foreign client owe any tax?

Technical topics regarding tax preparation.
#1
juro  
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A client who is a investor in us real estate but lives in Argentina.
He performed service work for s domestic company but has never visited the USA.
Is he liable for federal tax on this income?
 

#2
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Note that I am assuming that this person is not a US citizen or green card holder.

I would like to see the other posters' answers, but I would say that, if the services were consumed by his employer in the US, then yes.

The domestic company might have a withholding/reporting requirement.

The worker would likely get a tax credit in Argentina for taxes paid to the US so he or she is not double taxed.
 

#3
juro  
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thanks, ItDepends.

a tax treaty between USA and a foreign country can help a client avoid paying tax.
My other client lives in Spain and he pays tax only on dividends on his 1040-NR, but he also
has lots of capitals gains & interest reported on 1099s from Chase, ML, etc on which he never pays tax.
Argentina is not listed on the IRS site
If the treaty does not cover a particular kind of income, or if there is no treaty
between your country and the United States, you must pay tax on the income
in the same way and at the same rates shown in the instructions for the applicable U.S. tax return.

https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z
 

#4
sjrcpa  
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Income from the US real estate is subject to US tax.
 

#5
MilesR  
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The employer probably has a withholding requirement but maybe there's a treaty with Argentina that avoids/reduces that. The withholding could either be 871 withholding or if treated as an effectively connected business it might be subject to normal rates with a filing requirement. I'm not a pro on foreign tax but it'd be a good place to start by seeing what kind of withholding (if any) there was on his income from this US corp, as well as if there are any tax forms or tax info from the employer/payor.
 

#6
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The key is to determine whether this income is effectively connected income to the US. There's a good argument to be made that services performed wholly overseas are not ECI. Once that determination is made, the reporting and tax liability is much more clear.
I have a client who is offshoring some of their administrative tasks to professionals located in the Philippines. I determined payments made to these contractors are not ECI and, thus, don't have any reporting requirements (1042/1042-S, etc.).
Interested to hear if anyone else has come to a different conclusion for these arrangements.
~Captcook
 

#7
sjrcpa  
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There is no US Argentina income tax treaty.
 

#8
Guya  
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Has the client made a timely net election? If not he owes US tax at 30% on gross US rental income.
PS – Greeting from London, England. Grey and rainy ...
 

#9
juro  
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Guya wrote:Has the client made a timely net election? If not he owes US tax at 30% on gross US rental income.


hi Guya
Please explain how would he make a net election, thanks.
 


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