There are special documentation requirements when making payments to foreign individuals or foreign entities. Both immigration and tax rules must be followed when making payments to foreign vendors.
Payments to Foreign Individuals
The eligibility of an individual to receive payment is based on the individual’s immigration status while in the US. The taxation and reporting of payments to foreign individuals are dependent upon type of income, visa status, and US tax status as determined under IRS rules. The Foreign Individual Information Request has been designed to gather the information necessary to determine each foreign payee’s eligibility and US tax status as well as whether the payment is subject to US tax reporting and withholding rules. Not every section of the form will apply to every foreign visitor. The IRS forms W-8BEN and W-9 have also been incorporated into this new form, so the visitor will not need to provide these forms separately.
Use the Foreign Individual Information Request to collect the required information from foreign visitors. Please note that the form requires attachments including, but not limited to, a copy of the individual’s passport picture and details page, as well as a copy of the US entry stamp for the current visit. Other attachments may be required based on the visitor’s immigration status. Without the requested documentation and attachments, there may be delays in the processing of payments. Send completed forms and attachments to the firstname.lastname@example.org. Please reference the FIS document type and number in your email.
Taxable payments made to non-resident alien individuals are subject to tax withholding of 30% under Section 1441 of the Internal Revenue Code. An individual may be able to claim treaty benefits to reduce this rate of withholding. To do so, there must be a tax treaty between the US and the individual’s country of residence, the type of income received must be covered under the treaty, and the individual must have either a foreign or US taxpayer identification number (TIN). For personal services income (including honoraria, consulting fees, speaker fees, etc.) an individual must have a US social security number or US taxpayer identification number to claim treaty benefits. The foreign visitor must complete additional tax forms to formally request a treaty benefit. Please contact the Tax Department to obtain these required forms.
Payments to Foreign Entities
The taxation and reporting of payments to a foreign entity is dependent upon the type of income and the entity’s US tax status as determined under IRS rules. The Foreign Entity Information Request has been designed to gather the information necessary to determine each foreign vendor’s US tax status as well as whether the payment is subject to US tax reporting and withholding rules. Payments to foreign entities may be taxable and reportable under the US tax system. If the activity is deemed to be subject to US tax reporting, tax withholding rules may apply. The following are the most common types of transactions that occur with foreign entities:
- Purchase of property – including books, lab materials, supplies, equipment, etc. This transaction is not subject to US income tax unless there is a service component associated with the purchase that takes place in the US (on-site installation or training, for example).
- Services provided abroad – including lab services, transcription fees, legal and professional fees, etc. When services are performed entirely on foreign soil by a foreign vendor, the transaction is not subject to US tax reporting or withholding.
- Services provided in the US – including on-site training, on-site installation, repairs, etc. When a foreign entity provides a service in the US, the transaction is subject to US tax reporting and withholding. An entity may be able to claim treaty benefits to reduce this rate of withholding. See the section Taxability below.
- “Purchase” of software – the character of software transactions may take on many forms. Each form has different tax and reporting implications. Please contact the tax department for help with determining the proper treatment of these transactions.
Use the Foreign Entity Information Request to collect the required information from foreign vendors. The IRS forms W-8BEN-E and W-8ECI have been incorporated into the form so that only one form is required. Note that not all sections are applicable to each vendor. Send completed forms and attachments to the Tax Department via email. Please reference the FIS document type and number in your email.
Payments deemed to be US income are subject to tax withholding of 30% under Section 1441 of the Internal Revenue Code. A foreign vendor may be able to claim treaty benefits to reduce this rate of withholding. To do so, there must be a tax treaty between the US and the entity’s country of incorporation, the type of income received must be covered under the treaty, the entity must have foreign taxpayer identification number, and Part II of the Foreign Entity Information Request must be properly completed.
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