When hiring Filipino staff on the Virtual Staff marketplace, you don’t need to pay any employment taxes. You don’t withhold any salary or pay any government-related benefits or taxes.
The reason for clarifying this is because there are several jurisdictions where employers are required to withhold income taxes and other taxes for “local employees.” If you’re in one of those countries and you’re considering hiring remote workers in the Philippines (especially if you're from the USA), you might be wondering about 1099 and W2, etc.
United States
Unlike hiring domestic workers, the taxes when employing remote workers from the Philippines is very simple. Since you are hiring foreign workers who render service on foreign soil, you don’t have to worry about Form 1099, W-2, social security, unemployment benefits, and other tax requirements from the Internal Revenue Service (IRS).
In fact, hiring online workers from the Philippines means you have no reporting obligation with the IRS. Moreover, you have no obligation as to taxes in the Philippines. It is the Filipino workers’ responsibility to file and remit their individual taxes.
Form W-8BEN
You can keep a W-8BEN form for each of the Philippine remote workers you employ if you’d like to or if your local accountant suggests that you do. A W-8BEN form states that the workers are foreign individuals and they receive payment from an American individual or business. You can download the W-8BEN form here.
As an attachment to the W-8BEN, you may also request from your Philippine workers a signed memorandum stating that they are working on foreign soil and outside of the United States. The IRS does not require the document, but you can keep it as a supporting document in case of a possible tax audit.
Form 1120-S
Limited liability companies (LLCs) and S corporations are required to file Form 1120-S to detail their business expenses. Since payments made to remote workers will not qualify in the specific line item expenses, you can lump these payments in “Other deductions” and prepare a list of expenses as an attachment.
There is no standard format for this attachment. It will be sufficient as long as it enumerates all the other expenses.
Australia
Likewise, hiring Filipino remote workers would not result in any tax obligation in Australia. Since the workers are not residents of Australia, their income is deemed foreign-source and would ordinarily not be taxable in Australia.
United Kingdom
The two principal factors determining an individual’s tax liability in the UK are residence and domicile. In the case of hiring remote workers in the Philippines, they are neither residents nor domiciled in the UK. The salaries or wages paid to them will not be subject to taxation in the UK.
Other countries
Generally, most countries are similar to either the USA or the UK regarding the above information.
The facts are as follows:
1. You do not need to pay any taxes in the Philippines, and you have no legal liability regarding compliance in the Philippines.
2. Because the staff/workers are based in the Philippines and working for you as “independent contractors” in the legal sense of the word, you don’t have any “employee liability” in your own country.
This is general advice based on our understanding. This should not be taken as official tax or financial advice. We advise you to clarify with a licensed accountant in your home jurisdiction if you have any questions about your domestic tax position.