Implications for a non-profit hiring an overseas software development vendor

[thunksalot]

My US non-profit organization wants to hire an Argentinian software group to customize our Salesforce.com database for us. They would do all the work from Argentina and never come to the US. This is our first time hiring services from an overseas vendor so our Business Manager is concerned that there may be new IRS paperwork or taxes or something that we have to process or pay as a part of hiring an overseas vendor. Is this true? If so, what are those things?

It happens that the Argentinian software group is registered as a non-profit in Argentina because their focus is helping non-profits with technology. Does that matter?

Thank you so much for your insights!

 

[BaBaBooey]

My US non-profit organization wants to hire an Argentinian software group to customize our Salesforce.com database for us. They would do all the work from Argentina and never come to the US. This is our first time hiring services from an overseas vendor so our Business Manager is concerned that there may be new IRS paperwork or taxes or something that we have to process or pay as a part of hiring an overseas vendor. Is this true? If so, what are those things?

It happens that the Argentinian software group is registered as a non-profit in Argentina because their focus is helping non-profits with technology. Does that matter?

Thank you so much for your insights!

You are free to hire any contractor you choose.

 

[thunksalot]

You are free to hire any contractor you choose.

Thanks for your quick response, BaBaBooey. I realize we are allowed to hire whoever we choose. My question is whether there are tax or paperwork implications for hiring an overseas firm to provide our software customization vs one based in the US?

 

[BaBaBooey]

Thanks for your quick response, BaBaBooey. I realize we are allowed to hire whoever we choose. My question is whether there are tax or paperwork implications for hiring an overseas firm to provide our software customization vs one based in the US?

No, there are none you need to worry about.
Why would you assume there are?

501 (c) status has its requirements pretty well established.
You can download them from the IRS.

The biggest thing is simply keep good records and refrain from overt political activity.

 

[thunksalot]

First of all, thank you very much for your replies, BaBaBooey. I can't tell you how much I appreciate it. Our ED and Business Manager won't approve spending any more money on professional opinions because our CPA already told us we had to do 30% back-up withholding. (see below) I think the CPA is incorrect, but I'm no expert!

No, there are none you need to worry about.
Why would you assume there are?

Our CPA told us there is a *chance* that "computer software development can be US-sourced" even if the work is being done in a foreign country because there are servers and data transmission involved. In which case, the CPA said we would have to do US Tax Withholding (30%) and file some paperwork with the IRS. The CPA said we should go ahead and do US Tax Withholding in order to be safe, while demanding that the vendor (who happens to be a non-profit in Argentina) put together a W-8EXP which would certify them as being equivalent to a US nonprofit. The CPA's logic is that once they are certified as being equivalent to a US nonprofit that any tax withholding concerns would become moot. Unfortunately, getting a W-8EXP is no simple matter because you have to find a lawyer that understands both US and Argentinian non-profit incorporation law to certify the organization's Argentinian incorporation documents demonstrate that the organization meets US 501(c)3 criteria.

Is it true that the payments we make to the Argentinian vendor in exchange for their customizing our Salesforce.com account (probably hosted at a data center somewhere in the US) could possibly count as US-source income, even if they are doing all the work from their office in Buenos Aires? If not, that definitely means we don't need to do any US tax withholding or file any special paperwork with the IRS?

(BTW, BaBaBooey, could you tell me a little more about your training/experience. I'm afraid that if I go to my Business Manager and say "BaBaBooey said this..." she won't be very impressed.

 

[BaBaBooey]

First of all, thank you very much for your replies, BaBaBooey. I can't tell you how much I appreciate it. Our ED and Business Manager won't approve spending any more money on professional opinions because our CPA already told us we had to do 30% back-up withholding. (see below) I think the CPA is incorrect, but I'm no expert!

Our CPA told us there is a *chance* that "computer software development can be US-sourced" even if the work is being done in a foreign country because there are servers and data transmission involved. In which case, the CPA said we would have to do US Tax Withholding (30%) and file some paperwork with the IRS. The CPA said we should go ahead and do US Tax Withholding in order to be safe, while demanding that the vendor (who happens to be a non-profit in Argentina) put together a W-8EXP which would certify them as being equivalent to a US nonprofit. The CPA's logic is that once they are certified as being equivalent to a US nonprofit that any tax withholding concerns would become moot. Unfortunately, getting a W-8EXP is no simple matter because you have to find a lawyer that understands both US and Argentinian non-profit incorporation law to certify the organization's Argentinian incorporation documents demonstrate that the organization meets US 501(c)3 criteria.

Is it true that the payments we make to the Argentinian vendor in exchange for their customizing our Salesforce.com account (probably hosted at a data center somewhere in the US) could possibly count as US-source income, even if they are doing all the work from their office in Buenos Aires? If not, that definitely means we don't need to do any US tax withholding or file any special paperwork with the IRS?

(BTW, BaBaBooey, could you tell me a little more about your training/experience. I'm afraid that if I go to my Business Manager and say "BaBaBooey said this..." she won't be very impressed.

Get a new CPA.
You've got a Mr. Fraydy Cat as a CPA.
The 30% withholding is nonsense on its face.
I guess your CPA has never heard of a 1099 for an independent contractor?

The work is being done by someone in a foreign country via a computer in a foreign country.
They have no physical presence in the US and are not operating as a US business.
It is immaterial where they receive the source data from.
The source data is yours anyway.

Your CPA needs to go back to school.
He is being overly cautious to the point of absurdity.
If anyone was to ever question it, all that is necessary is a statement from you this this company is the only company who can perform the job in the time allowed at a price you can afford to pay.

The idea that any vendor you use must also be a non-profit is nonsense.

My father is a CPA and my youngest brother is a CPA.
I'm a business owner who pays a non-family CPA to prepare my taxes.
I run the business.

All this being said. don't take my word for any of this.
Do more research.
Second opinions are a must in business as well as medicine.

If your ED and Business Manager won't approve an expenditure for getting a second opinion, You've got problems ahead.
Be prepared for any vendor you want to do business with to politely tell you to go pound sand down a rat hole when you mention your requirements.
You'll end up with several No-Bids and your cost of doing business as well as your ability to deliver your product or service will suffer markedly.

I have personally passed up work because of onerous terms from a potential customer.
Other times I'll simply quote it in the stratosphere as I know it will never be approved as a PO.
Any company wishing to buy a product or service I provide plays by MY terms, not theirs.
In God I Trust, All others pay CASH!