Can I Provide Services to a US Company Tax-Free?

This is the question clients ask most: "I provide services to a US company, will it be tax-free?" This article answers it from your side, the contractor's side, in plain English.

One word to define up front. Withholding means the company that pays you holds back a slice of your fee and sends it to a tax authority instead of to you. The whole question below is really: does a US company have to do that, and if not, are you free and clear?

The one fact that decides it: where you do the work

United States tax on payment for services follows one fact: where you physically do the work. This is called the place-of-performance rule, the source rule for services. Not where the client is, not where the contract is signed, not where the money is sent from, not whether the payer is American. Only where you actually are while you do the job.

"Source" is just the label for which country an income belongs to. US-source income is income the US can tax; foreign-source income is earned outside the US, which the US generally does not tax when you are not a US person. Do the work in the US and it is US-source; do it anywhere else and it is foreign-source.

If you are not a US person and you work abroad

Start with who you are. A US person is a US citizen, a green-card holder, or a US company. A foreign person is anyone else: a non-US individual, or a non-US company.

If you are a foreign person and you do all the work outside the US, your fee is foreign-source income. The US does not tax it, and the US company withholds nothing. A designer in Panama City who works only from there, billing a US company funded entirely by US clients, still earns foreign-source income. This one rule settles most "will I be taxed twice" questions before any treaty or credit comes up.

You do give the US company one piece of paper: Form W-8BEN (a foreign company gives Form W-8BEN-E). It certifies that you are foreign, so the company does not apply the default 30 percent withholding and does not put you on a US 1099. Give them a valid W-8 before the first payment; give them nothing and you invite withholding or penalties you then have to chase back.

When the US does tax you: work done on US soil

The US reaches your fee only when you perform the work on US soil. Fly to the US and work in the client's office, and those days generally create US-source income, even if you are a foreign contractor. Because services are sourced where they are physically performed, the portion of the fee attributable to your US workdays is normally treated as effectively connected income (ECI). That income is generally taxed at the same graduated rates that apply to US individuals, on the net amount after allowable deductions, and is reported on Form 1040-NR. Any tax withheld by the payer is generally only a prepayment against the final liability. If a project is split between US and non-US workdays, only the portion attributable to the US days is generally subject to US tax.

There are two ways to fix that 30 percent:

Claim a tax treaty. A tax treaty is an agreement between two countries that can lower or remove one country's tax on residents of the other. For service pay you claim it on Form 8233 (not W-8BEN), and a treaty only helps if your country has one with the US and you meet that treaty's conditions.

File a US return. The US withholding tax is only what is withheld at source; the actual tax is the graduated rate on the net US-day income, so you file a US non-resident return (Form 1040-NR) to settle the real, usually lower, figure and recover any over-withholding.

One thing to flag now, because it changes the answer for many of our clients: there is no tax treaty between the United States and Panama. So for the rare Panama contractor with genuine US-soil workdays, there is no treaty rate to fall back on, and the fix is to plan where the work is done, not to file a form.

If you are a US citizen or green-card holder

Everything above is for foreign persons. If you are a US citizen or a green-card holder, the rule flips: the US taxes you on your worldwide income, wherever you live and work. Moving abroad does not switch that off, so you are the classic candidate to be taxed twice: once by the country you live in, once by the US.

US law gives you two main tools to avoid that double tax:

Foreign tax credit. A dollar-for-dollar credit against your US tax for income tax you actually paid to another country. It works best when you live in a higher-tax country.

Foreign earned income exclusion. This lets a qualifying person abroad exclude foreign earned income up to a yearly cap (132,900 US dollars for 2026). It works best in a low-tax or tax neutral country.

The catch: you cannot use both on the same dollars. You pick. And if you self-employ, note that the exclusion lowers your income tax but not your US self-employment tax, which still applies.

The Panama angle: two territorial systems lining up

Panama uses territorial tax: it taxes only income produced inside Panama and leaves foreign-source income out of the taxable base. What matters is where the service takes effect and is used, not where the invoice is sent. A service performed in Panama but used abroad is generally foreign-source there and untaxed; a service that benefits someone located in Panama is Panama-source and taxable even if billed from outside.

So picture a contractor living in Panama, serving US clients, doing the work in Panama. The fee is foreign-source for the US (no withholding) and foreign-source for Panama (generally untaxed). Two territorial rules point the same way, and you land near a single-tax, sometimes near-zero, result, all without a treaty: the source rules do the work that a treaty would otherwise do.

A worked example

Suppose Maria is a freelance designer who lives in Panama City and serves US clients. All figures are hypothetical.

She does every hour of her work in Panama and bills a US company 60,000 US dollars. Her fee is foreign-source, so the US company withholds nothing; she gives it a Form W-8BEN to document that she is foreign. In Panama, the same fee is foreign-source and generally not taxed. Result: taxed once, lightly, no double tax, no treaty needed.

Now she flies to the client's US office and works there three weeks on a 10,000 US dollar project. Those days are US-source. Because she is now performing services in the US, that fee is effectively connected income, taxed at graduated rates on the net amount via a US non-resident return (Form 1040-NR). With no US-Panama treaty she cannot use Form 8233 to reduce the 30 percent (3,000 US dollars) the company withholds at source, so she files the return to settle the lower actual tax and recover the overage. The fix here was the location of the work, not paperwork.

Same designer, two scenarios, two answers, both driven by where the work physically happened.

FAQ

Can I provide services to a US company tax-free?

If you are a foreign person and you do the work outside the US, the US does not tax your fee and the company does not withhold. "Tax-free" depends on your own country, though: a territorial country like Panama generally does not tax foreign-source income, so the practical answer is often yes. A US citizen or green-card holder is taxed by the US wherever they work.

Does getting paid by a US LLC make my income US-source?

No. For services, source is set by where you do the work, not by who pays you or where they are. A foreign contractor working abroad earns foreign-source income even when the payer is a US LLC funded entirely by US clients.

What form do I give the US company?

A foreign individual gives Form W-8BEN; a foreign company gives Form W-8BEN-E. If you are claiming a treaty exemption on service pay for US-soil work, you use Form 8233 instead. A valid W-8 also keeps you off a US 1099 and out of backup withholding.

There is no US-Panama tax treaty, so how am I not taxed twice?

Through the source rules, not a treaty. Work done in Panama is foreign-source for the US (no withholding) and generally foreign-source for Panama too (outside its territorial tax). Only days you physically work on US soil are US-source, and with no treaty those are withheld at 30 percent.

I am a US citizen abroad: do I use the foreign tax credit or the exclusion?

It depends on your numbers, and you cannot use both on the same income. The foreign tax credit suits higher-tax countries; the foreign earned income exclusion (up to 132,900 US dollars for 2026) often suits low-tax ones. Either way, US self-employment tax still applies.

If you are not sure which side of the source line your work falls on, a short cross-border review will tell you, before you invoice or anyone withholds.

This article is general information, not tax or legal advice. Your facts decide your outcome, that's what a review is for.

Sources

• 26 U.S.C. §§861(a)(3), 862(a)(3): compensation for personal services is sourced where the services are performed.
• Treas. Reg. §1.861-4: time-basis allocation of US and non-US workdays.
• IRS, Source of Income, Personal Service Income: place of performance controls, regardless of where the contract was made, the place of payment, or the residence of the payer.
• 26 U.S.C. §7701(b): who is a resident versus a non-resident alien individual.
• 26 U.S.C. §864(b), §871(b): performing personal services in the US is a US trade or business, so the pay is effectively connected income, taxed at graduated rates on net income via Form 1040-NR, not as FDAP.
• 26 U.S.C. §1441; Treas. Reg. §1.1441-4; IRS Publication 515: 30 percent withholding at source on a non-resident's US independent personal services, unless reduced by a treaty (Form 8233) or a central withholding agreement; a prepayment credited on the return.
• 26 U.S.C. §1442: parallel 30 percent withholding on payments to foreign corporations.
• IRS Instructions for Forms W-8BEN and W-8BEN-E: certify foreign status; a valid W-8 keeps a foreign payee off Form 1099 and out of 24 percent backup withholding.
• IRS Instructions for Form 8233: treaty exemption claimed on a non-resident's personal-services compensation, used in place of W-8BEN for service pay.
• 26 U.S.C. §894; IRS, United States Income Tax Treaties A to Z: a treaty can reduce or remove US tax on residents of the other country; Panama is not a US treaty partner.
• US Department of the Treasury, US-Panama Tax Information Exchange Agreement (2010): information exchange only, no rate relief.
• 26 U.S.C. §§901, 904 (Form 1116): foreign tax credit. 26 U.S.C. §911 (Form 2555): foreign earned income exclusion, 132,900 US dollars for 2026 [Rev. Proc. 2025-32]; not combinable with the credit on the same dollars; does not reduce US self-employment tax.
• Panama Fiscal Code (Codigo Fiscal), Art. 694; DGI guidance: territorial tax; foreign-source income excluded from the taxable base; the test is where the service is performed and used, not where it is billed.