How Are Payments From US Clients Taxed When All Work Is Performed Outside the US?

Napoleon

Sep 9, 2026 — 7 min read

If you are a non-U.S. entrepreneur, freelancer, consultant, or foreign-owned U.S. LLC receiving payments from American clients, one question matters more than almost anything else: Where was the work actually performed? For personal services, the IRS generally determines the source of income based on where the services are physically performed, not where the customer is located, where the contract was signed, or where the payment is deposited.

That means a foreign founder who performs all consulting, software development, design, marketing, or other personal services from outside the United States can generally have foreign-source service income, even when the customer is a U.S. company and the money is paid into a U.S. bank account. However, the analysis becomes more complicated when a U.S. LLC, U.S. trade or business, employees, agents, or other U.S. activities are involved.

The Basic Rule: Customer Location Does Not Determine Service Income Source

Consider a Nigerian consultant who owns a U.S. single-member LLC. The consultant:

Lives and works in Nigeria
Performs all services from Nigeria
Has clients in California and New York
Invoices those clients through the U.S. LLC
Receives payments into a U.S. business bank account

The fact that the customers are American does not by itself make the consulting income U.S.-source income. For personal services, the IRS states that the location where the services are performed generally determines the source of the income, regardless of where the contract was made, where payment occurs, or where the payer lives. So, if the consultant genuinely performs all of the work in Nigeria, the service income can generally be foreign-source for U.S. tax purposes.

Does a U.S. Bank Account Change the Tax Result?

No. This is a common misconception among international founders. Suppose you perform software development from Ghana and a U.S. customer pays your company $50,000 into a U.S. bank account.

The payment's destination does not determine the source of personal service income. The IRS explicitly notes that where or how payment is made does not change the source of earned income. The same principle applies if:

The client pays in U.S. dollars
You use a U.S. payment processor
Your company has a U.S. EIN
Your LLC was formed in Delaware or Wyoming
Your customer is headquartered in the United States. Those facts may matter for other tax or compliance questions, but they do not by themselves change the sourcing rule for personal services.

What About a Foreign-Owned U.S. LLC?

This is where entity structure becomes important. A foreign entrepreneur can establish a U.S. LLC while remaining a nonresident for U.S. tax purposes. If the LLC is a single-member entity treated as a disregarded entity, the federal income-tax analysis generally looks through the LLC to its owner. That means you cannot determine the tax treatment simply by asking, "Is my company American?" You need to consider:

The owner's tax status
The LLC's federal tax classification
Where the services are physically performed
Whether the business is engaged in a U.S. trade or business
The type and source of the income
Whether any U.S. employees, agents, offices, or other activities are involved. For nonresident aliens, the IRS generally taxes U.S.-source income and income effectively connected with a U.S. trade or business, subject to applicable exceptions and treaties.

What If the Client Is Paying You for Services?

For consulting, freelancing, software development, design, marketing, coaching, engineering, and many similar activities, the starting point is the place where the services are performed.

Example: Work performed entirely abroad

A Nigerian software developer receives $100,000 from U.S. technology companies. The developer performs all programming work from Lagos and never travels to the United States to perform those services.

The service income is generally foreign-source under the IRS sourcing rule because the services were performed outside the United States. That does not necessarily mean the income is tax-free. Foreign-source for U.S. purposes does not mean tax-free everywhere. Nigeria, or the founder's actual country of tax residence, may impose its own income-tax obligations.

What If You Work in the U.S. for Part of the Year?

The answer can change quickly. Suppose a consultant normally works from Nigeria but spends two months in New York performing services for the same U.S. customers. Now the services have been performed both inside and outside the United States. The IRS generally requires an allocation of personal service income between U.S. and foreign services. In many situations, a time-based allocation is appropriate.

Simple illustration

Suppose total compensation is $120,000 and the workdays are split:

180 days working in Nigeria
20 days working in the United States

A reasonable allocation may result in part of the compensation being treated as U.S.-source service income, although the correct method depends on the facts. This is why keeping travel calendars, contracts, invoices, and work records can become important for internationally mobile founders.

Does a U.S. Client Have to Withhold 30%?

Not automatically. The 30% nonresident withholding rule generally applies to certain U.S.-source income paid to nonresident aliens. For personal services, the IRS specifically states that compensation for services performed in the United States is generally subject to the applicable withholding rules unless an exception applies.

If the services are performed entirely outside the United States, the compensation is generally foreign-source service income. That can mean the U.S. payer does not have the same NRA withholding obligation that would apply to U.S.-performed services. The distinction is therefore not simply: U.S. client = 30% withholding. The more accurate question is: What type of income is being paid, where is it sourced, and what tax status does the recipient have?

What About Form W-8BEN?

A U.S. client may request Form W-8BEN if you are a foreign individual, or another appropriate W-8 form depending on your structure. The purpose is generally to document foreign status and determine the appropriate U.S. withholding and reporting treatment.

For a foreign individual who owns a disregarded single-member U.S. LLC, the owner—not necessarily the LLC itself—may be the relevant beneficial owner for federal tax documentation purposes. This is particularly important when a client initially asks for a W-9 simply because the invoice comes from a U.S. LLC.

What About Form 1099-NEC?

A foreign-owned business receiving payments from U.S. customers should not assume that every customer will issue a Form 1099-NEC. For foreign persons, the applicable reporting framework can differ from the ordinary U.S.-person contractor rules. Properly documented foreign recipients may instead fall under the foreign-person withholding and information-reporting system.

In applicable circumstances, Form 1042-S can be relevant to payments of U.S.-source income to foreign persons. The correct form depends on the recipient's status, entity classification, type of payment, source of income, and documentation provided to the payer.

Foreign-Source Does Not Mean "No Tax"

This distinction is critical for global founders. If you perform all services in Nigeria for U.S. customers, the income may be foreign-source for U.S. federal income-tax purposes. But your country of residence may still tax that income. You may therefore have:

Local income-tax obligations
VAT or sales-tax considerations
Business registration requirements
Foreign exchange reporting requirements
Social insurance obligations
U.S. information-reporting or entity-compliance obligations

A U.S. LLC can also have separate U.S. reporting requirements even when the owner's service income is not subject to U.S. federal income tax in the way the founder expects. Income tax liability and company reporting obligations are separate questions.

A Practical Checklist for Foreign Founders

If all your work is performed outside the United States, document that fact carefully. Keep records of:

Where you physically performed services
Travel dates into and out of the U.S.
Client contracts
Invoices
Work calendars
Business expenses
LLC tax classification
W-8 forms provided to clients
U.S. tax filings, where applicable
Local-country tax filings

If you occasionally travel to the United States and continue working while there, do not assume that your normal foreign treatment automatically continues unchanged. For international founders using a U.S. company structure, platforms such as Foundeck—an AI-powered U.S. company formation and management platform for global founders—can help with the administrative side of maintaining the entity, but cross-border tax treatment should be reviewed with a qualified tax professional familiar with both jurisdictions.

Frequently Asked Questions

If my client is American, is my income automatically U.S.-source?

No. For personal services, the IRS generally looks at where the services were performed, not where the customer is located.

If I work from Nigeria for a U.S. company, do I owe U.S. income tax?

Not necessarily. If you are a nonresident alien and perform the services entirely outside the United States, the income is generally foreign-source. However, other U.S. tax rules, including U.S. trade-or-business and entity-reporting rules, may still need to be considered.

Does receiving payment into a U.S. bank account make the income U.S.-source?

Generally no. For personal services, the source is generally determined by where the services are performed. The location of payment does not control the source.

What if I perform some work in the United States?

Then you may need to allocate the income between U.S. and foreign services. The IRS generally requires an appropriate allocation when personal services are performed partly inside and partly outside the United States.

Will a U.S. client withhold 30% from my payment?

Not necessarily. The 30% NRA withholding rule generally concerns applicable U.S.-source income. Services performed outside the United States are generally foreign-source personal service income.

Do I need to give a U.S. client Form W-8BEN?

A U.S. client may request W-8 documentation to establish that you are a foreign person. The exact form depends on whether the recipient is an individual, foreign entity, disregarded entity, or another structure.

Does a U.S. LLC make me a U.S. taxpayer?

Not automatically. A U.S. LLC can be owned by a nonresident and may have a different federal tax classification depending on its structure and elections.

Is foreign-source income tax-free?

No. Foreign-source income may still be taxable in the country where you live or operate. U.S. source rules answer the U.S. tax question; they do not eliminate your home-country obligations.

Final Takeaway

When a foreign founder receives money from a U.S. customer, the customer's location is not the decisive factor for personal service income. If you are a nonresident and perform the work entirely outside the United States, the IRS generally treats the resulting personal service income as foreign-source income, even when your customer is American, your contract is with a U.S. company, the invoice is issued through a U.S. LLC, and the money lands in a U.S. bank account.

But that does not end the analysis. Your LLC's tax classification, U.S. activities, travel into the United States, type of income, withholding documentation, and reporting obligations can all matter. And even when the United States does not tax the service income, your country of residence may.

For global business owners, the safest rule is simple: follow the work, not the wire transfer. Determine where the services were actually performed, document it, classify the entity correctly, and then analyze the tax consequences in both countries.