No taxes or reports if freelancers performs services not in US and provided W-8BEN form.
"A U.S. payor with a valid W-8BEN in hand generally does not need to withhold or report payments on a Form 1099 if the payments are for services performed outside the U.S."
https://jiahkimlaw.com/business/ultimate-guide-hiring-foreign-independent-contractor/
https://www.irs.gov/individuals/international-taxpayers/withholding-and-reporting-obligations
https://jiahkimlaw.com/business/ultimate-guide-hiring-foreign-independent-contractor/
Should I report payments made to foreign independent contractors? One of the conditions for a requirement to file Form 1042 and 1042-S is that a foreign person should have US source income. The IRS provides guidance on how sources are determined for different types of income for foreign persons. Foreign independent contractors earn income by providing personal services. According to the IRS, the source of personal services income is determined by where services are performed. Therefore, even if a foreign person works for a US company, the income he or she receives is not US source income as long as service is performed outside of the US. As a result, a US company is not obligated to withhold or report taxes if the contractor does all his work outside of the US. If a foreign contractor performs any part of his service in the US, certain conditions should be met to avoid tax obligations.
If the contractor is a non-resident, then the necessity to file a 1099 will depend on where the work is performed. If the non-resident contractor performs services on US soil then they are required to file a US non-resident tax return for the amounts earned while inside the country. This in turn would require the foreign company to file a Form 1099 for that contractor. But, if the services are rendered remotely from a non-US location, then there is no need to file Form 1099, since the contractor has no ties to the US or its tax laws.
In general, the Old W-8BEN allows a foreign individual or entity to certify its foreign status. A U.S. payor with a valid W-8BEN in hand generally does not need to withhold or report such payments on a Form 1099 if the payments are for services performed outside the U.S.
This year the IRS released an updated version of Form W-8BEN (Rev. February 2014) (the “New” W-8BEN), and also released a new form, Form W-8BEN-E (the “BEN-E”). The forms were updated in order to address the requirements of the Foreign Account Tax Compliance Act (“FATCA”).
In the past, the Old W-8BEN could be used by foreign individuals or foreign entities receiving payments from U.S. persons. Now, foreign individuals use the New W-8BEN (still one page long and relatively simple) and foreign entities must use the BEN-E.
Not a U.S. Person
So, how do you “know” that the foreign contractor is not a U.S. person? If the contractor is an individual, perhaps he or she is a U.S. citizen living outside the U.S.? While you may be able to rely on certain presumptions regarding the foreign contractor’s status (Treas. Reg. §1.1441-1(b)(3)), it is generally easier to simply ask him or her to complete a Form W-8BEN. By signing Form W-8BEN, the foreign contractor is certifying that he or she is not a U.S. person.
In this circumstance there is no need for the foreign contractor to get a U.S. taxpayer identification number or to complete Part II of Form W-8BEN. All that the foreign contractor needs to do is to complete the basic information in Part I and sign in Part III, attesting that the information is true, correct, and complete. No Form 1099 then needs to be filed for payments to foreign persons. Treas. Reg. §1.6041-4(a).
The Form W-8BEN is not filed with the I.R.S. It is kept on file with the U.S. payor in case the U.S. payor is audited. If audited, the Form W-8BEN supports why no Form 1099 was issued and why no tax was withheld.
Where Were the Services Performed?
Now that you know that the foreign contractor is not a U.S. person, how do you know that he or she is not performing some or all of the services in the U.S.? Perhaps he or she spends two or three months a year at his or her second home in the U.S. and he or she works on your project while in the U.S.?
You won’t know if the services are performed in the U.S., unless you ask. There is no special form for this. The easiest way is to get a signed statement from the foreign contractor that he or she will not perform any of the services in the U.S. It is typically best to attach this statement to the W-8BEN.
Form 1042 must be filed with respect to certain payments to foreign persons. Code §1461 and Treas. Reg. §1.1461-1. However, Form 1042 is required only for payments of “U.S. source income.” If the payments are for services and the services are performed outside the U.S., then the payments will be foreign source income (Code §861(a)(3) and Treas. Reg. §1.861-4), and no Form 1042 will be required.