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Building a distributed team is one of the most powerful competitive advantages available to startups. For LATAM founders operating in the U.S., hiring remote cross-border contractors means access to top-tier talent while optimizing burn rate. But that operational advantage can quickly become a tax headache if it isn't managed correctly.
When a U.S. startup hires professionals outside its borders, it takes on compliance responsibilities that are easy to overlook. Disorganized documentation, incorrect worker classification, and a lack of a clear audit trail are immediate red flags during any due diligence process. Institutional investors scrutinize these points closely — because mistakes can lead directly to IRS penalties.
Setting up a clear process from day one isn't administrative overhead. It's a strategic necessity. This article breaks down key concepts like the W-8BEN and 1099 forms, and shares the best practices for keeping your back office clean and ready to scale.
The first step toward tax order is understanding who you're actually hiring. In the U.S., the distinction between an employee and an independent contractor is fundamental.
An employee is subject to payroll tax withholding, benefits, and strict labor laws. A contractor, on the other hand, is an external service provider. They run their own business, control how and when the work is done, and are responsible for their own taxes in their country of residence.
Independent contractor: a professional or entity that provides services to another company under terms specified in a contract, retaining control over how the work is executed and assuming their own tax obligations.
Misclassifying an employee as a contractor is one of the most serious risks a startup can face. The IRS penalizes this practice severely. To mitigate it, the working relationship must genuinely reflect that of an independent provider — backed by clear, well-drafted contracts.
When you hire a professional who is not a US citizen or tax resident, you need to formally document their status. That's where the W-8BEN form comes in.
W-8BEN: an official IRS document used by foreign individuals to certify that they are not US tax residents and therefore not subject to the same withholding requirements as US citizens.
This form is not sent to the IRS — the startup keeps it in its own records. Think of it as your legal shield. If the IRS audits you and asks why you didn't withhold taxes on payments made to a professional in Argentina or Colombia, the signed W-8BEN is the proof you need.
Request this document during the onboarding process, before issuing the first payment. Keep in mind it has a general validity of three years — after that, it needs to be renewed.
If the W-8BEN covers foreign contractors, what happens when you hire an independent professional who does reside in the US? In that case, the rules change — and the 1099-NEC form comes into play.
Unlike the W-8BEN, the 1099-NEC is filed with the IRS, and a copy must be delivered to the contractor by January 31 of the following year. To issue a 1099 correctly, you first need the contractor to complete a W-9 form, which captures their tax identification information.
Keeping this boundary clear is essential: W-8BEN for LATAM talent, W-9 / 1099 for US-based talent.
"A global team is a massive competitive advantage — but if the contracts and tax forms aren't in order, that advantage becomes a hidden liability that stalls your next investment round." — Juan Manuel Barrero, CEO of LAZO
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Order doesn't come from forms alone — it requires solid processes. These are the operational best practices for managing contractors correctly.
At the accounting level, clarity is your best asset. Investors will want to see an immaculate record of your expenses.
These are the patterns we see repeated most often when working with founders on their contractor compliance.
Hiring a developer in Argentina
Hiring a freelancer in the US
LATAM contractor not issuing invoices
Work performed without an IP assignment clause
Long-term contractor with an outdated W-8BEN
Before onboarding your next remote hire, make sure you've completed every one of these steps:
Q: Do I need to send the W-8BEN to the IRS?
A: No. The W-8BEN is not filed with the IRS. Your startup keeps it internally as proof of the contractor's non-US status. It's for your records, not a submission.
Q: When do I need to issue a 1099-NEC?
A: You must issue one when you've paid $600 or more during the tax year to an independent contractor who is a US tax resident. The form goes to both the contractor and the IRS, with a January 31 deadline.
Q: What happens if a LATAM contractor refuses to sign the W-8BEN?
A: You shouldn't issue payments without it. Without a signed W-8BEN, the IRS assumes the payment is subject to withholding at 30%. The form is standard practice — any legitimate contractor should have no issue signing it.
Q: Can I use a W-8BEN for a foreign company or agency?
A: No. The W-8BEN is exclusively for foreign individuals. If you're contracting a foreign entity (like an agency or LLC), you need to request the W-8BEN-E instead.
Q: Does the contractor agreement replace the need for tax forms?
A: No — they're complementary, not interchangeable. The contract establishes the legal relationship between parties. The tax forms handle the compliance side with the IRS. You need both.
Managing a distributed team doesn't have to be an administrative headache. Cross-border talent is a powerful tool for scaling your startup — as long as you build on solid foundations. Documenting contractor relationships correctly, understanding when a W-8BEN or a 1099 applies, and maintaining a clean audit trail are fundamental steps toward projecting the kind of confidence that investors expect.
Investors value founders who take compliance seriously from the early stages. A well-organized back office signals operational maturity and meaningfully accelerates any due diligence process. Don't let administrative friction slow your growth or put your next round at risk.
At LAZO, we understand the unique challenges of operating cross-border. We're the partner that centralizes your incorporation, taxes, bookkeeping, and growth support in one connected system — with a founder-first mindset. We help you structure and manage your international team the right way.
Disclaimer: This content is general guidance and does not constitute legal or tax advice. For your specific situation, we recommend validating with a qualified professional.
