Tax Withholding Us
April 4th, 2011
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Question: Do foreign companies need to pay US tax?
Consider the situation:
1. F is a foreign company and has no presence in the US.
2. U is a US corporation.
3. F provides software development and graphics design services to U.
4. F does all the work in the foreign country.
5. U pays F for the service performed.Does F need to pay any US tax? Is it required to submit form W8-BEN or any other tax forms?
Does U need to withhold any tax for the payments? Is it required to submit 1042-S or any other tax forms to account for the payment?
Please include references / cite the sources. Thanks.Answer: F pays no US taxes.
F does NOT file a W8-BEN as there is no beneficial interest in the US income. W8-BEN is ONLY used where there is a beneficial interest, such as when the foreign taxpayer has an ownership interest in the US company or performs services in the US.
U does not withhold taxes on the payments to F or submit any tax forms relative to the payments.
U does keep a record of F’s foreign address. Ideally U should also request a statement from F that they are a foreign entity and not subject to US taxation. (See the wording on W8-BEN — the statement should state the opposite.)
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