Income Tax Australia & USA

[trakka]

Hi All

I have a business incorporated in the USA. I want to employ someone to work for that business - but they would be here in Australia. Can anyone clarify for me what happens with the income tax situation. I have been told 2 very different things by 2 different accountants and was hoping to get a consensus here.

Reading the IRS website I believe that I have to withhold 30% of the income as tax for the USA. But then it refers to the USA/Aust tax treaty. I have tried reading it - but most of it is legalese - and I am not particularly fluent and I dont want to misinterpret. I know that the employee would then have to declare the USA income in their tax return for Australia.

But what happens from there?

Would I be better off having them set up as a contractor and then they can invoice the business and I don't have to worry about the tax side of things? Is there any disadvantages to this?

And I am finding the Accountants I have been dealing with are not up with the International tax side of things and the ones that have International Tax experience are well outside my current price range. Anyone have any recommendations? I am in the process of setting up another business and need someone that can help me with the legal & tax issues related to setting up a USA company compared with an Australian one. I am in Perth, but would be happy to deal with someone who doesn't mind email discussions.

Tracy

(People often ask why incorporate in the USA - I purchase goods at wholesale from the USA - which is much easier & cheaper if you have a EIN number - kind of like an ABN)

[CruzAccountant]

Tracy

We'll need to know more about your business / company structure.

However, with employing an Australian resident through the US company, you may be better off employing them as a contractor. I assume that they'll physically be doing the work in Australia.

Richard

[trakka]

Richard

It has been set up as a LLC in Delaware with 2 Members (Directors).

I am thinking that contractor may be the way to go - just that can't take advantage of some of the fringe benefits that we can claim through the IRS - like Employee Education Assistance etc that I was hoping to offer an employee.

Tracy

[CruzAccountant]

So the Australian company is not connected to the US company in any way? Are both directors of the LLC Australian residents?

Is your question about your obligations in the LLC company? If so, I'll have to do some research on your behalf. I've prepared US 5471 returns a while back and have done US (GAAP) reporting for an Australian company, but I'll still need to look into it further if you'd like me to.

[JamesMillar]

Also happy to give you some direction on this offline -we have a few clients in the same scenario. There are some GST issues associated with these transactions and they need to be covered.

[akagrp]

Hello Tracy

There are a number of issues that would need to be considered outside of just tax, for example what type of work will Australian Worker do for US co, What are the Australian workers Expectations of employment, Amount of Travel if any between US & Aust by employee. Associated costs of employee, though company incorporated in Delaware does it actually have a physical office in US, and if so what state? As there are employee taxes/health costs that you may be liable for.

We have clients that operate in the US already are are aware of withholding obligations etc, also we can put you in contact with a local accountant to file the returns to the IRS, as we have found using a local is a benefit

Also is the US company a subsidiary of an Australian Company or are you the shareholder? Does or Will the US Company have Tax Profits or will it breakeven, as you may also have transfer pricing issues that may need to be addressed.

You may still be able to access the Fringe Benefits if structured correctly

Please feel free to contact me, happy to discuss with you possibilities.

[trakka]

Thanks for all the replies.

I currently have a very ill toddler. So will respond properly and contact you when I can.

Tracy

[trakka]

Have found out some of the answers for myself. Will put what I was told here in case it can help someone else.

So last night I stayed up late and rang the IRS and then got hold of a lawyer/accountant in the USA. Both also referred to an IRS publication so I have something in writing as a reference point.

If I employ a person (other than the company members/directors) and they are not a US resident and the work is not performed in the USA then the IRS does not require with holding tax etc or a tax return from the NRA(non resident alien).

As an LLC any profit made is split between the two members/directors and taxed by the IRS.

But that leads me to my next question.... How do we deal with Australian taxes for the employee? In other businesses we PAYG with our ABN etc etc that relates to an Australian business. But obviously being a USA company we do not have access to that? Any ideas?