I work for a sole proprietor LLC based in the United States.
We don't work with many international vendors, but we are currently working with a consulting firm based in Israel.
It is my understanding that we would need to withhold 30% of their billings to be remitted to the U.S.
Can anyone confirm is my understanding is correct, or if there would be certain situations where withholding the 30% would not be required and/or appropriate?
Thank you!
There might not be any US
Regardless, you need to obtain one of the W-8 series of forms from the vendor. The correct form is likely W-8BEN, but I would need more facts. I'd be pleased to discuss off-line.
Anon;
Check articles 16 and 17. Basically, if the person or persons performing the services are resident in the US for less than 183 days, there is an exemption. The intent (I believe) is to prevent people from working here but not reporting taxes here. If they are here in excess of 183 days, they really need to file and pay (and you need to withhold).
Cheers,
Keith
http://www.irs.gov/pub/irs-trty/israeltech.pdf
Note also the instructions for W-8 here:http://www.irs.gov/pub/irs-pdf/iw8ben.pdf
Per Marc, have them fill out the W-8BEN and claim their exemption, then you don't need to withhold. (Note a foreign corp is a "person" when you're reading this stuff).
If the service is provided outside of the US, there is no withholding requirement. If the payment is related to services provided by the vendor while visiting the US, or for intellectual property rights, royalties, etc; there might be an 20% - 30% withholding requirement, depending on the nature of the activities.
The reasoning behind the latter is that the IP is protected under the US rule of law. If you get protection, you pay for that protection. (Similar to 'no taxation, without representation').
Having worked in this realm for years; a non-US tax resident working for a US company OUTSIDE of the US, no tax.
A non-US tax resident doing work IN the US, tax unless: a) they are a citizen of a Treaty Country and b) they provide both a W-8BEN and a Certification of Tax Citizen that a) jibes with the W-8BEN and "looks" legitimate to the company (you). However:
Then you need to read that particular Treaty and determine if the preceding is accurate.
I have rejected "Certifications" because they look either like forgeries or were from non-governmental entities, thus rejecting the W-8BEN and withholding 30% taxes. It was then up to the vendor to file with the IRS and get their money back.
By the way, a US-Resident (non-citizen) who resides here for 183 days is considered a US-Tax Resident. US-Tax Residents and US Citizens are always taxed for income from any source, from any country. Taxes paid in a foreign country can be (there are limits) claimed on your US Tax Return
Disclaimer: Seek a tax maven who is skilled in doing multi-country tax returns. I am not a Tax Maven, in fact I don't even do my own taxes.
