How to Stay Tax-Compliant When Hiring Offshore Developers

“If I hire offshore, I don’t have to deal with taxes at all.” 

This simply isn’t true. You’ll still have tax considerations, though they vary based on whether you’re hiring contractors or employees.

With contractors, you’ll need basic documentation like a W-8BEN form and proper payment reporting. With employees, the requirements are more extensive, including potential withholding obligations and benefit considerations.

“I don’t need to worry about compliance since my offshore team isn’t in the US.”

Geographic distance doesn’t equal compliance distance. Just because offshore developers work outside the US doesn’t mean businesses are free from compliance concerns. The IRS still requires businesses to report payments made to foreign contractors.

Businesses also need to consider local labor laws in the developer’s country and any potential withholding tax obligations for offshore employees. If a country requires tax withholding on foreign-sourced income, failing to comply could lead to penalties or back taxes.

“I can’t hire offshore/nearshore if I don’t have an entity overseas.”

This is one thing we get asked about the most regarding hiring offshore. While it’s common for larger businesses to establish an entity to operate in a specific country, it’s not necessary to hire offshore talent.

There are multiple straightforward solutions, like working with an EoR or staffing partner. We’ll cover those later in this article. These are approaches that eliminate the need for setting up foreign entities while ensuring compliance with both US and international regulations.

“Hiring an offshore worker as an independent contractor is always safe.”

Hiring contractors does simplify things, but it doesn’t eliminate all obligations. You’ll still need to:

• Collect proper documentation (like a W-8BEN form)
• Record and report payments correctly to the IRS
• Ensure the working relationship genuinely reflects contractor status

While these requirements are straightforward, ignoring them can lead to penalties or compliance issues. The good news is that most experienced offshore developers are familiar with these requirements and can help provide the documentation you need. When you ask for a W-8, they will likely know just what you mean. 

Now that we’ve cleared up those misconceptions let’s focus on the most straightforward approach to tax compliance when hiring offshore developers.

Work with partners who make compliance simple

Instead of spending countless hours researching tax treaties and compliance requirements, smart businesses leverage these partnership options that not only simplify compliance but also handle payroll processing—eliminating the headache of making international payments to your remote workers yourself:

• Specialist staffing and recruitment agencies for offshore talent take the compliance burden off your plate. When you work with a specialized agency focused on a specific region (like Latin America), they already understand the tax landscape. The developer remains “employed” by the agency, which handles payroll, tax compliance, and any required benefits. 
• Employer of Record (EoR) agencies act as the official employer of your offshore developers. They handle everything from employment contracts and payroll to benefits and tax compliance in the developer’s country. Using an EoR is ideal when you want a direct working relationship with developers but don’t want to establish a legal entity overseas.
• Global HR platforms like Deel, Papaya Global, or Oyster simplify international hiring by providing standardized contracts, automated tax form collection, and compliant payment processing. These platforms typically handle withholding requirements and generate the necessary tax documentation, making compliance straightforward. They are particularly useful if you are hiring in multiple regions (e.g. you have staff in LatAm, Asia, and Eastern Europe, and you want to use one platform). 
• Freelance marketplaces like Upwork or Fiverr can be viable options for shorter engagements with offshore freelancers. These platforms process payments and provide basic tax documentation.

The contractor advantage: Simplifying your tax obligations

Most businesses find that hiring offshore developers as independent contractors (rather than employees) significantly simplifies tax compliance. When working with contractors:

• You’re generally not responsible for payroll taxes in their country
• Documentation requirements are streamlined (usually just collecting a W-8BEN form)
• You maintain flexibility in the working relationship

That said, some companies prefer to hire offshore developers as employees despite the additional complexity. This approach can offer advantages like greater control, stronger team integration, and clearer intellectual property ownership. If you go this route, working with an EoR or specialized staffing agency becomes even more crucial for navigating the employment laws and tax requirements in each country.

The good news? Even if you choose the contractor route, you can still provide valuable benefits to contractors. Many businesses offer equipment reimbursements, professional development budgets, and flexible work arrangements to their offshore contractors—creating a supportive working relationship without the compliance complexity of formal employment.

Essential documentation for working with offshore developers

Whichever approach you choose, certain documentation remains essential:

• Form W-8BEN: This certifies a contractor’s foreign status and prevents the 30% withholding the IRS would otherwise require. (We explain more about W-8s in our article What Is a W-8BEN Form and When Do You Need To Collect One?)
• Independent contractor agreements: These establish clear expectations about the working relationship, intellectual property rights, and payment terms and include non-disclosure or non-compete agreements.

The right partner will help you collect and maintain these documents correctly, ensuring you have what you need without getting lost in paperwork.