# Best approach for non-resident citizen to do contract work in US?



## craigpvmts (May 19, 2013)

Hi all - 

We moved to NZ last year on a residence visa. I am still working remotely for my previous employer in the US and filing US and NZ taxes. For various reasons, they are requesting that I become a contractor (to avoid complications like fringe benefits, switching back-and-forth between part-time and full-time). In general, we both agree this makes more sense and I even was pushing for it until I discovered the mountain of paperwork the IRS has in store for me if I start a company in NZ.

Now for the question - to further complicate things, they are also requesting that I come to the States occasionally to work at various job-sites around the US. I'm not quite sure how to handle this. Does anyone have experience with this kind of situation?

Maybe I'm making this overly complicated, but right now I think it would require one of 2 approaches:
1. I start a company in NZ and register that company with the IRS for an EIN to handle US-employees to handle withholding, etc. (but I expect this will get even more complicated since this employee (me) will go back-and-forth between the US and NZ and different tax regimes)
2. I start a company in NZ and some other entity in the US. I'm thinking of a foreign-based LLC in a state like Nevada. I'm an employee of both (well, the LLC is a sole-proprietorship with limited liability). In this scenario, I expect my current employer to contract with the LLC and the LLC basically sets up some type of pass-through contract with my NZ company when I'm not physically working in the US.

The 2nd scenario makes more sense to me, but either way it looks like a paperwork nightmare, especially filing with the IRS. I'm wondering if anyone out there has any experience along these lines and can offer something simpler.

Thanks for all suggestions!


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## Bevdeforges (Nov 16, 2007)

Actually, it would probably be better to start a NZ company, making sure to register will all the appropriate tax and social insurance agencies in NZ. That way, your company is a non-US entity and you are an employee of said company, paying into the NZ social insurances system.

You may need to provide a certificate of some sort to the IRS showing your NZ company registration (though I would wait for them to ask for it rather than offering it up right away). 

You still have to file both sets of income tax returns (US and NZ) but because you would be working for a non-US employer (i.e. your company), you could skip paying the US withholdings and taxes (because your company would be paying NZ taxes on your behalf).

On your US tax returns, you'd have to make sure that you meet the requirements to take the FEIE as a bona fide resident, particularly if you would spend more than 30 days a year in the US. You would still wind up owing US taxes on the portion of your earnings made while physically present in the US, but if you could keep those to a minimum, it shouldn't cost you too much (and the Foreign Tax Credit is still available for any tax liability created in that manner). 
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Note however the U.S. doesn't have a Social Security treaty with New Zealand, so whether one pays into New Zealand's system or not doesn't matter for purposes of determining whether U.S. payroll taxes/self-employment taxes are owed.

In short I don't think U.S. payroll taxes are realistically avoidable in the circumstances described, consequently it generally wouldn't be prudent to incur New Zealand payroll tax liabilities if legally avoidable.


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## craigpvmts (May 19, 2013)

Thanks for the responses.

My understanding is that US citizens living abroad, who are employees of foreign companies, are not subject to FICA or SECA taxes. This includes companies those citizens set up abroad. However, for Americans setting up a foreign company, the reporting obligations to the IRS are quite burdensome (5471 forms) and I expect to need an expat tax expert accountant at least my first year or two. I have seen many recommendations to this effect and also been given this advice from accountants.

My main problem is how do I physically work in the States for a short term assignment? Normally, a company can't just send workers to work in a foreign country. As a citizen I can work in the US, but I'm not sure how to structure this - should I just continue to be an employee of my NZ company? Be an independent contractor to my NZ company while in the States (and where would I be resident in the US)? I know that while in the States, I can definitely not avoid FICA/SECA taxes and would also be liable for withholding/estimating any federal and local income taxes of localities I work in. I'm just not sure how to handle this and in general I don't want to raise the ire of the IRS.

Thanks again.


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## BBCWatcher (Dec 28, 2012)

There are lots of "company" structures covered under the U.S. self-employment tax, so you would have to be quite careful about that. If your employer has an affiliate in New Zealand that could hire you that'd probably be the simplest approach.

What's the motivation here? I can understand why your U.S. employer wants to cut you loose while still enjoying your services -- that's probably a great deal for them -- but what's in it for you?


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## cloudwalker (Oct 13, 2013)

There is no way to avoid FICA, because there is no social security agreement between New Zealand and the US. However, you can deduct the ACC levies paid on your US return. For work in the US, continue as an employee of the NZ company and also declare it on your US individual tax return. The company will pay tax in NZ, but you'll get the foreign tax credit. You may still end up owing some US tax on income earned while physically present in the US.

The 5471 is a pain, but it's not that onerous if your company structure and activities are fairly straightforward. Our NZ accountant prepares our company books and tax return, and we then prepare our own 5471 from that. The currency exchange and different tax years take a bit of working out, but it is doable.

Don't see any advantage to having a US company as well as a NZ one, it's just an additional complication. We actually did this in 2004, but it was a waste of money as we ended up putting everything through the NZ company. The advantage to having a company structure, wherever it is incorporated, is you get to write off a lot of things that you can't as an individual. The disadvantage is the paperwork. 

When distributing any profits, be sure that your accountant first pays you directors fees (average of $NZ36,000 per director), then shareholder salaries if there is anything left over. Directors fees are counted as personal income, but shareholder salaries are technically dividends in the US and taxed at a MUCH higher rate.


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## BBCWatcher (Dec 28, 2012)

cloudwalker said:


> There is no way to avoid FICA, because there is no social security agreement between New Zealand and the US.


That's quite incorrect, and the treaties where they exist don't have much to do with it.

Working for a foreign (non-U.S.) employer outside the U.S. generally means you don't pay FICA, and you _can't_ pay FICA. (The U.S. doesn't allow voluntary Social Security and Medicare contributions.)


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