requested by IRS. It isn’t filed with that company’s taxes though.

That form is crazy opaque, if you have a foreign owned company that is contracted, all you have to fill out are these fields and sections:

• 1, 2
• 4 - check “corporation”
• 5 - check “Active NFFE. Complete Part XXV.“
• 6, 7
• 9b - fill in your foreign company’s tax number
• PART XXV Active NFFE:  field 39 - check “I certify”
• PART XXX: sign, print name, date (was XXIX, but changed in 2021)

Then you have to give that to the contracting company to keep on file. Usually the bookkeeper/accountant for the US company won’t know about FORM W8-BEN-E and will think that they need a 1099, you’ll need to point them in the right direction.

Beyond the contract and payment arrangements, that's it for the contracting company.

Obviously, the company that actually employs you (your company) has to comply with local laws, regulations, and taxes for your employment.

I’ve done this over multiple tax years with multiple companies. Neither the IRS or the New Zealand Inland Revenue have had a problem with it. I have a New Zealand accountant do my and my company’s New Zealand taxes.

Having a company makes sense for New Zealand accounting reasons for me. It works out on multiple fronts.

P.S. - Pro tip, when working with startups, for anyone, remote or not, contractor or not, it makes sense to budget some buffer cash-on-hand for the possibility the startup runs out of money or there is another complication where they fail to pay. It's pretty common to have things collapse fairly quickly. Planning for this scenario makes this way less stressful.