Do Foreign Companies Have to Issue 1099s?

IRS Form 1099 reports income received by non-employees. It documents payments made during the tax year, with copies sent to the recipient and the IRS. Its purpose is to help the IRS track income and ensure tax compliance.

General 1099 Reporting Requirements

U.S. persons or entities making certain payments must issue IRS Form 1099. This includes individuals, businesses, partnerships, and corporations. The requirement applies when payments for specific services or income types meet or exceed a designated threshold, often $600 annually.

Common 1099 reportable payments include nonemployee compensation, such as payments to independent contractors, often on Form 1099-NEC. Other reportable income includes rents, royalties, interest, dividends, and miscellaneous payments, captured on forms like 1099-MISC, 1099-INT, or 1099-DIV. The payer completes the appropriate 1099 form, submits it to the IRS, and provides a copy to the payee by the end of January following the payment year.

Foreign Companies and 1099 Obligations

Foreign companies generally do not issue Form 1099 for payments to U.S. persons, unless engaged in a U.S. trade or business. If a foreign company is not conducting business activities within the United States, they are exempt from these reporting requirements. Instead, U.S. businesses hiring foreign contractors collect a Form W-8BEN (for individuals) or W-8BEN-E (for entities) to certify the foreign status and document that U.S. 1099 reporting is not required.

If a foreign company is engaged in a U.S. trade or business, its 1099 reporting obligations become similar to those of a U.S. person. The IRS determines engagement in a U.S. trade or business based on a facts-and-circumstances analysis, looking for activities that are “considerable, continuous, regular, and substantial” within the United States. This can include having a physical office, employees, or agents regularly performing services, soliciting sales, or negotiating contracts in the U.S.

For example, a foreign company with a U.S. branch office or a significant number of employees regularly conducting business in the United States would likely be considered engaged in a U.S. trade or business. Income effectively connected with such a U.S. trade or business is subject to U.S. taxation. In these situations, the foreign company must issue applicable 1099 forms for payments like nonemployee compensation to U.S. individuals or entities, adhering to the same thresholds and deadlines as domestic payers.

Reporting Income Received from Foreign Companies

U.S. citizens and resident aliens are subject to U.S. income tax on their worldwide income, regardless of its source or whether a Form 1099 is issued. Any income received from a foreign company, even if no 1099 is provided, must be reported to the IRS on the U.S. tax return. The absence of a 1099 does not negate the U.S. recipient’s obligation to report the income.

Income from foreign sources is reported on the appropriate lines of Form 1040. For instance, self-employment income from services performed for a foreign company is reported on Schedule C (Form 1040), Profit or Loss from Business. Rental income from foreign properties is reported on Schedule E (Form 1040), Supplemental Income and Loss, while foreign interest and dividend income is reported on Schedule B (Form 1040), Interest and Ordinary Dividends.

Maintaining accurate records of all income received from foreign companies is important. This includes documentation such as invoices, contracts, bank statements, and other evidence of payments, including the dates and amounts. These records are necessary to substantiate the income reported on the tax return and should be retained for a period of at least three to seven years, depending on the tax situation.