Not legal or tax advice. This guide is a layperson-readable overview of the tax shape that surfaces when a US engineering team engages a non-US contractor. Specific rules vary by state, by treaty, and by engagement structure — consult a qualified CPA or tax attorney before relying on any of this for a particular engagement.
When a US engineering team engages a developer based outside the United States, a handful of tax questions surface — most of them resolvable with the right paperwork and a clean engagement structure, but each one worth understanding before the first invoice goes out. This primer covers the five shapes that come up most often: tax forms, 1099 reporting, US state tax, the permanent-establishment trap, and treaty rates. It closes with how sourceBOLD's engagement model absorbs most of this complexity on the client's behalf.
1. W-9 vs W-8BEN — which form does the contractor sign?
The first question that comes up when payments start flowing: which IRS form does the contractor fill out to certify their status?
- W-9 (Request for Taxpayer Identification Number and Certification) is the form for US persons — US citizens, US tax residents, and US-domiciled entities (LLCs, corporations, partnerships). The contractor provides their TIN (Social Security Number for individuals, EIN for entities) and certifies they're a US person.
- W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) is the form for non-US individuals. The contractor certifies they're not a US person and, if applicable, claims reduced withholding under a US tax treaty between the contractor's country of residence and the United States.
- W-8BEN-E is the entity equivalent of W-8BEN — used when the contractor is a foreign company (LLC, S.A., GmbH, etc.) rather than an individual.
For the typical sourceBOLD shape — a LATAM-based individual developer working remotely as an independent contractor — the form is W-8BEN. The contractor's home-country residence is the certified country; treaty benefits (if any) flow from the US tax treaty with that country.
A few of the more common LATAM jurisdictions sourceBOLD draws from — Mexico, Brazil, Argentina, Colombia — each have different treaty positions with the US. Mexico has a comprehensive US tax treaty; Argentina and Brazil notably do not have comprehensive US income tax treaties. The lack of a treaty doesn't prevent the engagement — it just means treaty-reduced withholding rates aren't available, and the contractor's home-country tax handling does more of the work.
2. 1099 reporting — when does a US payer file one?
The 1099 reporting question is where most cross-border tax misunderstandings start.
Form 1099-NEC (Nonemployee Compensation) is filed by US payers who pay $600 or more in a calendar year to a US-person independent contractor. The IRS uses the 1099-NEC to cross-check the contractor's reported income on their own return.
For payments to non-US persons working outside the United States for services performed entirely outside the United States, the income is generally not US-source income. Non-US-source income paid to a non-US person is typically not subject to US tax and typically does not trigger 1099 reporting.
The "where the services were performed" question is the load-bearing one. If a non-US developer comes to the US to work on-site for a stretch, that on-site work IS US-source income, and the analysis changes (potential withholding under Form 1042, treaty rates may apply, the engagement could trip permanent-establishment risk — covered below).
The key practical implications for a US client engaging a remote LATAM developer:
- No 1099-NEC to the developer. The developer is a non-US person; the income is non-US-source; the form doesn't apply.
- Possible 1099-NEC to the sourcing platform. If the client pays a US-based platform (like sourceBOLD) more than $600 in a calendar year, the client may need to issue a 1099-NEC to the platform. (Corporations are generally exempt from 1099 reporting on payments received; sourceBOLD's specific entity structure determines the exact path. Check with your CPA.)
- Form 1042 / 1042-S may apply if the payer makes US-source payments to foreign persons subject to withholding. For services performed entirely abroad, this typically doesn't trigger. For services partially performed in the US, it can.
3. US state tax considerations
State income tax adds a second layer of complexity that's frequently overlooked.
For a non-US contractor based outside the US, working entirely outside the US for a US client, US state income tax generally does not apply — the contractor isn't a state resident, isn't physically present in any state, and isn't earning US-source income. This is the typical sourceBOLD shape.
The exceptions to watch for:
- Contractor physically working in a state. If the contractor travels to a US client's office and works on-site for any meaningful period, that state may have an income tax claim against the in-state earnings. Each state defines "meaningful" differently — California and New York have particularly aggressive nexus rules.
- "Convenience of the employer" doctrine. A few states (New York being the most cited example) apply a doctrine that treats remote work performed for an in-state employer as in-state work for tax purposes, regardless of where the worker physically sits. The doctrine's reach for non-US contractors is unsettled but worth flagging.
- State franchise tax / nexus on the client. Engaging contractors in certain states (the contractor being based in that state) can establish nexus for the client's business in that state. Less commonly an issue when the contractor is offshore, but a consideration when sourcing within the US.
For a US team engaging an LATAM contractor through a US-based platform, the state tax surface is typically minimal. The platform (sourceBOLD) is the contracting counterparty for tax purposes; the contractor's relationship with state tax authorities runs through their own country's tax shape, not through the client's state.
4. The permanent-establishment trap
Permanent Establishment (PE) is the cross-border tax concept most likely to surprise a US engineering buyer. It's worth understanding even if your engagement won't trigger it.
A non-US individual or entity is generally not subject to US income tax on business profits unless they have a "permanent establishment" in the US. A PE is typically established when the foreign person:
- Maintains a fixed place of business in the US (an office, factory, or similar fixed location), OR
- Has a dependent agent in the US who habitually concludes contracts on the foreign person's behalf, OR
- Has employees physically present in the US for an extended period, performing significant business activities.
For a remote contractor who never sets foot in the US, none of these typically apply — no PE, no US business profits taxable to the contractor.
The trap that occasionally appears: a US client invites a contractor for a multi-week visit, gives the contractor a dedicated workspace, and has the contractor sign off on client-binding decisions during the visit. Done at scale or repeatedly, this can be argued to establish PE for the foreign individual — and with PE comes US tax obligations on the connected business profits, treaty considerations, and additional filings.
The clean engagement pattern: remote-only work, no extended in-US presence, no contract-signing authority delegated to the foreign contractor, no fixed US workspace held in the contractor's name. This is the typical sourceBOLD shape; it's also the shape that keeps PE off the table.
5. Treaty rates and double taxation
US tax treaties with other countries generally serve two purposes: reduce withholding rates on cross-border payments, and provide mechanisms to avoid double taxation.
Where the contractor is a tax resident of a country with a comprehensive US tax treaty (Mexico, Canada, the UK, Germany, and many others), the W-8BEN can claim reduced withholding rates on specific categories of US-source income. For independent personal services performed entirely outside the US, this typically isn't load-bearing — the income isn't US-source to begin with, so there's no withholding to reduce.
Where the contractor is a tax resident of a country without a US tax treaty (Argentina and Brazil being the most cited LATAM examples), the contractor's home-country tax handling does the work alone. Their country may tax the income; the US generally doesn't (because the income isn't US-source under the typical engagement). No formal treaty-based double-taxation relief is available, but the practical effect is often the same — only one country taxes the income.
Double taxation as a practical concern shows up most when:
- The contractor's home country claims the income (residency-based taxation), AND
- The contractor performed some portion of the work physically in the US (potentially US-source), AND
- No treaty mechanism mediates between the two.
Most LATAM remote-only engagements avoid this stack entirely. The "performed entirely outside the US" leg is doing the load-bearing work.
6. How sourceBOLD structures the engagement
sourceBOLD absorbs most of the cross-border tax complexity on the client's behalf through the engagement's contractual structure.
The relevant facts:
- sourceBOLD is a US-domiciled entity. The client's contractual counterparty is a US company. From the client's tax perspective, this is a US-to-US engagement.
- The Independent Contractor Agreement is between sourceBOLD and the developer. The client does not contract with the developer directly. The cross-border tax shape sits between sourceBOLD and the developer, not between the client and the developer.
- The client pays sourceBOLD in US dollars. One US-dollar invoice per developer per month. No multi-currency reconciliation, no FX gain/loss accounting, no Wise transfer paperwork on the client's books.
- sourceBOLD pays the developer in their local currency. Wise dispatch in the developer's primary currency. The cross-border transfer is sourceBOLD's operational concern, not the client's.
- sourceBOLD collects the appropriate form from the developer. W-9 for the rare US-resident developer; W-8BEN for the typical LATAM remote contractor. The forms live in sourceBOLD's records, not the client's.
- 1099 reporting flows to sourceBOLD, not the developer. The client's 1099 reporting obligation (if any) runs to sourceBOLD as the US-domiciled payee. Whether that 1099 is required depends on sourceBOLD's specific corporate form — corporations are generally exempt. Check with your CPA.
The clean version: the client engages sourceBOLD (a US company) under an MSA, and sourceBOLD engages the developer (a non-US contractor) under a separate Independent Contractor Agreement. The cross-border tax surface is concentrated on the sourceBOLD ↔ developer leg. The client's tax shape is approximately the same as if they'd engaged any other US-domiciled vendor.
Closing — what to validate with your CPA
Before the first engagement starts, the questions to take to your CPA:
- Whether your specific entity needs to issue a 1099-NEC to sourceBOLD. Corporations generally don't need to receive 1099s; LLCs and other pass-throughs sometimes do. Your CPA can confirm based on sourceBOLD's specific form.
- Whether your state has any specific contractor-engagement rules that apply. Most don't for offshore engagements; New York's convenience-of-the-employer doctrine is the most cited edge case.
- Whether any specific developer engagement might involve in-US work. Conferences, on-sites, multi-week visits — these can trigger US-source income, withholding obligations, or PE concerns. The default sourceBOLD shape is remote-only and avoids these; specific engagement structures may not.
For the contractual structure underneath the engagement, the contractor engagement model walks through the MSA + SOW + Independent Contractor Agreement shape. For the geography decision underneath, nearshore vs offshore vs onshore software development covers the time-zone and engagement-shape trade-offs. For pricing, what it costs carries the literal $-band that gets written into the MSA at signing.