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June 14, 2022 · 5 min read

The tax man cometh, even internationally

There are many reasons you may hire international developers. 

  • It allows you to hire the best, not just the local
  • Sometimes they will be less expensive because of their local cost of living
  • They bring a different worldview and a diversity of thought

There are more but these are the ones that most companies consider when looking at hiring someone outside of their country. The problem is that some companies don’t consider the downsides until after they’ve made the hire. One of the biggest downsides is that some of your actions with regards to foreign worlds are governed by both your country’s laws and the employee’s country’s laws. There is probably no area more fraught with danger in this respect than paying taxes. (Although intellectual property laws run a close second.)

Contractor or Full Time Employee

Before you hire your first overseas employee, sit down with an employment lawyer and discuss the pros and cons of the action. In many situations, some, if not most, of the tax problems can be overcome by making the person a contractor instead of a full time employee. While this does limit the liability of the company, there are problems with this arrangement as well. 

In the United States–as with other countries–there are regulations on what you can do with a contractor vs. a full time employee. 

I once had a company bring me on for a contract. I spent the first week on-site and the rest was off-site. On Monday of my onsite week they delivered to me a brand new laptop. I was quite surprised and spent a day getting it set up with the development environment. On Thursday an HR representative visited me to let me know that the laptop had been issued as a mistake. Since I was a contractor they legally could not provide me with the tools necessary to do the job. 

Outside of the wasted day spent setting up the development environment, the company almost made a huge mistake because if they had let me leave with the laptop, the IRS could have classified me as a Full Time Employee, even though I had a contract. For the company in question, this would have had serious and far-reaching consequences beyond just having to pay back-taxes on my salary.

Make sure that before you make your first foreign hire that you understand the rules and regulations that govern the agreement you are entering into. Many larger companies handle the problems of hiring foreign employees by setting up a branch office in the country they want to hire in. While this solution is cumbersome, it does give you “boots on the ground” to handle rules and regulations, as well as native help for onboarding.

Taxable Presence

Before you make your first overseas hire – full time employee or contract – sit down with a tax lawyer and discuss the ramifications of the hire. Discuss with them the implications of hiring a contractor vs. a full time employee.

In the story I related above about the laptop I said that there would have been far-reaching consequences. The biggest consequence for the company would have been that if I were classified as a full time employee, the company would have had a “taxable presence” in my home state. The company was located in the United States and I am a native of the United States. That having been said, different states have different laws. In my home state, the rule is that if a company has an employee in a state then they have a “presence” in the state and have to pay taxes on transactions in the state. In this case, that would have been a huge tax bill just so I could have a company laptop.

Some countries only count full time employees when figuring out if you have a taxable presence, others consider contractors good enough. 

Hiring internationally the easy way

Yes, you can sit down with a tax lawyer local to the person you want to hire to figure out what taxes you will owe and how they are to be paid. Yes, you can contact an employment lawyer local to the person you want to hire and have a contract drafted that allows you to hire in that country. Yes, you can consult with a HR specialist to make sure that you understand and comply with all relevant law both local and foreign before making your first international hire. 

In this process, you can burn through a lot of money and time getting advice, drafting contracts, and making sure that you meet all obligations both international and local. When you get ready to hire your next international person, if they are in a different country, you get to do it all again. This is the hard way if you are a startup or a small company with little or no HR personnel to shoulder the burden. Even after all of this, if you miss something, the burden is solely on your shoulders. You are the one responsible for paying the person, paying the taxes, and handing all reporting requirements.

There is an easier way. 

If your focus is building something great, then you should stay focused on that and not get distracted by the hiring practice. Your best bet is to work with a partner that understands how to help you find and hire the right person for your team. You need a partner like

Not only do we know how to find and vet the best developers in the world, we take care of the accounting and legal details of putting them under contract. We’ve already done all the paperwork. We know how to deal with the taxes and we have already drafted the contracts. All that you have to do is tell us what skills you need in a developer and we’ll show you the exact right person that will help move your project forward.

Don’t let the details of finding and hiring the right developer get in the way of getting the work done. Let us worry about that, you focus on bringing your idea to life.