Printer-friendly version

Flowchart

Click here for the Royalty Payments flowchart.

Royalty Payments

Definition: 

Is a payment to use some type of intangible property/or passive income.

Royalty payments to international entities or individuals are reportable and potentially taxable if paid by U.S. Source Income.

Individuals:

If an individual is from a country that has negotiated a tax treaty with the U.S. that has an article contained that exempts or applies a reduction in the tax rate for royalty income, they need to complete a W8-Ben form claiming treaty benefits.

To claim treaty benefits a US taxpayer identification number is required, and Line 10 completed with the appropriate treaty country and article completed indicating the applicable rate of withholding.

If they are from a country with no treaty benefits or do not have a U.S. Tax reporting id the payment would be subject to 30% withholding. Here is a sample of a completed W-8BEN form please note every tax treaty has different provisions.  You should review the treaty between your home country and the U.S. and use the applicable percentage of tax withholding and treaty article number that covers royalty payments.

For vendor setup a W8 form along with the invoice or page one of a fully executed contract (all signatures completed) will need to be sent to A/P.

Once setup in Banner as a vendor, the payment should be entered using account code 28531-Royalty Payments!

Foreign Entities:

Collect the appropriate W8 form from the organization. There are four W8 forms that can be completed, and the appropriate form is determined by following the criteria outlined on the forms and instructions.  Most commonly entities will complete the W8-Ben form.

The W8-ECI, W8-IMY and W8-EXP forms would exempt an organization from tax withholding, but the payment would still be reportable at year end.  A U.S. tax identification number is required, and the forms can only be completed by organizations that meet the specific criteria outlined on the forms and instructions.

If The W8-ECI form is completed, to qualify as effectively connected U.S. source income the type of income must be identified on Line 9 of the form.  If it is not listed on Line 9 we are required to obtain from the entity a different type of W8 form.

A foreign entity from a country that has negotiated a tax treaty with the U.S. that has an article contained that exempts or applies a reduction in the tax rate for royalty income, they will need to complete a W8-Ben form claiming treaty benefits.  Here is a sample of a completed W-8BEN form please note every tax treaty has different provisions.  You should review the treaty between your home country and the U.S. and use the applicable percentage of tax withholding and treaty article number that covers royalty payments.

To claim treaty benefits a US taxpayer identification number is required, and Line 10 completed with the appropriate treaty country and article completed indicating the applicable rate of withholding.

If they are from a country with no treaty benefits or do not have a U.S. Tax reporting id the payment would be subject to 30% withholding.

For vendor setup a W8 form along with the invoice or page one of a fully executed contract (all signatures completed) will need to be sent to A/P.

Once setup in Banner as a vendor, the payment should be entered using account code 28531-Royalty Payments!