Do I withhold tax when paying a freelancer in another country?
The question is not where the freelancer lives or where the invoice comes from. It is where the work was physically done. If the services were performed inside your country, withholding generally applies to the gross fee, and the duty sits with you as payer. If the services were performed entirely abroad, the payment usually falls outside that withholding and into a different reporting regime with its own certificates. So the thing to establish, before the first payment, is the place of performance for each engagement. A contract that says nothing about location does not settle it.
Does it matter which country my contractor invoices from?
No. The invoicing address, the bank account and the country of incorporation are all weaker signals than one fact: where the person was standing while they did the work. A contractor resident abroad who invoices from abroad but spends a fortnight working at your premises has performed services inside your country for that period, and the withholding question is live for that part of the fee. The reverse holds too. Work done entirely abroad by someone who bills through a local entity is usually outside the withholding regime, though it may still need reporting of another kind. Split the engagement by where it was performed and treat each part on its own facts.
What do I report if the work is done entirely outside my country?
Falling outside withholding does not mean falling outside reporting. Where the services were performed entirely abroad, the payment usually sits in a different regime, with its own returns and its own certificates issued to the contractor. Those obligations are easy to miss precisely because no tax is being deducted, so nothing in the payment run flags them. Work out which stream each engagement belongs to at onboarding and record the reason. A payer who can show why a payment was reported one way rather than the other is in a far better position than one who simply stopped thinking about it once no deduction was required.
My contractor moved country mid-project, does that change my duty?
It can change it completely, because the duty follows where the work is physically done rather than where the engagement started. A contractor who begins working abroad and then spends months inside your country has moved part of the fee into the withholding regime, even though the contract, the invoice and the rate never changed. Treat the move as a new set of facts from the date it happened. Ask contractors to tell you when their working location changes, put that obligation in the engagement terms, and re-document the arrangement at that point rather than discovering the change at the year end.
Does the contract calling them self-employed change my withholding duty?
Not by itself. The label the parties choose does not decide the question. What decides it is where the services were physically performed and what the payment is for. A contract is useful evidence of what was to be done and where, and a well-drafted one records the place of performance for exactly that reason. But if the work happened inside your country, describing the person as an independent contractor in another jurisdiction does not remove the obligation that attaches to the payment. Treat the classification question and the source question as two separate exercises, because they can come out differently.
My contractor abroad came in for a fortnight, how do I split the fee?
By reference to what was actually done in each place, evidenced by something contemporaneous. Travel bookings, site logs, project plans and correspondence all fix dates and locations. A figure arrived at afterwards by dividing the fee in half does not. Decide at the outset who keeps that record, because it is normally the contractor who holds it and the payer who needs it. Set out the basis you have used in writing at the time the split is made. The part performed inside the country carries the withholding duty, and the part performed abroad belongs in the separate reporting stream.
What is Part XIII withholding?
Canada's flat withholding on certain payments to non-residents — dividends, interest to related parties, rents, royalties, pension and annuity payments, management fees. The payer withholds and remits, and is liable if they do not, which is why they insist on documentation. A treaty can reduce the rate, but only where the recipient has given the payer the declaration establishing entitlement before payment. Where too much was withheld, a refund claim is the route, with its own time limit. See Part XIII withholding review.
Do dual citizens pay taxes in both countries?
Both countries can have a claim, but paying double taxes on the same dollar is the exception rather than the rule. The United States taxes its citizens wherever they live; Canada, India and most others tax on residence. So a dual citizen living in one of them often files in both — a resident return in one, a citizen return in the other — while the credit and exclusion rules mean the total is usually close to the higher of the two, not the sum. Filing twice is not paying twice. See two returns as a dual citizen.
