How to Handle Tax When Outsourcing Overseas?

In my own business I currently hire a few full time staff from the Philippines and they are paid monthly via Xoom or PayPal. Let's take a step back and look at an example if you were hiring staff from your own country. Since I am living in Australia, normally to employ staff there would be a lot of paper work involved, from filling out a Tax File Number form, Group certificates to Superannuation forms. It becomes a real nightmare when you start to hire 15+ staff! I've been there and it's not pleasant to see so much paperwork just to manage employees, let alone managing the business. In that circumstance, I would recommend hiring a book keeper to help you pay your staff, manage the forms, and all the account keeping records.

Now in Australia, every quarter I would have to pay the PAYG (Pay As You Go) tax to the government which is a percentage of income tax taken out of your employees wage and your own wage that is compulsory. The highest tax bracket here is around 48.5% and the minimum tax is around 15%. So somewhere in between there is that percentage of tax taken out from our wages. On top of this, a minimum of 9% is taken out of the total wages and paid to Superannuation (similar to a 401K), which is also compulsory.

In comparison, jumping back to paying virtual full time or part time staff overseas, there is none of these details I need to worry about in my own business. Basically all I have to worry about is paying their monthly wages on time and they sort out the rest.

How Is This Accounted For In My Business?

The next question that comes up is how do I account for these funds that go out of the business? Well, I don't account for these transactions under as wages, because if you do it is then subject to the PAYG (Pay As You Go) tax, and superannuation. I treat them as an expense, since I am hiring them as contractors. Therefore in my Profit and Loss statement I'll see an account listed there as "contractors" with a total expense of how much it costs for me to hire full time virtual staff. This is the simplistic version so that you can see how this works. Obviously there are other finer details which I leave up to my accountant to work out.

One last thing to mention, I only pay income tax at the end of a financial year on the net profit of the business and throughout the year I don't have to worry about this. Whereas if I had employees in Australia I would have to pay tax every quarter on behalf of them.

In my opinion this is one of the many benefits of hiring full time staff from overseas.

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Tyrone Shum is an internet marketer helping you enhance your internet business through his weekly podcasts, tips and resources.

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