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Hiring a Freelancer in Japan: Why a U.S. Company Should Collect a W-8BEN, and When Withholding Applies

/ Blog (EN), International Tax & Treaties / By

More and more U.S. companies are hiring freelancers based in Japan: designers, engineers, writers, and others. For contractors in the U.S., you issue a Form 1099-NEC, but paying an individual who lives in Japan works quite differently. Should you collect a W-9? Do you have to withhold 30%? This article lays out the documentation and withholding rules a U.S. payer needs to follow.

The Short Answer: Work Performed in Japan Isn’t Subject to U.S. Withholding

Under U.S. tax law, the source of compensation for services is determined by where the services are performed. Fees paid to a Japan-based freelancer for work done in Japan (without coming to the U.S.) are foreign-source income. They are not subject to 30% U.S. withholding and are not reportable on Form 1042-S. The freelancer simply reports the income in Japan, and no U.S. tax obligation arises for either side.

Why You Should Still Collect a W-8BEN

Even when no withholding is due, the payer needs to be able to document that the recipient is a foreign (nonresident) person. That document is Form W-8BEN (the version for individuals). Having a W-8BEN on file:

  • Eliminates any Form 1099-NEC requirement (1099s are for U.S. persons and are not issued to foreign persons)
  • Removes the payment from the scope of 24% backup withholding that applies to U.S. payees without a TIN
  • Lets you show the IRS, if asked, that the payment was foreign-source income paid to a foreign person

Collecting a W-9 instead is a mistake. The W-9 is for U.S. persons (citizens, residents, and U.S. entities) to certify their TIN; it isn’t the right form for a nonresident living in Japan. Obtain the W-8BEN before the first payment; it remains valid through the end of the third calendar year after the year it’s signed. The payer keeps it on file and does not send it to the IRS.

When Withholding Does Apply: Work Performed in the U.S.

If the same freelancer travels to the U.S. and performs work there, the fees attributable to those days become U.S.-source income. That portion is subject to 30% withholding and Form 1042-S reporting by default. Under the US-Japan tax treaty, however, business income of a Japan resident with no U.S. permanent establishment (fixed place of business) is exempt from U.S. tax, and the freelancer can claim that exemption by giving you Form 8233 (the form for treaty exemptions on compensation for personal services). Note that the W-8BEN can’t be used to claim a treaty exemption on services income.

Practical Checklist

  • State in the contract that the work is performed in Japan, and describe the scope and deliverables
  • Collect a W-8BEN before the first payment and renew it every three years
  • If any work is performed during a U.S. stay, track those days and the related fees separately
  • Be aware that strong direction and control, fixed hours, or exclusivity can lead to reclassification as an employee regardless of what the contract says

Frequently Asked Questions

Q: Can a Japanese freelancer submit a W-8BEN without an ITIN or SSN?

A: Yes. A U.S. TIN isn’t required on a W-8BEN when the payment is foreign-source income (a foreign TIN such as Japan’s My Number may be required in certain situations, such as when claiming treaty benefits).

Q: Are there Japanese withholding or consumption tax obligations on our side?

A: A U.S. company with no office in Japan generally has no Japanese withholding obligation, but the freelancer’s own income tax and consumption tax filings follow Japanese rules. The recipient should confirm the Japanese-side treatment with a Japanese tax advisor.

This article is provided for general informational purposes only and is not a substitute for individualized tax advice. Treatment depends on where the services are performed and on the contract terms, so please consult a professional before making payments.

Summary

Fees paid to a Japan-based freelancer for work done in Japan require neither U.S. withholding nor a 1099. What matters is documenting that fact with a W-8BEN on file — and not mistakenly collecting a W-9. Only fees for work physically performed in the U.S. become U.S.-source income, triggering withholding unless the freelancer claims the treaty exemption on Form 8233. Keeping that distinction clear is the whole game.

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