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Tax Law (Questions About Taxes)/Tax for outsourcing expenses


Hello Sir,

I have a client in USA who outsource his back-end work to my company in India. I do not have a presence or bank account in USA. Due to this, if my client transfer money for the services I provide him, directly to my Indian Bank account, what will be the income tax my client in USA has to pay to USA government per the federal laws, for the money he sends to India as a business expense.

Appreciate your clarification on this.


Your client does not pay income tax out of its own pocket on money it PAYS out. Income tax is charged to the USA company only on income they earn. The US company MAY pay YOUR tax of up to 30% out of your share since you are the one with the income.

If you are operating as an individual (not under a corporation or limited company or partnership) have to provide the USA company with IRS From W-8BEN to indicate your tax status. If you are an individual, the USA company must withhold 30% of all payments due you unless you provide certain information to that company. You are taxed on income effectively tied to the US sources, so if you choose not to comply, the USA company will send 30% of your payments to the IRS.

If you are operating as a corporation or limited company, the 30% withholding may not apply.  

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Randall Klein, MBA, EA


I am an expert in personal and small business taxation, including Forms 1040, 1120, 1120S, 1065. I can answer any type of tax question except those that are requesting help in illegal tax evasion. Tax avoidance is legal, however. I do not do offshore trusts, or opt-out of the tax system type of queries.


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