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Legal entity like an LLC required to freelance in the US? VAT number equivalent?
Thread poster: Sylvirawr
Sylvirawr
France
Local time: 17:26
May 12

Hello everyone,

I work at a translation agency and we can't seem to get a straight answer -

Does a freelancer in the US have to register a legal entity (like an LLC)? Or is simply declaring the freelance income on yearly tax returns enough?

I've seen both answers online... Does it vary from state to state?

Is there an equivalent to the EU VAT number that we would have to use when paying Americans? Do we need to give them W-9s? Should we ask for their SSNs?

Thanks in advance!

Sylvia


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Sheila Wilson  Identity Verified
Spain
Local time: 16:26
Member (2007)
English
+ ...
Do you retain an accountant? May 15

Sylvirawr wrote:
we can't seem to get a straight answer

I'm sure there are freelancers and agencies in the US who can give you that information.

But surely a competent accountant in your country who deals extensively with worldwide business dealings can answer the question? OK, they would need paying, but if you aren't retaining a competent accountant then your questions will get more and more complex as you slide further and further into the quagmire of running a business that you aren't in the slightest equipped to run.

Just my personal opinion .


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philgoddard
United States
Member (2009)
German to English
+ ...
The answer to your first question... May 15

... is no. As in most countries, you can register as a limited company, but there's often not much point. I'm not an LLC, and I'm sure most of my US colleagues aren't.

I'm not sure of the rules about W-9s. Most of my European customers haven't asked for them.

There's no equivalent of the VAT number, but the W-9 asks for your social security number.

[Edited at 2017-05-15 13:48 GMT]


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Tim Friese  Identity Verified
United States
Local time: 10:26
Member (2013)
Arabic to English
+ ...
Agree May 15

philgoddard wrote:

... is no. As in most countries, you can register as a limited company, but there's often not much point. I'm not an LLC, and I'm sure most of my US colleagues aren't.

I'm not sure of the rules about W-9s. Most of my European customers haven't asked for them.

There's no equivalent of the VAT number, but the W-9 asks for your social security number.

[Edited at 2017-05-15 13:48 GMT]


Phil is correct. One need not register any entity whatsoever in the US in order to earn freelance income. The freelancer is simply responsible for reporting the income on a Schedule C and paying self-employment tax.

As for the requirements of an outsourcer/agency, I can't speak authoritatively. US entities that pay a certain amount per year to a freelancer need to have the freelancer sign a 1099 and report this to the IRS. I don't think foreign entities need to do this, but you should look into this yourself.


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Sylvirawr
France
Local time: 17:26
TOPIC STARTER
Not my company. Even the accountants don't know as we're not in the US & don't work w/many Americans May 15

Sheila Wilson wrote:

Sylvirawr wrote:
we can't seem to get a straight answer

I'm sure there are freelancers and agencies in the US who can give you that information.

But surely a competent accountant in your country who deals extensively with worldwide business dealings can answer the question? OK, they would need paying, but if you aren't retaining a competent accountant then your questions will get more and more complex as you slide further and further into the quagmire of running a business that you aren't in the slightest equipped to run.

Just my personal opinion .


I am but a lowly translator/proofreader at my company, not running it in any shape or form. No one was sure of any of this, not even our accountants. No one had even asked the question before. But thanks for the snark.


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Sylvirawr
France
Local time: 17:26
TOPIC STARTER
thanks! May 15

Tim Friese wrote:

philgoddard wrote:

... is no. As in most countries, you can register as a limited company, but there's often not much point. I'm not an LLC, and I'm sure most of my US colleagues aren't.

I'm not sure of the rules about W-9s. Most of my European customers haven't asked for them.

There's no equivalent of the VAT number, but the W-9 asks for your social security number.

[Edited at 2017-05-15 13:48 GMT]


Phil is correct. One need not register any entity whatsoever in the US in order to earn freelance income. The freelancer is simply responsible for reporting the income on a Schedule C and paying self-employment tax.

As for the requirements of an outsourcer/agency, I can't speak authoritatively. US entities that pay a certain amount per year to a freelancer need to have the freelancer sign a 1099 and report this to the IRS. I don't think foreign entities need to do this, but you should look into this yourself.


Thanks for the info!

[Edited at 2017-05-15 21:43 GMT]


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Preston Decker  Identity Verified
United States
Local time: 11:26
Member (2013)
Chinese to English
No need to register, but you still may want to May 15

*Edit: just realized the OP is not a prospective freelancer. Oops!

As Phil and Tim have said, there's no need to register as an LLC. But I would seriously consider it. I'm just about at the end of my freelance career (or at least this phase of my freelance career), as I'm about to embark on a new endeavor, and so have been doing quite a bit of thinking about what did and didn't work over the past five years. One conclusion I've more or less reached is that if I ever go out on my own again, I'll set myself up as an LLC from the outset if the tax laws of the state I'm in at all recommend it. I tend to be very cautious when it comes to contracts and business relationships, and I've refused to sign many master agreements with translation companies (the onerous 'all liability on the translator' contracts often discussed on this site) out of a desire to avoid personal liability. While there are many companies out here that have favorable terms that I have been able to agree to, I'm still fairly sure this approach has cost me thousands a year in lost income. In addition, the stress that accompanied being personally liable for mistakes was one of several things that contributed to my willingness to move away from freelancing. An LLC establishes a layer of protection between the business and the translator, and I know I would have felt much more comfortable signing such agreements with a properly set up LLC.

Now, it could certainly be argued that these traits (an abundance of caution and a personality that tends toward anxiety) are unique to me, and there's also the corporate tax/'piercing the veil' issues to consider, so this is not to say that going for an LLC is definitely the thing to do. But I do recommend you give it serious thought/research, even though it's not required in the US.

[Edited at 2017-05-16 12:54 GMT]


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Sheila Wilson  Identity Verified
Spain
Local time: 16:26
Member (2007)
English
+ ...
Just look at it from the point of view of the one who's looking to get paid May 16

Sylvirawr wrote:
I am but a lowly translator/proofreader at my company, not running it in any shape or form. No one was sure of any of this, not even our accountants. No one had even asked the question before. But thanks for the snark.

I'm sure it must seem snarky, and I apologise for my less than diplomatic reply . But you posted as the representative of an outsourcer; an outsourcer who doesn't appear to understand the legalities of paying their suppliers who happen to reside in other countries, and who doesn't take the route of paying an expert to find out.

As someone who's on the other side of that fence - I send invoices to approximately 20 different countries each year - I often fall foul of outsourcers who want me to do the work first and worry about the paperwork later. When that paperwork includes my fee, I think I have every right to expect them to find out BEFORE I work for them. Translation is an international business and outsourcers need to know about the rules governing business between them and their suppliers. Just as we have to know how to run our really tiny but international businesses. End of rant .

In all fairness, I suppose that's what you're doing for your company: finding out before you get to the stage of telling a freelancer that you aren't in a position to pay them because you don't understand how things work. But a forum will often provide only those answers that apply to an answerer's particular circumstances, whereas an accountant who specialises in international trade should give 100% factual and unbiased information.


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John Fossey  Identity Verified
Canada
Local time: 11:26
Member (2008)
French to English
W-9 and W8-BEN May 16

philgoddard wrote:

I'm not sure of the rules about W-9s. Most of my European customers haven't asked for them.



A W-9 only applies to an American citizen or resident working for an American client.

For a non-American citizen or resident working for an American client, the American client will need a W8-BEN form, to prove to the IRS that they do not have to deduct income tax from payments.

For an American working for a non-American client, neither is necessary.


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Thomas T. Frost  Identity Verified
Germany
Local time: 17:26
Member (2014)
French to Danish
+ ...
W-8BEN May 16

John Fossey wrote:

For a non-American citizen or resident working for an American client, the American client will need a W8-BEN form, to prove to the IRS that they do not have to deduct income tax from payments.


This is a common misunderstanding. The W-8BEN only applies to work "sourced" in the US. The IRS' definition of where work is "sourced" is – in the case of services – where the work is carried out. Hence, the W-8BEN is not required for non-residents supplying translations to US companies, as long as they don't physically carry out the work in the US.


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John Fossey  Identity Verified
Canada
Local time: 11:26
Member (2008)
French to English
US clients May 16

Thomas T. Frost wrote:

John Fossey wrote:

For a non-American citizen or resident working for an American client, the American client will need a W8-BEN form, to prove to the IRS that they do not have to deduct income tax from payments.


This is a common misunderstanding. The W-8BEN only applies to work "sourced" in the US. The IRS' definition of where work is "sourced" is – in the case of services – where the work is carried out. Hence, the W-8BEN is not required for non-residents supplying translations to US companies, as long as they don't physically carry out the work in the US.


Whether or not this is fully true I couldn't say, but you will find a number of American firms that will insist on a W8-BEN, as that is what their lawyers and accountants have told them.


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Thomas T. Frost  Identity Verified
Germany
Local time: 17:26
Member (2014)
French to Danish
+ ...
W-8BEN May 16

John Fossey wrote:

Thomas T. Frost wrote:

John Fossey wrote:

For a non-American citizen or resident working for an American client, the American client will need a W8-BEN form, to prove to the IRS that they do not have to deduct income tax from payments.


This is a common misunderstanding. The W-8BEN only applies to work "sourced" in the US. The IRS' definition of where work is "sourced" is – in the case of services – where the work is carried out. Hence, the W-8BEN is not required for non-residents supplying translations to US companies, as long as they don't physically carry out the work in the US.


Whether or not this is fully true I couldn't say, but you will find a number of American firms that will insist on a W8-BEN, as that is what their lawyers and accountants have told them.


I know. Many people insist on a lot of red tape because they don't understand the requirements, or because the requirements are complicated or easily misunderstood, just to be safe. It costs a lot of money in wasted resources.

IRS meaning of "source": https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-source-of-income : "Business income: Personal services: Where services performed"

W-8BEN instructions: https://www.irs.gov/pub/irs-pdf/iw8ben.pdf :
"Purpose of Form
Establishing status for chapter 3 purposes. Foreign
persons are subject to U.S. tax at a 30% rate on income
they receive from U.S. sources that consists of:

Compensation for, or in expectation of, services performed;"

It was also discussed here in 2015: http://www.proz.com/forum/money_matters/293152-agency_policy_vendors_are_to_be_paid_where_they_pay_taxes-page2.html :

Patrick Porter:

"The W-8BEN form is for residents of countries that have tax treaties with the U.S., so they can claim treaty benefits, but it only applies to income that would otherwise be taxable by the U.S. authorities. Income earned by a translator performing services outside the United States by a "non-U.S. person" is almost never subject to U.S. taxation (except under some obscure circumstances which would rarely or never apply to individual translators)

Agencies have no obligation or right under any circumstances to withhold 30% or any percentage of income that is not subject to U.S. taxation, no matter whether or not there is a tax treaty and no matter whether or not a translator has submitted a W8-BEN.

Agencies that tell you they need a W8-BEN or they will withhold 30% of your pay are wholly incorrect and misinformed. The W8-BEN is entirely inapplicable to the situation. But if you are asked for one, you should probably fill it out and send it, rather than trying to argue with them. It's just simpler that way."


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FitoreGaxherri
United States
New user
English to German
German certified translations May 17

Hi, unfortunately I do not have an answer to your question but it is very interesting to know that.

I would like to know whether English translations made by German certified translators are recognized at American authorities? In Germany you get certified by a court if you fulfill specific requirements obviously, so it is pretty serious.


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Tradupro17  Identity Verified
United States
Local time: 11:26
New user
English to Haitian-Creole
+ ...
No need to register May 19

Hi,

As a freelancer, I don't have to register. I simply declare my income on a schedule C.


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