Paying International Contractors: The IBAN, SWIFT, and Compliance Guide

Cross-Border Payments Are More Complicated Than They Look

Most SaaS founders assume paying an international contractor is just a wire transfer with different bank details. In reality, cross-border payments involve currency conversion with a hidden margin, correspondent bank fees that stay invisible until the contractor reports receiving less than invoiced, compliance screening required under anti-money-laundering and sanctions law, possible withholding tax obligations in both countries, and FBAR reporting thresholds for US entities with foreign account activity.

None of this is unmanageable. Ignoring it, though, creates expensive surprises, whether that's payment delays, compliance penalties, or a frustrated contractor who got paid less than they invoiced. Companies that handle international payments smoothly built a real system for it early instead of treating each payment as a one-off improvisation.

IBAN vs SWIFT: What Each One Actually Does

IBAN (International Bank Account Number) is a standardized format identifying a specific bank account, used mainly across Europe, the Middle East, and parts of Africa and the Caribbean. It packs the country code, check digits, bank identifier, and account number into one string of up to 34 characters. Paying a contractor in Germany, France, Spain, the Netherlands, Poland, or any other EU or EEA country requires their IBAN.

SWIFT code, also called BIC, identifies the receiving bank itself, not the account. It's an 8 to 11 character alphanumeric code. Most international wires need both: the IBAN to identify the account and the SWIFT code to route the payment to the right bank. Some rails, SEPA transfers within the EU in particular, only require the IBAN.

Countries that don't use IBAN, including the US, Canada, Australia, India, and most of Asia and Latin America, need their own country-specific identifiers instead:

Transfer Fees and FX Margin: What Payments Actually Cost

Traditional bank wires to international accounts carry fees that often aren't fully disclosed upfront: a sending bank fee of $15-$45, correspondent bank fees of $10-$30 charged by intermediary banks routing the transfer, and an FX markup of 1.5 to 3.5 percent when currency conversion is involved. On a $2,000 monthly invoice paid by traditional wire, you could be absorbing $80-$150 in friction per payment, and the contractor may still receive less than expected once correspondent fees get deducted.

Modern payment providers cut this friction significantly. Wise Business charges a 0.35 to 0.7 percent FX margin with no correspondent bank fees, since it routes through local bank accounts in most countries. Airwallex and Deel offer similar setups with added features built for contractor payment workflows. For recurring international payments, a local virtual account with one of these providers can save 2 to 3 percent per payment, which adds up meaningfully at scale.

US Compliance Requirements for International Payments

FBAR (FinCEN 114)

US persons, including US companies, must file an FBAR if they hold a financial interest in, or signatory authority over, foreign bank accounts with an aggregate value above $10,000 at any point in the calendar year. This applies if you pre-fund a foreign account to pay contractors, or maintain a foreign currency account for operations. FBAR is filed separately from your tax return, due April 15 with an automatic extension to October 15.

OFAC Screening

Before sending any international payment, US companies are legally required to screen the recipient against the OFAC Specially Designated Nationals list and other restricted-party databases. Sending money to a sanctioned individual or entity, even by accident, can carry penalties from $50,000 to over $1 million per violation. Most payment platforms, including Wise Business, Airwallex, and standard banks, run this screening automatically. If your payment method doesn't, you need to check manually before adding any new payee.

Form W-8BEN and Withholding

Payments to foreign contractors for services performed outside the United States generally aren't subject to US withholding tax. But payments for services performed inside the US by a foreign person may require withholding at 30 percent, or a lower treaty rate. To document that work happened outside the US, collect a signed Form W-8BEN from every international contractor before their first payment. It certifies foreign status, claims any applicable treaty benefit, and needs renewal every three years.

VAT and Local Tax Considerations

In many countries, contractors are required to charge VAT, or a local equivalent like GST in Australia and Canada or IVA in Mexico and Brazil, on their services. Whether you owe anything on top of that depends on complex place-of-supply rules. Business-to-business services between EU countries typically run through the reverse charge mechanism, meaning you self-assess the VAT instead of paying it on the invoice. Other jurisdictions have their own rules entirely. Get a local tax advisor's opinion for every country where you have meaningful contractor spend.

Building a Compliant International Payment Process

• Collect payment details through a structured intake form, never over plain email
• Verify IBAN check digits before submitting a payment (most payment software does this automatically)
• Screen every new payee against the OFAC SDN list before the first payment
• Collect and file a W-8BEN for every international contractor, and renew it every three years
• Log the FX rate used for each payment for consistent accounting
• Use a fintech payment rail for recurring international payments to cut transaction costs
• File FBAR by the April deadline if it applies to your company