From a Tax/Accounting/Regulatory viewpoint, I'm trying to understand just how US based prop. firms (like TopStepTrader) hire traders from foreign countries. Do they just hire foreign traders as independent contractors and issue a 1099? Or do they hire foreign traders as employees of a US based firm (and issue a w-2? or another type of tax form for foreign employees?). Or do they create corporations (subsidiaries?) in ever country they operate in order to hire traders?
I know US based traders are independent contractors. But if a funded trader from China, for example, is also an independent contractor who is simply issued a 1099 then the whole business structure of TST just seems too good & too simple to be true. Imagine at some point years in the future they could easily have thousands of live traders from over a hundred different countries all working as independent contractors. This is a pure genius way to recruit worldwide trading talent while avoiding complicated compliance with a hundred difference sets of complex labor laws. I think TST is a great "startup" type of company - very rare in the trading field. But if their business structure is really that simple then I expect a lot more competition in the coming years. I think the whole current retail-prop trading industry may shift to that same structure. And I wouldn't be surprised if more HFs don't move in this direction. A US trader that busts his ass to make 30k a year cannot survive but that same money in Africa, Asia, South America, Eastern Europe is a very nice living & a very strong motivating factor. If there are any international TST traders I would appreciate if they can comment on this. Now a more technical question: How simple is it for citizen of China (for example) to get a TIN (taxpayer ID number) from the IRS? And what kinds of taxes are US corporations required to withhold for foreign independent contractors?
A little fyi, a lot of trading firms hire traders as outside contractors and 1099 them. This is nothing new. It's been going on for years. There is nothing magical about it. I don't see the connection as to why getting a 1099 is such a good thing. I personally hated getting one as my self employment taxes were obscene even with the S-Corp I set up. Personally I see it as a huge negative. As far as getting a us tax id number, also very easy to do and nothing special about that either. I believe Bright Trading offers that for international traders. At my old firm we made all international traders get us tax id numbers. Again, I'm obviously missing how this is some great recruiting tool.
Is it still the case that a company can employ a contractor for only 3 years at a time, after which they must either hire him/her as a regular employee or end the contract and not rehire the contractor for 6 months?