Payments to Foreign Entities
Payments to Foreign Entities
Through Accounts Payable
- Payments for tangible goods or products are not subject to U.S. reporting or tax withholding.
- Payments for services provided outside the U. S. by Foreign Entities and individuals are considered foreign source, and are not subject to U.S. reporting or withholding.
- Services provided inside the U.S. are subject to U.S. Taxation which include reporting and/or tax withholding when applicable.
- Payments for Royalties, Software licenses, or Access or Use licenses purchased from foreign entities and used inside the U.S. are subject to U.S. taxation.
- Awards & Prizes are subject to 30% tax withholding. There are no treaty benefits for this type of income.
- A W-8 form is required for vendor set up.
Using University PCard
Tangible goods can be bought from foreign vendors using a PCard. A Special One-time-only exception is required from Business Affairs if the University PCard will be used to purchase an Intangible, such as software, images, database access, services, and any purchases not requiring shipping, and may require additional taxes to be charged to the Department.
PCard Exception Request procedures for Intangible Purchases from a Foreign Vendor
- The vendor is required to have a Banner Vendor Number. If the foreign vendor is not yet set up in Banner A/P, obtain a W-8 form from them or their website, and set them up per Accounts Payable procedures.
- If a W-8 form cannot be obtained, send an email to Accounts Payable at email@example.com requesting vendor set up, following all other A/P vendor set up procedures, including the invoice attachment. In the body of the email explain that your department wants to pay the foreign vendor for an intangible purchase using your PCard, but that when you tried to obtain a W-8 form from the vendor, you were unable to do so. And that you are requesting an exception from the W-8 requirement.
- Accounts Payable will review your request and set the foreign vendor set up for a one-time only PCard purchase.
- Once they have a Vendor Number, send an email to firstname.lastname@example.org with the email subject line "Request for Foreign Vendor PCard Exception". The body of the email must include the a>vendor’s name, b> their Banner Vendor number, c>the amount of the payment, and d>have the invoice attached.
- If it is determined there is applicable taxes on the purchase, your department will be required to provide an index to charge for the taxes. The grossed-up tax rate is 42.857%. A Banner JV will be created by BAO to charge the expense to the purchasing department's index. This is because there is no way to withhold taxes on a PCard purchase.
- If there is no valid W-8 form provided by or on file for the vendor, the purchase will always require an index to charge for the tax. This is because treaty benefits can only be claimed on a W-8 form.
- A PCard Foreign Vendor Intangible Exception Request Approval will be emailed to you.
- You may then make the purchase with your PCard.
- The exception is required to be uploaded to Concur attached to the expense line in question as an additional receipt .pdf image.
- Note: this approval is a one-time purchase only exception, specific to vendor, specific to the date, and specific to amount of the purchase. Any other purchases from the same vendor will require another exception request.
Setting up a Foreign Vendor in Banner
Collect the appropriate W8 form from the organization. There are five W8 forms available. The vendor may determine the appropriate form by following the criteria outlined at the top of each of the forms or their instructions. The W-8BEN-E form is most commonly used by foreign entities to claim foreign status and treaty benefits. See Central Accounts Payable and Invoice Payments under Forms for W-8 forms and information.
Foreign entities may also use the W-8ECI, W-8IMY and W-8EXP forms if specific criteria outlined on the forms and their associated instructions are met.
W-8BEN: Individuals only, most common form for individuals. This form is used to claim foreign status and can also be used to claim treaty benefits for royalty/passive income or scholarships/fellowships only.
- Individuals not eligible for the other W8 forms should use the W-8BEN.
- A birthdate is required on the W-8BEN form.
- A U.S. Tax identification number is not required unless treaty benefits are requested.
- Part II, lines 9 and 10 are not required unless treaty benefits are requested.
- Treaty Benefit requests for an exemption from tax withholding must be made "form"ally and do require a U.S. Individual Taxpayer Identification Number or a U.S. Social Security Number.
- Not all countries have a tax treaty with the U.S., and not all tax treaties contain a tax exemption for for student scholarships/fellowships.
- Royalty or scholarships/fellowships Treaty Benefits requests can be made using the W-8BEN form, and require completion of all fields in lines 9 and 10.
Independent personal services or honorarium Treaty Benefits requests can only be made one an 8233 form. The 8233 form requires U.S. taxpayer identification number. Otherwise these payments will require 30% tax withholding. All taxes withheld are paid to the IRS in the individuals name. See 1042-s reporting. Contact Joy Germack at email@example.com for assistance with the 8233 form.
W-8BEN-E: Used primarily by entities to claim foreign status and and also to claim treaty benefits.
- Entities not eligible for the other W8 forms should use the W-8BEN-E.
- A foreign entity from a country that has negotiated a tax treaty with the U.S. that has an article contained that exempts the type of income they are providing, will need to complete a W-8BEN-E to claim treaty benefits.
- A Foreign or a U.S. tax identification number is required for exemption from tax withholding.
- All fields in line 14-15 must be completed to claim treaty benefits exemption.
W-8ECI: Used primarily by the payee or beneficial owner that all the income that is listed on the form is effectively connected with the conduct of a trade or business located within the United States.
- The type of income must be identified on Line 9 of the form to qualify for exemption. If it is not listed we are required to obtain from the entity a different type of W8 form.
- A U.S. tax identification number is required for exemption from tax withholding.
W-8EXP: Used by the following entities to claim exemption from tax withholding, foreign governments, foreign tax exempt organization, foreign private foundation, govt. of a U.S. possession, or foreign central bank of issue.
- The entity must be claiming exemption under IRS code 115(2), 501 (c), 892, 895 or 1443(b). Otherwise they need to file a W-8BEN or W-8ECI.
W-8IMY: Used by an intermediary, a withholding foreign partnership, a withholding foreign trust, or flow through entity.
- Copies of appropriate withholding certificates, documentary evidence, and withholding statements must be attached to the W-8IMY as well.