When engaging a foreign contractor, companies may need to ensure that the contractor is properly reporting their income and tax obligations to local authorities in their host country. It’s also a good idea to have a contract with an independent contractor that clarifies the worker’s role and tax and payment designations.

Permanent establishmen risk. If a global company fails to clarify its own standing in a foreign country and its related worker tax and income designation, a foreign government, usually through its tax agencies, will step in and make a worker designation based on permanent establishment rules.