Liquid Helps Mitigate Permanent Establishment Risk
Liquid’s features help you mitigate permanent establishment risk, allowing you to focus on growing your business.
In today’s global economy, business can be done from virtually anywhere. Outsourcing projects to freelancers has never been easier, but comes with compliance risks. Permanent establishment risk — the risk of a foreign tax authority determining that you are liable for corporate taxes due to continuous operations — can result in hefty fines.
Here’s how Liquid’s features help you manage the behavioral, financial, and relationship factors that impact worker classification and mitigate permanent establishment risk.
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Document your contractor relationship
To mitigate permanent establishment risk, you should always have a signed independent contractor agreement in place with every freelancer that your company engages. The agreement reinforces the independent contractor classification by defining the terms of the relationship.
With Liquid, you can use our standard template to create and execute your agreement or use your own attorney-approved contract template.
Define the work
For every project with a freelancer or contractor, you should clearly define and stipulate the project deliverables and due dates. This helps mitigate permanent establishment risk. You are only evaluating the freelancer’s work only on the end products or services provided – how, where, and when the work is done is determined by the contractor, not your company.
In Liquid, you can easily set up work orders (WOs) or statements of work (SOWs). These WOs can include all the project details, including the deliverables and timeframes. In Liquid, WOs and SOWs are created in USD by default and can be created in select foreign currencies.
Collect IRS Form W-8
For freelancers and vendors in the US (or US Citizens overseas), you must collect IRS Form W-9, which has all the information required for filing Form 1099s for contractors / vendors earning over $600 each year. However, for foreign freelancers, contractors, and vendors, you must instead collect IRS Form W-8 – typically either the W-8BEN (contractors who act as individuals) or W-8BEN-E (foreign companies).
Liquid makes it easy to collect and securely store W-8s every time you onboard a freelancer and vendor. W-8s are valid from the day it is signed to the end of the third calendar year after unless a change in circumstances makes any information on the form incorrect.
Establish the payment structure
Freelancers and contractors should be paid based on deliverables and project milestones to help mitigate permanent establishment risk. With Liquid, you can quickly agree to specific hourly rates or project-based fees for each work order or statement of work. Contractors can then submit invoices (created with Liquid) to you for approval – every payment should always be associated with an invoice. In Liquid, invoicing is done in USD by default but can be done in select foreign currencies.
Simplify your risk management with Liquid
Liquid is designed to save your company time and money when managing your liquid workforce. Automation and smart rules simplify processes while ensuring that every step in your process to engage and onboard contractors is always followed. Liquid helps you manage the behavioral, control, and financial factors that impact worker classification. These factors, in turn, impact your permanent establishment risk when working with international freelancers and contractors. Using Liquid to manage your international contractors helps to reduce the risk of permanent establishment for your company.
Need help understanding permanent establishment risk or independent contractor compliance? Use the chat to reach out to us anytime!
Category: Liquid News Freelancer Management Finance and Accounting International Payments Operations
Updated: February 16, 2021