Paying international contractors from a US LLC
A US LLC can pay a contractor abroad. The difficult part is not pressing “send.” The difficult part is preserving the facts that determine the payment’s treatment: who the contractor is, whether they are acting as an individual or an entity, what services they performed, where they physically performed those services, what agreement supports the payment, and what records you retain.
The starting source rule is often misstated. The customer’s location is not the test. The payer’s location is not the test. The bank account location is not the test. The IRS states that, for personal services, the place where the services are performed determines the source of the income, regardless of where the contract was made, where payment is made, or where the payer resides.1
That means a payment by your US LLC to a contractor who performs the services outside the United States is generally foreign-source compensation under the place-of-performance rule. If the contractor performs services partly inside and partly outside the United States, the IRS says an accurate allocation is required based on the facts and circumstances, generally on a time basis.1 Do not replace that analysis with a statement that your customer is overseas, your LLC is American, or the contractor was paid in dollars.
Start by recording what the contractor is and where the work happens
Before the first payment, put the basic facts into the contract and payment file. Identify the legal name, address, tax residence information that the contractor provides, whether the contractor is an individual or a foreign entity, the services, the fee arrangement, the invoice currency, and the place or places where the work will be performed.
The place-of-performance question should be concrete. A designer working from Lagos, a developer working from Manila, and a consultant who spends part of the engagement in New York do not present the same sourcing facts. If a contractor travels, retains the travel dates and work-location record. The IRS’s rule requires an allocation when services are performed partly in and partly outside the United States.1
The agreement should also make clear what the contractor will deliver, when it will be delivered, who owns any work product if intellectual-property rights are involved, and how the invoice ties to the work. These are operating records. They do not turn an employment relationship into an independent-contractor relationship or settle every local law question. If the actual working relationship raises classification concerns, obtain advice before treating a contract label as an answer.
What Forms W-8BEN and W-8BEN-E do
For a foreign individual who is the beneficial owner of an amount subject to withholding, the IRS says to give Form W-8BEN to the withholding agent or payer. The IRS also says the form is submitted when the payer requests it whether or not the individual claims a reduced withholding rate or exemption.2
For a foreign entity, the IRS states that Form W-8BEN-E is used to document its status for purposes of chapters 3 and 4 and other Code provisions.3 The forms have different users. Do not ask a foreign company to complete the individual form, and do not assume that a foreign individual should complete the entity form.
A W-8 is documentation, not a magic clearance certificate. It can support the payer’s record of the payee’s foreign status and the withholding analysis where the form is appropriate. It does not, by itself, decide source, treaty eligibility, worker classification, whether income is effectively connected with a US trade or business, local payroll obligations, local VAT or similar taxes, or the bank’s compliance decision. The facts and the applicable rules still control.
The form is generally given to the payer or withholding agent, not filed by the payee as a routine standalone filing with the IRS. Keep it with the contractor’s agreement, invoices, payment records, and any analysis or correspondence that explains why you treated the payment as you did.1 2 If a contractor’s facts change, request updated documentation rather than assuming an old file remains accurate indefinitely.
The place-of-performance rule in practice
Consider three different operating patterns.
A contractor living and working in Colombia creates a foreign place-of-performance fact for services completed there. The fact that your US LLC has US customers, a Delaware formation document, or a US bank account does not make the contractor’s work US-source under the quoted IRS rule.1
A contractor based in India who visits the United States to perform part of an engagement creates a mixed-location issue. The correct response is not to ignore the visit. It is to document the days and work performed in each location, then obtain advice if the facts raise a withholding or reporting question. Publication 515 expressly calls for an accurate allocation when services are performed partly inside and partly outside the United States.1
A foreign company that supplies an individual to work on your project may require different documentation and analysis from a direct engagement with a self-employed individual. The entity form may document the payee’s status, but it does not eliminate the need to understand what services are being delivered and where they are performed.3
Keep this sentence in the file: the location of performance, not the customer’s location, is the source test for personal-services income. It prevents a common and expensive recordkeeping error.1
Documentation hygiene for a US LLC
A clean contractor file should tell a future reviewer the same story from every document. The agreement identifies the work. The invoice describes the work and period. The W-8 form matches the contractor’s identity and capacity. The payment reference links to the invoice. A deliverable, acceptance note, or project record shows that the service happened.
Record the payment as a business expense only when it is actually a business expense and preserve the commercial evidence. Do not use vague descriptions such as “consulting” for every transfer when a more accurate description is available. The purpose is not to create paperwork for its own sake. It is to preserve the facts that support the accounting, tax, and compliance treatment.
When you make recurring payments, periodically check whether the contractor’s legal name, address, entity status, bank details, work location, and scope have changed. A contractor who moved, incorporated, or began performing part of the work in the United States may require you to revisit the file rather than repeat the original payment workflow.
If the payment involves a foreign currency conversion, do not assume the payment platform’s receipt replaces your business records. Retain the platform confirmation and the underlying invoice. This guide does not state any provider fee, exchange-rate, account-availability, or delivery-time figure because those terms depend on the provider and can change.
Country rules still matter after the US analysis
The US source-of-income analysis does not override the contractor’s local rules. A contractor may live in a country with exchange controls, foreign-currency documentation rules, tax registration requirements, invoice rules, or restrictions that affect how funds can be received. Those questions belong to the contractor’s country-specific guide and to appropriate local advice.
For example, a contractor’s ability to receive a dollar payment, provide a local invoice, convert funds, or report foreign income may be governed by the jurisdiction where the contractor performs the work. Your US LLC should not promise that a payment will be accepted, settled at a particular rate, or free from local tax or reporting obligations. Route the issue to the relevant country guide, then confirm the current rule with the contractor’s bank or adviser where the facts matter.
This separation is useful. Your LLC’s task is to determine the correct US treatment of the payment and maintain a reliable payment file. The contractor’s task is to comply with their own local tax and financial rules. The payment provider’s task is to apply its own account and compliance policy. Do not collapse the three into a single “international payment” answer.
A practical sequence before each new contractor relationship
First, determine whether you are contracting with an individual or a foreign entity. Request the appropriate W-8 documentation before payment when your payer process requires it.2 3
Second, record where the services will actually be performed. If the answer includes the United States, multiple countries, or planned travel, do not use a foreign-only sourcing assumption without review.1
Third, sign a clear agreement and retain an invoice that identifies the work period and deliverable. Make sure the payment reference matches the invoice.
Fourth, preserve the payment confirmation and the commercial record together. If facts change, update the file before relying on the prior documentation for the next payment.
Fifth, route local FX-control, tax-registration, and receipt questions to the contractor’s country guide and qualified local advice. No US LLC guide can establish all local rules for every country.
When you should stop and ask for advice
Ask for professional advice before payment if the contractor performed services in the United States, will perform work in more than one country, says they are a foreign entity but cannot provide consistent entity documentation, asks to be paid to a third party, or gives facts that do not match the agreement and invoice. These are not reasons to accuse the contractor of wrongdoing. They are reasons not to make a tax or documentation conclusion from incomplete facts.
You should also obtain advice if the relationship looks like employment in practice, if the work involves regulated services, or if a local rule may affect the contractor’s ability to receive or convert the payment. The point is to resolve the specific question before money moves, not to apply a generic international-payment template to a fact pattern it does not fit.
For country-specific payment considerations, see the relevant country guides and opening a US business bank account as a non-resident.