The Self-Employed

International Taxation of Self-Employed Individuals & Independent Contractors

Many small businesses, self-employed individuals, and independent contractors avail of simplified income reporting procedures that require preparation of a tax return, Schedule C, and Schedule SE. However, the tax compliance and filing requirements change dramatically if services of independent character are rendered in another country. To address the need for competent international tax advisors, we have developed tax return preparation and auxiliary services to support small businesses, contractors, and self-employed individuals providing services that cross international borders. We specifically stress on tax compliance issues for musicians, artists, writers, lawyers, teachers, editors, journalists, lecturers, and consultants, whose job responsibilities and arrangements require them to conduct business overseas. Our income tax advisory services apply to

Americans who are self-employed abroad

American owners of offshore companies

American partners in foreign partnerships

Non-residents with US self-employment income

Non-resident owners of US partnerships and LLCs

Self-Employment Income and Tax Treaties

To address avoidance of double taxation of self-employment income, the USA maintains income tax treaties with 65 countries. Most tax treaties explicitly approach self-employment activities in either Article 7 "Business Profits" or Article 14 "Independent Personal Services". When a tax treaty applies, the taxation rights are usually granted to the country of permanent residency. However, if the services are provided through a "fixed base" or "permanent establishment" located in the host country, the taxation rights shift to the host country in conformity with its income tax law provisions.

Consequently, interpretation and application of all applicable tax treaty provisions are required to avoid double taxation. Moreover, the tax treaties relieve only federal income taxes and do not mitigate the risk of double coverage under the social security systems of both the country of residence and the host country.

Self-Employment Taxes and Social Security Agreements

One important feature of the self-employment activity is the requirement to pay both the "employee" and the "employer" share of social security and medicare taxes, referred to as Self-Employment Taxes. In the USA alone the Self-Employment Taxes account for additional 15.3 % of tax on net income from self-employment. Consequently, if a US citizen is self-employed abroad, social security taxes must be paid both in the USA and the host country. Same applies to citizens of other countries who provide self-employment services in the USA. To address this inequality, the USA signed Social Security (Totalization) Agreements with 25 nations. On one side, the Totalization Agreements provide for avoidance of double taxation with respect to social security and self-employment taxes. On the other, they also ensure employees and self-employed individuals receive equitable social security benefits even if part of their career was in another country.

Income Tax Returns for US Citizens with Self-Employment Activities Outside the USA

US citizens who carry trade or business activities outside of the USA are still required to comply with the US self-employment tax provisions. The mere fact that you have rendered services abroad does not affect your US tax return obligations. For instance, the requirement to file federal income tax return if your net income from self-employment exceeds $400.00 still applies.

Moreover, depending on the duration of your stay abroad and the extent of your business activities you may also become liable for income tax and social security coverage in the host country. This situation creates a potential for double taxation of the same income, in addition, to duplicate coverage under the social security systems of both the USA and the host country.

Our CPAs and IRS Enrolled Agents ensure you comply with the US self-employment tax provisions while you are conducting business overseas. We maximize your benefits and reduce your US tax obligations by application of tax treaty and social security agreement provisions in combination with

  • Preparation of all required federal income tax returns, including Schedule C and SE 
  • Preparation of all required state income tax returns 
  • Application of double taxation avoidance agreements and treaty-based return positions
  • Application of Social Security Agreements and assistance with Certificates of Coverage
  • Accounting and bookkeeping services in compliance with the cash method of accounting, US GAAP or IFRS
  • FBAR compliance, appeals, representations, and more

Income Tax Returns for American Owners of Foreign Companies

US citizen owners of foreign unincorporated entities are often subject to the US the self-employment tax provisions. For instance, a foreign "disregarded entity" exists if a foreign company has only one owner with unlimited liability with respect to the affairs of the business. In such an event, the business income of the entity flows through the owner and both individual tax and information returns are filed with the IRS. Our CPAs and IRS Enrolled Agents ensure you comply with the US self-employment tax provisions while you are conducting business overseas. Our services include

  • Preparation of all required federal income tax returns, including Schedule C and SE
  • Preparation of all required state income tax returns
  • Preparation of Form 8858, information return for foreign disregarded entities
  • Application of double taxation avoidance agreements and tax treaty-based return positions
  • Application of Social Security Agreements and assistance with Certificates of Coverage
  • Accounting and bookkeeping services in compliance with the cash method of accounting, US GAAP or IFRS
  • FBAR compliance, appeals, representations, and more

Income Tax Returns for Non-residents with US Self-Employment Income

Citizens of foreign countries who are physically present in the USA will be considered self-employed individuals if they carry trade or business activities in the USA as either sole proprietorship, independent contractor, or as a member of a US LLC or partnership. In such an event, you would be required to file a tax return if your net income from self-employment exceeds $400.00.

Depending on your tax residency, you may be required to pay federal, state and self-employment taxes at the same graduated rates that apply to US citizens. Our CPAs and IRS Enrolled Agents ensure you comply with the US income tax provisions while you are conducting business overseas. We maximize your benefits and reduce your tax obligations by application of various tax treaty provisions and social security agreements in combination with

  • Preparation of 1040-NR or 1040 tax return, including Schedule C and SE
  • Preparation of all required state income tax returns
  • Application of double taxation avoidance agreements and treaty-based return positions
  • Application of Social Security Agreements and assistance with Certificates of Coverage
  • Accounting and bookkeeping services in compliance with the cash method of accounting, US GAAP or IFRS
  • Amendments, appeals, representations, and more

Should you wish to register for our self-employment income tax services, you may do so at any time. Did not find what you were looking for? Ask your questions and get a free quote with more information about how we can assist you further. You may also contact us directly.