Paying Contractors and Freelancers Abroad from a US LLC or Corporation (2026): W-8BEN, When No 1099 Is Needed, When 30% Withholding Applies, Form 1042-S, the New $2,000 1099 Threshold, and the Risks in the Contractor's Country

A US company owned from abroad rarely does its work alone. A SaaS LLC pays two developers in Bengaluru and a designer in Lisbon. An Amazon brand pays a virtual assistant in Manila and a photographer in Mexico City. A Delaware start-up pays its co-founder's team in Kyiv through a contractor agreement.

The US tax rules for these payments are friendlier than most founders expect, because the USA generally does not tax a foreign person on services performed outside the USA. But the rules depend on where the work is physically done, who the contractor is, and whether the contractor is related to you, and getting them wrong creates either unnecessary withholding or penalties. And the risks that matter most are often not American at all: they sit in the contractor's own country.

This guide explains what a US LLC or corporation must collect, file and withhold when it pays people outside the USA, and when it must treat a payment differently.

In short: Before paying a foreign contractor, collect a Form W-8BEN (individuals) or W-8BEN-E (companies) to document that they are not a US person. Payments for services performed entirely outside the USA are foreign-source income: no US withholding, no Form 1099 and generally no Form 1042-S. Services performed inside the USA by a foreign person are US-source and subject to 30% withholding, reduced only under a treaty, with Form 1042-S and Form 1042. US contractors give you a W-9, and from payments made in 2026, a Form 1099-NEC is needed only when you pay one $2,000 or more in the year. Payments to you or to companies you own are reportable on Form 5472. In the contractor's country, watch for employee misclassification and permanent establishment.

Step one: know who you are paying

Every payment starts with one question: is the payee a US person or a foreign person?

A foreign-owned US LLC does not change this: the question is about the payee, not about you. Your Wyoming LLC paying a freelancer in Cairo collects a W-8BEN. Your LLC paying a contractor in Austin collects a W-9.

The forms are not filed with the IRS. You keep them in your records, and you need one before the first payment. A W-8BEN generally stays valid until the end of the third calendar year after it is signed, unless the payee's circumstances change. See W-8BEN-E vs W-8BEN explained.

Why it matters: without a valid form, a payer is expected to presume certain payees are US persons, which can lead to backup withholding of 24% on reportable payments. A signed W-8 is your evidence that no US reporting applies.

Step two: where is the work done?

For services, US tax follows the place of performance, not the location of the client or the bank.

Work done outside the USA

A developer in Pune writing code for your LLC, a designer in Warsaw working from home, a VA in Cebu answering emails: all of this is foreign-source income. A foreign person earning foreign-source service income has no US tax on it. So:

• no US withholding on the payment;
• no Form 1099-NEC (that form is for US persons);
• no Form 1042-S, because 1042-S reports US-source income paid to foreign persons;
• just a W-8BEN on file, the contract, and the invoices.

This is the ordinary case for most foreign-owned companies, and it is simple.

Work done inside the USA

If the foreign contractor performs the services in the USA, for example a Canadian consultant who flies to your client's office in Chicago for a week, the pay for that week is US-source income. The default rules then apply:

• 30% withholding on the US-source part of the payment;
• a lower rate or exemption only if a tax treaty covers it (many treaties exempt independent personal services or business profits unless the contractor has a fixed base or permanent establishment in the USA), claimed on the W-8BEN or, for some independent personal services, on Form 8233;
• a Form 1042-S to the contractor and the IRS by 15 March of the following year, and an annual Form 1042 return for the withholding agent (your company).

If a contractor works partly in the USA and partly abroad, split the fee by days or another reasonable basis, and withhold only on the US part. Visa rules are a separate question: a foreign contractor entering the USA to perform paid work needs the right status.

Not services: royalties and licences

Payments for the use of intellectual property, such as a licence of software, music, photos or a patent, are royalties, sourced where the property is used. A royalty paid to a foreign photographer for images used on your US website is US-source: 30% withholding unless a treaty reduces it, with a 1042-S. The difference between "you wrote code for us" (services) and "we license your existing code" (royalty) matters, so write contracts that say clearly what is being bought. A commissioned work for hire, assigned outright, is normally services.

Paying US contractors

When your company pays a US freelancer or a US company that is not a corporation, collect a W-9 and track the total for the year.

• From payments made in 2026, the Form 1099-NEC threshold is $2,000 for the year (up from $600), under the 2025 tax law. It is indexed for inflation from 2027.
• Payments made in 2025 still used the $600 threshold, for forms filed in early 2026.
• The 1099-NEC is due to the contractor and the IRS by 31 January.
• Payments to corporations generally need no 1099-NEC, with exceptions such as attorneys.
• Payments made by card or through a payment app are reported by the processor on Form 1099-K, not by you on a 1099-NEC.

A foreign-owned LLC that pays a US contractor $2,500 in 2026 by bank transfer files a 1099-NEC like any US business. If it cannot get a W-9, it should apply backup withholding.

Paying yourself, and companies you own

A payment from your company to you, the owner, is not a contractor payment in the ordinary sense.

• Single-member LLC (disregarded): money you take out is a distribution, not a fee. It needs no W-8BEN and no 1042-S, but it is a reportable transaction on the LLC's Form 5472, together with the money you put in. See Form 5472 explained.
• Corporation: you can be paid a fee for services you perform abroad (foreign-source, no US withholding), a salary (which needs US payroll only if the work is done in the USA), or a dividend (30% withholding unless a treaty reduces it). The fee is a reportable transaction on Form 5472.

Payments to a company you or your family own, for example your Indian private limited company that employs the developers, are related-party transactions. They:

• are reportable on Form 5472;
• must be priced at arm's length, with a short transfer-pricing note at least, because both the IRS and your home tax authority will look at them;
• may need contracts and invoices in both companies' books, and home-country registrations (for example, GST export invoices in India).

See US subsidiary for a foreign company for how parent and subsidiary should deal with each other.

The risks in the contractor's country

The US side is usually easy. The contractor's side is where companies get into trouble.

Misclassification

Most countries decide whether someone is an employee by looking at the real relationship, not the contract's label: fixed hours, exclusivity, your control over how the work is done, use of your equipment, and length of engagement. A "contractor" in Spain or Brazil who works full time only for you, under your direction, for two years, may be an employee under local law. The consequences can include back social security contributions, employee rights on termination, and penalties.

Local rules vary widely. The UK's off-payroll rules (IR35) shift responsibility to the client only for medium and large clients with a UK presence, so for a small US company with no UK presence the risk falls mainly on the contractor's own company. Other countries, such as France, Germany and Brazil, can treat the foreign client as the employer.

Practical protection: genuine contractor terms, invoices from the contractor (or their company), freedom to work for other clients, and, for long full-time relationships, an employer of record service or a local subsidiary.

Permanent establishment

If a contractor in another country habitually negotiates and signs contracts on your company's behalf, or runs a fixed office for you, your US company can have a permanent establishment there and become taxable in that country. A developer writing code creates little risk; a "country manager" in Dubai who signs deals with Gulf customers for your LLC creates a lot.

Where your company itself is managed

If you live in, say, Portugal and you manage the company from there, Portugal may already treat the company as resident or as having a permanent establishment. That is a question about you, not about the contractors, and it is covered in your country guide.

Paying them: methods and records

Whatever the method, keep for each contractor:

1. the W-8BEN, W-8BEN-E or W-9;
2. the contract (services or licence, IP assignment, independent contractor terms);
3. invoices in the contractor's or their company's name;
4. proof of payment;
5. a note of where the work was performed, if any of it was in the USA.

These records support your company's deductions on its return and show why no withholding was due. See bookkeeping for a foreign-owned US LLC.

Worked examples

These are illustrative cases, not client cases.

A SaaS LLC with a team in India. A Wyoming LLC owned by a founder in Dubai pays three developers in Bengaluru US$3,000 a month each by Wise. Each signs a W-8BEN once. All the work is done in India, so there is no US withholding, no 1099 and no 1042-S. The developers invoice as exporters of services under Indian GST rules, which is their own compliance.

A brand paying a US influencer and a Mexican photographer. A Delaware corporation owned from Canada pays a US influencer US$4,000 in 2026 and a photographer in Mexico City US$1,500 for a licence to use the photographer's product photos on Amazon. The influencer gives a W-9 and receives a 1099-NEC, because $4,000 is above the $2,000 threshold. The photographer's payment is a royalty for use of images in the USA: the company withholds at the 10% US–Mexico treaty rate for royalties, claimed on the photographer's W-8BEN, and files a 1042-S and Form 1042.

A consultant flown to the USA. An LLC owned from the UK hires a Brazilian consultant for a two-week workshop at a client in Miami. The fee is US-source, Brazil has no income tax treaty with the USA, and the company withholds 30% and files a 1042-S. Had the consultant run the workshop online from São Paulo, no withholding would have applied.

Common mistakes

• Paying without a W-8BEN on file, then having nothing to show why no withholding applied.
• Issuing 1099s to foreign contractors, which is not needed and confuses their tax position.
• Not withholding on work done in the USA or on royalties for use of IP in the USA.
• Calling a licence "services" or the other way round in contracts.
• Forgetting that owner draws and payments to your own companies go on Form 5472.
• Treating a long-term, full-time contractor abroad as a freelancer without checking local employment law.
• Letting a contractor sign contracts for the company in their country.

Frequently asked questions

Do I need to file a 1099 for a contractor in India or the Philippines? No. Form 1099-NEC is for US persons. Collect a W-8BEN instead.

Do I need to withhold US tax when paying a foreign freelancer? Not for services performed entirely outside the USA. Withholding applies to US-source income, such as work done in the USA or royalties for IP used in the USA.

Do I need to file Form 1042-S for foreign contractors? Generally not when the work is done outside the USA, because the income is not US-source. You do when you pay US-source income, such as royalties or fees for work done in the USA.

What is the 1099-NEC threshold in 2026? $2,000 per contractor for payments made from 2026, up from $600.

Can my foreign-owned LLC hire contractors at all? Yes. Ownership does not matter. The rules depend on the payee and on where the work is done.

How UCB can help

We prepare the year-end US filings for foreign-owned companies, Form 5472 with the pro forma 1120, Form 1120 or Form 1065, and the information returns foreign-owned companies need, through our US tax filing service. If you are setting up a US company to work with a team abroad, see our formation, EIN and bank account package and the SaaS founders guide.

Paying a team abroad from your US company? WhatsApp us at +1 315 961 2956 or email enquiries@ucbsolutions.com.