Foreign Contractors- To Withhold or Not to Withhold in a Digital Age
By Anthony Diosdi In today’s global environment, many U.S. businesses hire foreign contractors for a variety of reasons. The very act of a U.S. business of paying a foreign contractor may result in withholding and compliance requirements. This article discusses a U.S. businesses potential obligation to withhold U.S. taxes to a foreign contractor.Introduction to the FDAP RulesUnited States source income that is effectively connected with a U.S. trade or business will be taxable to foreign persons at the usual individual or corporate rates. Appropriate deductions and credits apply in the determination of U.S. federal tax liabilities. On the other hand, United States source income received by foreign persons that is not effectively connected with a U.S. trade or business will be subject to a flat tax of 30 percent on…