Small business paying a Canadian non-resident freelance consultant who lives abroad (in the UAE)

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Dec 5th, 2019 6:25 pm

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Dec 2nd, 2019 9:46 am

cager [OP]: Jr. Member; Sep 17, 2009; 180 posts; 23 upvotes

Dec 2nd, 2019 9:46 am

Small business paying a Canadian non-resident freelance consultant who lives abroad (in the UAE)

How would a small Canadian business pay a freelance consultant who lives abroad, more specially a freelance consultant who works in the United Arab Emirates?

Would there be any tax obligations on the small Canadian business? Any sort of withholdings? Could this small Canadian business simply wire payments to the freelance consultant through Interac E-transfers?

The freelance consultant is a current full-time employee of the small Canadian business, and is a Canadian citizen, but is moving to the UAE and declaring non-residency as the employee's spouse is moving as well.

Thoughts and comments are much appreciated!
Thanks.

4 replies

Dec 2nd, 2019 4:34 pm

Just Confused: Deal Addict; Aug 28, 2007; 1873 posts; 264 upvotes; Calgary

Dec 2nd, 2019 4:34 pm

A free -lance consultant is effectively just another vendor. They will issue invoices to you. It is their responsibility to itemize appropriate taxes to their invoices. Witholdings are for employees not vendors. Your responsibility is to pay the invoice.

Their jurisdiction will determine what those taxes will be appearing on the invoice. You indicate this person is still in Canada and working for a Canadian business. That means their employer will be adding GST/HST and/or provincial retail sales tax to their invoice. A valid invoice will include their GST/HST number so you know (or could verify) the collected tax is being passed on to CRA. If this free-lancer is still employed by the Canadian employer when he moves to UAE, the Canadian employer will still be charging GST/HST on the invoice. The fact that their employee in Dubai is irrelevant... they are still a Canadian vendor. If this freelancer quits his Canadian employer and then moves to a new employer or start his own business there, then he won't be charging GST/HST. I don't know anything about taxes in UAE so can't help with what else might be on the invoice.

As for paying this vendor, they will have "Terms" on their invoice form. The Canadian vendor may accept Interac eTransfers for payment of invoices. Keep in mind Interac eTransfers do not apply outside of Canada; you will need to look at other ways to send funds internationally.

+2

Dec 2nd, 2019 7:56 pm

BananaHunter: Deal Fanatic; Sep 23, 2007; 5061 posts; 1151 upvotes

Dec 2nd, 2019 7:56 pm

As a buyer of services, you are not expected to know the tax status of the entity providing the service. He/she could have set up a Canadian business number as mentioned by just confused above, and be able to issue you an invoice just like any other vendors. And you can treat this as any other expense and ask for an appropriate invoice.

If you are paying any kind of profit, or royalties to a non-resident, the key difference is that you may have to remit withholding tax. Many countries have treaties with Canada to limit this to 10%. By default, it is 25%. The point of the WHT is that a foreigner earning "Canadian money" should pay a tax for taking money out of the country. This does not seem to be the case if the person is a vendor.

+1

Dec 3rd, 2019 8:39 am

cager [OP]: Jr. Member; Sep 17, 2009; 180 posts; 23 upvotes

Dec 3rd, 2019 8:39 am

Just Confused wrote: ↑ A free -lance consultant is effectively just another vendor. They will issue invoices to you. It is their responsibility to itemize appropriate taxes to their invoices. Witholdings are for employees not vendors. Your responsibility is to pay the invoice.

Their jurisdiction will determine what those taxes will be appearing on the invoice. You indicate this person is still in Canada and working for a Canadian business. That means their employer will be adding GST/HST and/or provincial retail sales tax to their invoice. A valid invoice will include their GST/HST number so you know (or could verify) the collected tax is being passed on to CRA. If this free-lancer is still employed by the Canadian employer when he moves to UAE, the Canadian employer will still be charging GST/HST on the invoice. The fact that their employee in Dubai is irrelevant... they are still a Canadian vendor. If this freelancer quits his Canadian employer and then moves to a new employer or start his own business there, then he won't be charging GST/HST. I don't know anything about taxes in UAE so can't help with what else might be on the invoice.

As for paying this vendor, they will have "Terms" on their invoice form. The Canadian vendor may accept Interac eTransfers for payment of invoices. Keep in mind Interac eTransfers do not apply outside of Canada; you will need to look at other ways to send funds internationally.

Thank you 'Just Confused' - this is really helpful.

If possible, can you please comment on the following example? If I were a Canadian employer, I won't have to do anything special to pay this "out of country vendor"... Hypothetically, if I had just hired someone abroad for $10,000 to build a website, I could just wire him/her $10,000 and that would be the end of it for my Canadian company. Right? I don't care how they treat taxes in the foreign country, but I owe $10,000 so I pay $10,000 to the freelance vendor.

BananaHunter wrote: ↑ As a buyer of services, you are not expected to know the tax status of the entity providing the service. He/she could have set up a Canadian business number as mentioned by just confused above, and be able to issue you an invoice just like any other vendors. And you can treat this as any other expense and ask for an appropriate invoice.

If you are paying any kind of profit, or royalties to a non-resident, the key difference is that you may have to remit withholding tax. Many countries have treaties with Canada to limit this to 10%. By default, it is 25%. The point of the WHT is that a foreigner earning "Canadian money" should pay a tax for taking money out of the country. This does not seem to be the case if the person is a vendor.

Thank you for your response "Bananahunter" - to your point, if the foreigner is being paid by a Canadian company in Canadian dollars, would the company have to hold any witholdings tax? Conversely, if the Canadian company wires money to the foreigner in the local currency, then would the witholdings tax be exempt?

Thanks everyone for your responses. Greatly appreciated

Dec 5th, 2019 6:25 pm

Just Confused: Deal Addict; Aug 28, 2007; 1873 posts; 264 upvotes; Calgary

Dec 5th, 2019 6:25 pm

In your hypothetical example of a foreign web designer providing a service to a Canadian business, there will be no additional Canadian taxes shown on the invoice for which you will be responsible. You will be paying $10,000.

However, I suspect there is more to the story. Firstly the invoice will not be in Canadian dollars. It will be quoted in the foreign currency (or possibly US dollars) because the vendor will not have any way to deposit Canadian dollars. A foreign vendor willing to pay conversion fees on his end is highly unlikely! Combined with your earlier mention of Interac eTransfers implies this individual still has a Canadian bank account. If that is the case he won't be a foreign consultant, he will be deemed to be doing business in Canada... bringing all the GST/HST back into play.

You also ask about witholdings again, implying you have an employee relationship with this individual. If he is not an "arms-length", third party, unrelated vendor then the tax situation on his invoice is completely different than I outlined above. Sending your employee to another country does not mean you can simply avoid paying taxes... it is a tad more complicated than that.

Your best advice is to give your accountant a quick call. Then you can openly lay out all the details of your scenario to him or her.

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