TL;DR
A US company can hire a development team anywhere in the world, and most of the paperwork is simpler than founders expect. Four documents cover nearly all of it: a contract with an explicit IP assignment, a W-8BEN-E from the vendor, an NDA, and a working agreement that says when the two sides overlap.
What is not simple is the tax treatment. Since 2025, software development you pay for domestically can be expensed immediately, and software development you pay for abroad is amortized over fifteen years. That changes the real cost of an offshore team, and your CPA needs to price it before you sign.
The disputes that actually happen are not about law. They are about code that was never assigned, accounts the founder never owned, and overlap hours nobody wrote down.
What is different when the developer is abroad
Hiring a US contractor and hiring a foreign one are the same transaction with different paperwork. Here is what changes and what does not.
| US contractor | Offshore company | |
|---|---|---|
| Tax form you collect | W-9 | W-8BEN-E |
| 1099 at year end | Yes | No |
| Withholding on payments | None | None, for services performed abroad |
| Misclassification risk | Real | Effectively none for a foreign company |
| IP ownership by default | Theirs, until assigned | Theirs, until assigned |
| Enforcing the contract | US court | Practical leverage, not a courtroom |
| Section 174 treatment | Domestic, expensed | Foreign, 15-year amortization |
| Payment | ACH | International wire or a transfer service |
| Data location | US | Wherever their laptops are |
Three rows matter more than the rest: the tax form, the Section 174 line, and the enforcement line. The others are the same problem you would have with a contractor in Ohio.
The four documents that cover almost everything
The contract, and the one clause that decides ownership
Under US copyright law, code written by an independent contractor belongs to the contractor unless it is assigned in writing. The work-made-for-hire doctrine most founders rely on covers employees and a short list of commissioned categories, and software from an outside company is not reliably on that list.
That means your contract needs a present-tense assignment: the vendor *hereby assigns* all rights in the deliverables to you. Not “agrees to assign,” not “work for hire.” The distinction has cost founders their products in due diligence.
We wrote the full breakdown, including background IP, subcontractors and moral rights, in the MVP development contract. Read that before you sign anything. The rest of this post assumes the clause is in.
The W-8BEN-E, and why there is no 1099
Because you are paying a foreign company for work done abroad, you collect a W-8BEN-E instead of a W-9, you issue no 1099, and there is no withholding once the form is on file. The form, the withholding rules, what changes if any work is done on US soil, and the four ways to move the money with what each costs are all in paying international contractors; this post assumes the form is on file and gets on with the contract.
The NDA, honestly
An NDA with a company in another jurisdiction is enforceable in principle and awkward in practice. Its real value is as a signal that both sides are serious, and as the document that makes a vendor’s staff understand what confidential means.
Rely on staged disclosure instead of the NDA. The team does not need your customer list to build a signup flow. We covered the wider question in how to protect your app idea.
The working agreement
Not a legal document. A page that states, in your timezone, which hours the team is online, which channel questions go in, when the demo happens, and who to call when something is on fire.
This is the document that prevents the disputes founders actually have. Nobody sues an offshore team. They stop paying because a two-minute question took two days, and the reason it took two days is that nobody wrote down when the overlap was. Our comparison of offshore, nearshore and onshore has the overlap math for each.
Section 174: the tax question your CPA will raise
This is the part most founders do not know about and most offshore vendors will not mention.
Since tax years beginning after December 31, 2024, US businesses can once again deduct domestic research and experimental expenditures, which explicitly includes software development, in the year they are incurred. The 2022 to 2024 rule that forced everyone to amortize over five years was reversed for domestic spend.
It was not reversed for foreign spend. Software development performed outside the United States is still amortized over fifteen years. Pay $60,000 to a team abroad this year and, as things stand, you deduct roughly $2,000 of it this year, not $60,000.
What that does to the real comparison
Take a $60,000 offshore build against a $150,000 onshore one. The offshore price is 60 percent lower. After the deduction timing, the gap narrows, but for a pre-revenue startup that is not paying tax yet, the deduction timing may not matter at all this year. For a profitable company it matters a great deal.
Which is why the honest answer is: it depends on your tax position, and your CPA can tell you in twenty minutes with the actual numbers.
Ask your CPA: “If we spend $X on offshore software development this year, how much is deductible this year under Section 174 as amended, and what does that do to our effective cost compared with domestic development?”
We go deeper on this, including the 2022 to 2025 history and what the amendment changed, in Section 174 and software development.
What it does not do
It does not make offshore development illegal, disadvantaged in any regulatory sense, or unusual. Most US software companies use foreign development in some form. It is a cash-timing difference that a founder should price knowingly rather than discover in April.
Enforcement: what actually protects you
Founders ask “what if they take my code and disappear.” The legal answer is that you have a contract and a jurisdiction clause. The practical answer is that you will never use them, and the things that protect you are operational.
Own the accounts, not just the code
The repository in your GitHub organization from the first commit, with the vendor as a collaborator. The cloud account in your name, on your card. The domain, the app store listings, the third-party services, all registered to you.
If the relationship ends badly, this is the entire difference between having a product and having a dispute. An IP clause gives you the right to the code. Owning the repository gives you the code.
Pay against milestones, hold a final tranche
Milestones tied to demonstrable output, not calendar dates. A final payment after handover and acceptance. Never the full amount up front, and be equally wary of a vendor who wants nothing up front.
Structured this way, the vendor’s incentive to finish well is financial, which is more reliable than legal.
Choice of law and venue
Your contract should name a US state’s law and a US venue. Vendors who work with US clients regularly will accept this; it is a sign they have done it before. In practice it matters for leverage in a negotiation, not because anyone will end up in a Delaware courtroom over a $40,000 build.
Verify the company exists
Company registration in their country, a real address, named directors, a bank account in the company’s name. Fifteen minutes of checking. The vendors who fail this check are the ones who would have disappeared.
Payments, currency, and the boring mechanics
Invoice in USD, pay by wire or a transfer service, check the vendor's country against the sanctions lists before the first payment, and give your bookkeeper the W-8BEN-E, the contract and invoices that describe the work as software development performed outside the United States. The full payment guide, including a costed comparison of paying one development company against paying individual developers, is paying international contractors.
How the money moves
International wire from your bank, or a transfer service like Wise, in USD. Invoice in USD, pay in USD, let the vendor handle conversion. It keeps your books simple and removes currency risk from your side.
Card payments through Stripe are possible for smaller amounts but carry fees the vendor will pass back to you.
Sanctions
Before the first payment, check the vendor’s country against the OFAC sanctions list. For most offshore development markets, including Eastern Europe, North Africa, South Asia and Latin America, this is a formality. Your bank will check anyway, but knowing the answer first avoids a frozen wire.
What your bookkeeper needs
The W-8BEN-E, the contract, and invoices that describe the work as software development performed outside the United States. That last phrase is what supports both the no-withholding position and the Section 174 classification.
Data, privacy, and where the code lives
Your users’ data, on their laptops
An offshore team building your product will handle your data, and during development that data is wherever they are. For an MVP with test data this is a non-issue. For a product that touches real customer records, it is a question to settle before, not after.
The clean pattern: the team builds against synthetic or anonymized data, and production data never leaves infrastructure you control. It is also how a well-run team prefers to work.
State privacy laws
California, Virginia, Colorado, Connecticut and a growing list of states have consumer privacy laws that apply based on where your users are, not where your developers are. Hiring abroad does not change your obligations. It does mean the contract should require the vendor to follow your data handling instructions and to delete what they hold at the end.
Regulated data
If your product handles health data, HIPAA’s business associate requirements apply to any vendor that touches protected health information, foreign or domestic. That is a separate subject with its own contract, the BAA, and we cover it in HIPAA-compliant MVP development. Financial data has its own set. If you are in either space, say so on the first call.
What actually goes wrong
Three patterns account for most of the offshore disputes we have seen or inherited.
The code was never assigned
The contract said “work for hire,” or “agrees to assign,” or it was a proposal that nobody countersigned. Eighteen months later an investor’s lawyer asks for the chain of title and there is not one.
Fix it on day one with the clause, and back the clause with possession: the repository in your organization from the first commit.
The founder never owned the accounts
The vendor set up the GitHub org, the AWS account, the domain, the Apple developer account. All in their name, because it was faster. When the relationship ended, the founder had a right to everything and access to nothing.
Every account in your name, on your card, before work starts. It costs an afternoon.
The overlap was never agreed
The hours were assumed, then eroded, then collapsed to email. The founder concluded offshore does not work. The vendor concluded the founder was disorganized. Both were describing the absence of one page that should have existed in week one.
Before you sign: the six checks
- Is the IP assignment present-tense? “Hereby assigns,” in the signed contract, not a proposal.
- Is the repository yours? Your organization, your admin, them as collaborators.
- Is the W-8BEN-E in hand? Before the first invoice.
- Has your CPA priced Section 174? With your actual numbers, not the vendor’s brochure.
- Are the overlap hours in writing, in your timezone?
- Do you own every account? Cloud, domain, app stores, third-party services.
A vendor who has worked with US clients before will have answers to all six on the first call. The red flags post covers what the wrong answers sound like.
A worked example: week one for a Delaware C-Corp
Here is what the first week looks like when it is done properly, with a US startup hiring a team abroad for a $55,000 fixed-scope build.
Monday: the paperwork
The founder sends the vendor’s proposal to a startup attorney with one question: does this contain a present-tense IP assignment? It does not. It says “work product shall be considered work made for hire.” The attorney replaces it with a hereby-assigns clause, adds background IP and subcontractor language, and names Delaware law and venue. Two hours of attorney time.
The vendor accepts the redline the same day. That is the first signal that they have done this before.
Tuesday: the accounts
The founder creates the GitHub organization, the AWS account, and the Apple and Google developer accounts, all under the company’s name and card. The vendor’s leads are invited as collaborators with no billing access. Forty minutes.
The W-8BEN-E arrives from the vendor unprompted, along with company registration documents. It goes to the bookkeeper with a note: foreign vendor, services performed abroad, no 1099, no withholding.
Wednesday: the CPA call
Twenty minutes. The company is pre-revenue with no taxable income this year, so the Section 174 fifteen-year amortization on the $55,000 does not change this year’s tax position. The CPA notes it for the year the company becomes profitable and asks that invoices describe the work as performed outside the United States. The founder now knows the real number and has it in writing.
Thursday: the working agreement
One page. The team is online 8am to 12pm Eastern every weekday. Questions go in one Slack channel. Demo every Friday at 10am Eastern. If production is down, call this number. Both sides sign it, which is theater, and both sides keep it, which is not.
Friday: the first commit
In the founder’s repository, under the founder’s organization, from a contract that assigns it to the founder. Every dispute this post describes is now structurally impossible.
Total founder time for the week: about six hours, half of it waiting for the attorney.
Where the price fits
Everything above is the cost of doing it properly, and none of it is expensive: an afternoon of account setup, a CPA conversation, a contract you should have anyway. Set against a build that costs 40 to 60 percent less than the domestic equivalent, the paperwork is not where the decision is made.
Where it is made is the working relationship, which is why the offshore comparison and the fixed-price versus hourly question matter more than the legal layer. The legal layer is table stakes. The rest is whether the team can build.
Conclusion
A US company hiring an offshore development team needs four documents, one CPA conversation, and an afternoon of account setup. The IP assignment and the W-8BEN-E are non-negotiable. The Section 174 question changes the real cost and has to be priced before signing, not after. Everything else that goes wrong is operational and preventable in the first week.
We are an MVP development company that works with US founders on exactly these terms: your repository from the first commit, a present-tense assignment in every contract, a W-8BEN-E ready before you ask, and overlap hours in writing on Eastern time. The details are on the offshore MVP development page, and the first call is where we answer the six checks. Start here.
*This post is general information for founders, not legal or tax advice. The tax rules described changed in 2025 and may change again. Confirm your position with a CPA and an attorney licensed in your state before relying on any of it.*
Frequently Asked Questions
Can a US company legally hire developers in another country?
Yes. A US company can contract with a foreign company or individual for software development with no special license or registration. The requirements are a contract that assigns the IP to you, a W-8BEN-E from the vendor for your tax records, and, if the vendor’s country is sanctioned, a check against the OFAC list. For most offshore markets that last step is a formality.
Can I use my standard US contractor agreement with an offshore development company?
You can start from it, but three things need adding or changing: a present-tense assignment of all work product to your company with a fallback licence, because work-for-hire rules do not travel; a governing-law and venue clause you can actually use; and payment against milestones with a held final tranche, which is the enforcement mechanism that works across borders. The forms and payment mechanics are separate, and covered in paying international contractors.
What if the offshore company subcontracts part of the work?
Your contract should require that any subcontractor signs an IP assignment to the vendor that flows through to you, and that the vendor remains fully responsible for delivery, confidentiality and security. Ask for the list of who is working on the build; a vendor that will not name its team is a red flag.
Who owns the code an offshore team writes for me?
The offshore team, until they assign it to you in writing. US copyright law gives ownership to the author, and the work-made-for-hire doctrine does not reliably cover software from an independent company. Your contract needs a present-tense assignment clause, and you should hold the repository in your own organization from the first commit so that ownership on paper is matched by possession in practice.
What is Section 174 and why does it matter for offshore development?
Section 174 governs how software development costs are deducted. Since 2025, domestic development can be expensed in the year incurred, but development performed outside the United States is amortized over fifteen years. That means most of an offshore invoice is not deductible this year, which changes the effective cost for a company that is paying tax. A pre-revenue startup may not be affected this year. Ask your CPA with your actual numbers.
Is an NDA with an offshore developer enforceable?
In principle yes, in practice awkwardly, because enforcing it means litigating abroad. Treat the NDA as a signal of seriousness and a way to make the vendor’s staff understand what is confidential, and rely on staged disclosure for actual protection. The team does not need your full customer list to build a signup flow.
Should the contract be in English and in US dollars?
Yes to both, for a US company. English so your counsel can read what you signed, and USD so your cost is fixed and the exchange-rate risk sits with the vendor. Most offshore development companies contract and invoice in USD by default.
What should be in the contract with an offshore developer?
A present-tense IP assignment, treatment of background IP and subcontractors, acceptance criteria and milestones, a US choice of law and venue, confidentiality, data handling instructions, and exit assistance. The full clause-by-clause breakdown is in our MVP development contract guide. Separately, a one-page working agreement should state the overlap hours in your timezone.
Does hiring offshore change my obligations under US privacy laws?
No. State privacy laws apply based on where your users are, not where your developers are. Your obligations are unchanged. What changes is that you should require the vendor to follow your data handling instructions, build against synthetic or anonymized data where possible, and delete what they hold at the end of the engagement.
What is the biggest risk when hiring an offshore development team?
Not the legal risk. The three failures that actually happen are code that was never assigned, accounts the founder never owned, and overlap hours nobody wrote down. All three are prevented in the first week with a clause, an afternoon of account setup, and one page stating the working agreement. None of them can be fixed at the end.
