Foreign Company / Government / Organization Payment Guidance
The Internal Revenue Service requires that all payments made to foreign vendors be made in accordance with IRS regulations. When services are provided within the United States, taxes must be withheld from payments made to foreign vendors unless the income is exempt under a provision of a tax treaty between the vendor’s foreign country and the United States or another IRS provision.
Industrial royalties for use of copyrights, trademarks, patents, etc., are also subject to 30% withholding and reporting if use is in the U.S., unless an exception applies. Royalties for software product or database results are generally subject to 30% tax withholding, if the software is used in the U.S. unless the location of the server is overseas or the software is sold as an “off-the-shelf” boxed product.
To avoid withholding at the U.S federal tax withholding rate of 30 percent or to have withholding at a lower tax treaty rate, foreign companies/governments/organizations must have a valid U.S. employer identification number (or Foreign Tax ID number) and must submit a properly completed IRS form W-8BEN-E. Even if the foreign company is not eligible for a tax treaty, the W-8BEN-E form must be completed and turned in to:
301 Andy Holt Tower
Knoxville, TN 37996
Complete IRS Form W-8BEN-E.
Tax treaty benefits may be claimed if applicable (See IRS Publication 901). Generally, a Form W-8BEN-E provided without a U.S. TIN will remain in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. A Form W-8BEN-E with a U.S. TIN will remain in effect until a change of circumstances makes any information on the form incorrect, provided the University reports on form 1042-S at least one payment annually to the company.
Foreign Government/Tax Exempt Organization
Complete IRS Form W-8EXP.
Tax treaty benefits may be claimed if applicable. The W-8EXP must also be accompanied by a letter from a U.S. attorney or the IRS stating the entity is tax exempt under section 501(c). Generally, a Form W-8EXP provided with a U.S. EIN will remain in effect for a period starring on the date the form is signed and ending on the last day of the third succeeding calendar year.
Income Effectively Connected with the conduct of a trade or business in the U.S (See IRS Publication 334)
Complete IRS Form W-8ECI.
A U.S. Taxpayer ID is required. Tax withholding is not required, but payment is IRS reportable on form 1042S. Generally, a Form W-8ECI will remain in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect.