Hiring contractors abroad offers many financial and tech expertise-related benefits but understandably entails additional organizational difficulties. A B2B contract must consider many legal and tax details pertaining to your local legislation and the regulations of the contractor’s country. The contract is your main guarantee of smooth cooperation and quality services. It also provides direct guidelines on what to do if anything goes wrong.
Even though every B2B contract requires a custom approach, there are some standard legal and tax details to pay attention to. As an expert in tech staffing, Sunvery wants to share our perspective on the crucial aspects of B2B contract employment. Read our blog to learn what things to pay attention to when considering a B2B contract.
B2B Contract: Hidden Risks
Before talking about the tax and legal implications of B2B contracts, there is one important aspect to mention. With B2B contracts, there is always a risk that the tax office will interpret your contractor as a hidden working relationship and an attempt to avoid paying taxes associated with regular full-time employment. Hiring through a recruitment agency like Sunvery eliminates such risks, as our agency can take full responsibility for employing engineers. You only pay a monthly check for the hiring and staffing services and don’t care about any tax or legal consequences.
How to understand whether your hire is classified as an employee or an independent contractor? Run the ABC test evaluating the following three criteria:
- The person is free from the hiring entity’s control over their performance
- The work is outside the usual course of the hiring entity’s business
- The person is also an independent contractor for other clients
Here are two other important test criteria:
- The person works less than 40 hours/week
- The person has no paid time off
If the hire meets these requirements, they are likely to be considered as an independent contractor. If not, it’s an employee, and the B2B contract isn’t a suitable option. You must consider these nuances while choosing between a B2B contract and recruitment.
Legal and Tax Considerations when Hiring Staff Abroad
To prevent the cases when your contractor breaches deadlines or fails to provide the requested deliverables, you must foresee these risks in a B2B contract. Below are the main legal and text details to keep in mind when you hire specialists abroad.
Legal nuances that matter in an outstaff B2B contract
Legal nuances are basically the terms of cooperation between you as a hiring company and the contractor. They also specify the governing law and jurisdiction that comes into power when the two parties have a dispute.
Scope of work
Outline the services, tasks, and deliverables you expect to receive from the contractor with all critical details and deadlines. Mention any quality standards as well. This will ensure the work meets your expectations and you get what you pay for.
In the Scope of work section of the B2B contract, you may also specify that the contractor must return any equipment, tools, or materials you provide them with to perform service upon project completion.
Terms of employment
This clause must include the duration of the B2B contract, including the start and end dates. You should also mention the terms of the contract extension and the form of cooperation.
IP rights
According to the National Intellectual Property Rights Coordination Center, 623 IP property theft and commercial fraud cases were initiated in 2023. To avoid falling victim to IP and personal data protection issues, you must explicitly state that the customer owns IP rights and defines how the contractor can use them.
Termination conditions
Add the conditions of termination, including the reasons that allow both parties to break the contract and the notice period. The standard notice period when you hire international employees ranges from one to three months across different jurisdictions.
Governing law
Include a clause that specifies the laws of which country and/or state govern the contract. This information will be decisive when it comes to any disputes or legal obligations. It’s better to indicate your local contract employment law since hiring a lawyer and solving a dispute would be much easier under the local jurisdiction.
If you cooperate with a company from the EU, you should also consider The European Contract Rules and European Civil and Commercial Laws as they may influence or expand local laws.
Dispute mechanism
If the vendor doesn’t follow the contract, fails to fulfill the contractual obligations, or has a different understanding of its obligations, you must file a dispute. To make the dispute resolution process as painless as possible, you’d better define the rules in a B2B contract. Make sure to specify whether disputes are resolved through mediation, arbitration, or litigation. These are the three most common approaches used across international laws and regulations.
Liability
Mention any limitations of liability related to both parties in the B2B outstaffing agreement. The limitations usually include a maximum liability (in fixed amount or contract value), limitations of the types of damage or loss, and indemnity and force majeure clauses.
Tax details to mind when signing a B2B contract
Besides meeting local and international legislation, companies that hire foreign workers must follow tax regulations and keep documentation, including B2B contracts, in order for possible checks. Below are the core nuances you should consider when building tech teams through outsourcing.
Tax responsibilities and compliance
Clarify which party is responsible for tax collection, remittance, and withholding, among other concerns when hiring employees.
Reporting conditions
Be sure to indicate up-to-date tax identification numbers for reporting purposes and accounting. You must also specify how to manage the documentation required for paying taxes and successfully going through audits and compliance checks, including invoices, bills, tax forms, etc. Besides, we recommend indicating reporting deadlines to minimize any risks related to late reporting or tax payments.
Jurisdiction differences
Draft the contract of employment taking into account local tax obligationі in both your and the contractor’s locations. Make sure no double taxation applies, as it can lead to considerable financial losses.
Tax audit management
Add clauses that detail which party is responsible for tax audits and any penalties resulting from tax law breaches.
NOTE. If you’re hiring via an engineering vendor or a recruitment agency, check in advance if they could take charge of paying taxes and social security contributions instead – it might save you hundreds of hours of local taxation research and management.
B2B Contract Checklist: Draft and Sign a Tech Hire Contract Right
Now, let’s summarize what matters in a B2B contract and the aspects you must be particularly careful about when hiring new team members as a B2B vendor or through a B2B vendor. Use this checklist to ensure you draft and sign the contract right:
- Analyze your business needs and expectations before drafting a contract.
- Have a clear understanding of what services, deliverables, and timelines you expect and specify them directly.
- Request legal information from the vendor to include it in the contract.
- Explicitly state the legal, tax, and other responsibilities of both parties.
- Study the relevant aspects of your local law and the law in your contractor’s country or state to know how to stay compliant.
- Ensure the contract has all standard sections, including Definitions, Parties Involved, Terms of Employment, Scope of Work, Intellectual Property Rights, Confidentiality and Non-Disclosure, Dispute Resolution, Termination Conditions, Governing Law, Dispute Mechanism, Payment Terms, and Liability.
- Show the contract draft to an experienced lawyer to avoid any uncertainties and minimize potential risks.
- Specify the governing law for any legal issues.
- Add a clause about potential changes to the terms and conditions of the B2B contract and when the parties can make them.
These are the most significant aspects of a B2B contract that can affect your experience with outstaffing. Ideally, you should look for an experienced B2B outstaffing provider with legal consultants who can guide you through signing and drafting an agreement. Some companies like Sunvery manage the legal and tax side of hiring tech specialists on their own, freeing you from related challenges.
Helpful Tools for Drafting a B2B Contract
One of the easiest ways to draft a B2B contract is to use a template and adapt it to your needs and business specifics. There are also many useful tools that facilitate contract drafting. Here are some options to use:
These solutions can optimize contract drafting, signing, and secure storage. Many IT outstaffing providers use them internally for more convenient and organized document management and tax reporting.
Sunvery for Smooth Tech Outstaffing Services and Support
Sunvery is a team of recruitment agency talents who offer professional staffing for tech companies. Our staffing services eliminate the need to worry about contacts as well as any legal or tax issues related to remote employment. With the IT Staff Augmentation service, we take full care of the hiring process, payroll, equipment, taxes, and other chores so you can focus on growing your business. No B2B contracts with your new hires are required. You only need to tell us your hiring requirements to meet the first suitable candidates in 2 days and hire in 25 days on average to kick off the project.
Contact us to hire remote tech engineers and get a recruitment partner that handles all hiring and organizational complexities for you.