TL;DR
Paying an international contractor from a US company is four steps: confirm they are actually a contractor under the law where they live, collect the right W-8 form (W-8BEN for a person, W-8BEN-E for a company) and keep it on file, sign a contract that assigns the work to you, and move the money by wire, a transfer service, or a contractor platform. There is no 1099 for a foreign contractor who does the work outside the United States, and no withholding either, provided you have the form.
For a founder paying developers, the number of people you pay matters more than the method. Five individual contractors means five W-8BENs, five classification questions under five countries’ laws, five invoices and five transfers a month. One development company means one W-8BEN-E, one invoice, one transfer, and the classification and employment questions belong to them. The rest of this post is the detail on each step, what each payment route costs in 2026, and a worked month for a Delaware C-corp paying a three-person team both ways.
Who this is written for
A US company (usually a Delaware C-corp or an LLC) that is about to pay someone outside the United States for work done outside the United States. The examples are software developers, because that is who most founders reading this are paying, but the forms, the tax rules and the payment routes are the same for a designer in Portugal or a bookkeeper in the Philippines.
If your contractor is a US citizen living abroad, most of this does not apply: they get a W-9 and a 1099-NEC like any domestic contractor. If you want to hire someone abroad as an employee, that is an employer-of-record question and is covered briefly near the end.
Step 1: confirm they are a contractor, under their law, not yours
Everything downstream assumes the person is an independent contractor. The mistake US founders make is checking that against the IRS test (behavioural control, financial control, relationship of the parties) and stopping there. The IRS test decides your US tax treatment. Whether the person is legally a contractor is decided by the law of the country they work in, and many countries are stricter than the US.
The pattern that causes trouble: one developer, full time, for you only, on your tools, for a year or more, with no other clients. In much of Europe and Latin America that person is an employee in substance regardless of what the contract says, and the exposure lands on you: back social contributions, severance, and in some countries a claim that your company has a taxable presence there.
Three ways to stay on the right side of it:
- Keep contractors contractor-shaped. Project or milestone based, their own equipment, free to take other clients, invoicing you as a business. If you need someone full time and exclusive for the long term, that is a hire, and an employer-of-record service exists for exactly that.
- Pay a company, not a person. A development company in their country employs its own people under its own law. You have a commercial contract with a business, and the employment questions are theirs. This is the single biggest simplification available to a founder building with a team abroad.
- Ask a local adviser once. For a long-term individual contractor in a specific country, one conversation with an accountant there is cheaper than finding out in year three.
Step 2: the forms, and why there is no 1099
This is the part founders search for most, and it is short once stated plainly.
| Who you are paying | Form you collect | 1099? | Withholding? |
|---|---|---|---|
| A foreign individual, working outside the US | W-8BEN | No | No, if you hold the form and the work is done outside the US |
| A foreign company (including a one-person company) | W-8BEN-E | No | No, same condition |
| A US citizen or resident living abroad | W-9 | Yes, 1099-NEC | No (they file their own US return) |
| A foreign person doing some of the work while physically in the US | W-8BEN plus advice | No | Possibly, on the US-performed portion: ask your CPA |
The W-8BEN and W-8BEN-E certify that the payee is not a US person. You do not send them to the IRS; you collect them before the first payment and keep them on file. They are valid from the date signed until the end of the third following calendar year, then need refreshing. Collect the form at contract signature; a contractor who will not complete one is a contractor you should not pay.
No 1099-NEC. The 1099-NEC reports payments to US contractors. A foreign contractor performing services outside the US is earning foreign-source income, which is outside its scope entirely. The threshold, the deadline, the state copies: none of it applies.
No withholding, with the form. The 30 percent withholding rule founders read about applies to US-source income paid to foreign persons. Services performed outside the US by a non-US person are foreign-source, so there is nothing to withhold. The W-8 is how you document that. Without it, you are exposed to presumption rules that can put withholding on you, which is the practical reason to collect the form first and pay second.
Form 1042-S reports US-source payments to foreign persons. For a contractor working entirely outside the US, there is normally nothing to report. If any of the work is done on US soil, or if you are paying for something other than services (royalties, for instance), ask your CPA before the year ends, not after.
Records. Keep the W-8, the contract, the invoices and proof of payment for as long as the related tax year can be examined. That is what your bookkeeper will ask for, and it is what makes the deduction defensible, which is the Section 174 question rather than this one.
Step 3: the contract that makes the payment worth making
The form protects you from the IRS. The contract protects you from paying for code you do not own. For developers specifically, the one clause that matters is a present-tense assignment of all work product to your company, with a fallback licence if any of it turns out not to be assignable in their jurisdiction. Governing law, currency, invoicing cadence, and a milestone or acceptance step before payment follow from that.
The full treatment, including what enforcement actually looks like across borders and the six checks before signing, is in hiring offshore developers as a US company and the MVP development contract guide. This post assumes the contract exists and gets to the money.
Step 4: how the money moves, and what each route costs
Four routes cover nearly every startup. The right one depends on how many people you are paying, how often, and in what currency.
| Route | Typical cost in 2026 | Speed | Right when |
|---|---|---|---|
| Bank wire (SWIFT) | $25 to $50 per outgoing wire, plus receiving-bank fees the contractor absorbs, plus an FX markup of 1 to 3 percent if you send in their currency | 1 to 5 business days | One or two large payments a month, especially to a company invoicing in USD |
| Transfer service (Wise, Airwallex, Payoneer and similar) | A small fixed fee plus FX at roughly 0.4 to 1 percent over mid-market | Same day to 2 days | Several payments a month in local currencies; the usual answer for individuals |
| Contractor platform (Deel, Remote, Rippling and similar) | Roughly $29 to $49 per contractor per month, plus payment fees; contractor-of-record tiers from about $325 per person per month | 1 to 3 days | Many individual contractors in many countries, where you want the platform to hold the W-8s, contracts and compliance |
| PayPal and card-based tools | Several percent all-in once FX and receiving fees are counted | Instant | Small one-off payments; expensive at team scale |
Two things the vendor guides do not say. First, if your contractor is a company invoicing in US dollars, a plain wire is often the cheapest route and the FX cost moves to their side, where they may have a better rate than you. Second, the platform fees are per contractor per month: five developers on a $49 plan is $2,940 a year before a single transfer, which is real money for a pre-seed company and zero for one that pays a single company invoice.
Stablecoins and crypto come up in every founder forum. Some contractors ask for them. The bookkeeping, the volatility between invoice and settlement, and the sanctions screening you become responsible for make it a poor default; if a contractor insists, ask your CPA first.
Step 5: invoices, currency, and what your bookkeeper needs
- Invoice in USD where you can. It fixes your cost, moves FX risk to the contractor, and makes the bookkeeping trivial. Most development companies abroad will invoice in USD by default; individuals often prefer local currency, which is where a transfer service earns its fee.
- A real invoice, every time. Contractor name and address, your company name, dates, description of work, amount, and their bank details. An invoice that says “Sprint 4: $18,000” is a bookkeeping entry; one that lists the work is also the record that supports the deduction and, if the work qualifies, the research credit. Section 174 covers what the invoice should say for tax purposes.
- Approval before payment. One person approves, one person pays, even if they are the same founder on different days. A written change to bank details is verified by a call to a known number, because the most common fraud in this whole area is an email “updating” a contractor’s account.
- Sanctions. US companies cannot pay people or companies in comprehensively sanctioned countries or on the OFAC lists, wherever they physically sit. Transfer services and platforms screen automatically; a bank wire relies on your bank’s screening and on you not routing around it.
- State rules. There is no state withholding or reporting for a foreign contractor working abroad. If the contractor sets foot in a US state to work for you, that changes, and it is a CPA question.
The comparison the payment vendors leave out: five contractors or one company
Every page on the first result page for this query sells a way to pay individuals, so every page assumes you are paying individuals. For a founder building a product with a team abroad, that is a choice, and it is the choice that decides how much of the above you have to do.
This is not an argument that individuals are wrong. A founder assembling their own team, with a senior developer they trust in Poland and a designer in Argentina, is paying individuals, and the platforms exist because that is common and it works. It is an argument that the choice should be made on purpose. The freelancer vs agency comparison covers the build side of that decision; offshore vs nearshore vs onshore covers where; this post is only about what each choice does to the paperwork and the payment run.
A worked month: a Delaware C-corp paying a three-person team in Eastern Europe
Same team, same $18,000 of monthly development spend, two ways of paying for it.
| Three individual contractors | One development company | |
|---|---|---|
| Forms on file | 3 W-8BEN | 1 W-8BEN-E |
| Contracts | 3, each with IP assignment and governing law | 1 |
| Classification review | 3, under the local law of each (two countries) | None; they employ their own team |
| Invoices received | 3 | 1 |
| Payments sent | 3 via a transfer service in local currency: roughly $15 to $30 in fees plus 0.5 to 1 percent FX, about $120 to $210 a month | 1 wire in USD: $25 to $50, no FX on your side |
| Platform fees, if used | $87 to $147 a month | None |
| Bookkeeping entries | 3 bills, 3 payments, 3 vendor records | 1 bill, 1 payment, 1 vendor |
| Approximate monthly overhead | $200 to $360 in fees, plus 2 to 3 hours of admin | $25 to $50, plus 20 minutes |
| Annual difference | Roughly $2,000 to $3,700 and a working day or two of admin |
The cost gap is small next to the build itself. The exposure gap is not: in the left column, three full-time-looking individual relationships are three misclassification questions that sit with a US company with no presence in either country. In the right column that question belongs to a business that already answers it for its own staff. For most founders the difference between the columns is not the fees; it is which set of problems they want to own. What an MVP costs puts the build number in context.
When you actually want an employee abroad
If the person is going to be full time, exclusive and long term, and you want them to be, stop treating them as a contractor. An employer of record (EOR) hires them legally in their country on your behalf, runs payroll and benefits under local law, and bills you monthly, typically $400 to $700 per employee per month on top of their pay. It costs more than a contractor arrangement and it removes the classification risk entirely. It is the right answer for a first international hire you intend to keep, and the wrong one for a build you intend to finish. Building an MVP development team covers when a startup should be hiring at all versus buying the build.
Mistakes founders make
- Paying before the W-8 is on file. The form is the thing that makes the “no withholding” position defensible. Collect it with the signed contract.
- Treating a foreign contractor like a domestic one on the 1099. Filing a 1099-NEC for a foreign contractor working abroad is wrong in the other direction; it creates paperwork that implies US-source income.
- Assuming the US contractor test is the only one. The country the developer lives in decides whether they are your employee. Long, exclusive, full-time individual arrangements are where this bites.
- Paying developer number five on a per-person platform without asking whether you should be paying a company. The platform fee is small; the structure decision is not.
- Changing bank details on the strength of an email. Verify by phone. This is the most common way startups lose a month’s development budget.
- Paying in crypto to avoid the above. It avoids none of it and adds volatility, bookkeeping and sanctions exposure.
- Letting the W-8 expire. Three calendar years, then a fresh one. Put it in the calendar when you file the first.
Conclusion
Paying an international contractor from a US company is a W-8BEN or W-8BEN-E on file before the first payment, a contract that assigns the work, no 1099 and no withholding when the work is done abroad, and a wire, a transfer service or a platform to move the money, each with a known cost. Done once, it takes an afternoon. Done for five developers in three countries, it is a standing monthly process with five sets of paperwork and five classification questions that sit with you.
The decision that shrinks all of it is upstream of the payment: whether you are hiring individuals or buying a build from a company that employs its own team. Both are legitimate. Only one of them involves a single form, a single invoice and a single wire.
If you are a US founder weighing an offshore team and would rather the employment, classification and payment questions belonged to someone else, that is how we work as an MVP development company: one contract, one invoice, the code assigned to you. Start it here.
Related guides
- Hiring offshore developers as a US company
- Section 174 and software development
- Offshore vs nearshore vs onshore MVP development
- MVP outsourcing
- MVP development contract
- Freelancer vs agency for an MVP
- Offshore MVP development
Frequently Asked Questions
How do I pay an international contractor from the US?
Collect a W-8BEN (individual) or W-8BEN-E (company) before the first payment and keep it on file, sign a contract that assigns the work to your company, then pay by bank wire, a transfer service such as Wise or Airwallex, or a contractor platform such as Deel or Remote. No 1099 and no withholding apply when the contractor is not a US person and does the work outside the United States.
Do I need to send a 1099 to a foreign contractor?
No, if they are not a US citizen or resident and perform the work outside the United States. The 1099-NEC reports payments to US contractors. A US citizen living abroad is different: they complete a W-9 and receive a 1099-NEC like a domestic contractor.
What is the difference between a W-8BEN and a W-8BEN-E?
The W-8BEN is for a foreign individual; the W-8BEN-E is for a foreign entity, including a one-person company or a development agency. Both certify non-US status for withholding purposes, both are kept on file rather than sent to the IRS, and both are valid until the end of the third calendar year after signature.
Do I have to withhold 30 percent when paying a foreign contractor?
Not for services performed outside the United States by a non-US person; that income is foreign-source and outside the withholding rules. The W-8 form documents the position. Without it you are exposed to presumption rules that can require withholding, and if any of the work is done physically in the US, withholding may apply to that portion and a CPA should look at it.
What is the cheapest way to pay international contractors?
For one or two payments a month to a company invoicing in USD, a bank wire at $25 to $50 is usually cheapest, with FX handled on their side. For several payments in local currencies, a transfer service at roughly 0.4 to 1 percent over mid-market beats a bank. Contractor platforms add $29 to $49 per contractor per month and are worth it when you have many individuals in many countries.
Can I pay international contractors through Deel, Remote or Gusto?
Yes. Contractor platforms collect the W-8 forms, hold the contracts and pay in local currency for a per-contractor monthly fee, typically $29 to $49. They make the most sense with many individual contractors. For a single development company invoice they add cost without adding much.
Is it better to pay a development company or individual developers abroad?
For a build, paying one company is simpler and lower-risk: one W-8BEN-E, one contract with one IP assignment, one invoice and one transfer a month, and the employment and classification questions belong to the company that employs the team. Paying individuals fits a founder assembling their own long-term team and accepting the per-person paperwork and the classification exposure that comes with it.
Can a foreign contractor be considered my employee?
Yes, under the law of the country they work in, which is often stricter than the US test. A full-time, exclusive, long-term individual contractor working only for you is the pattern that gets reclassified. The fixes are to keep the arrangement contractor-shaped, use an employer of record for a genuine hire, or contract with a company that employs its own staff.
What records do I need to keep when paying foreign contractors?
The W-8 form, the signed contract, every invoice with a description of the work, and proof of each payment, retained for as long as the related tax year can be examined. Detailed invoices also support the deduction and, where the work qualifies, the research credit.
Can I pay a foreign developer in cryptocurrency?
You can, and it is usually a poor idea: volatility between invoice and settlement, awkward bookkeeping, and sanctions screening that becomes your responsibility rather than a bank’s or a platform’s. If a contractor insists, ask your CPA first and document the USD value at the time of each payment.
