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Doing business with foreign corporation

by phubai3000, Window Shopper

  • Created: March 23, 2010, 9:12 pm
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8 comments

If we are doing business with foreign corporation (non-US corporation), do we need to withhold the tax, please? i.e. I purchase the stuff from foreign, do I have to withhold the tax when I make the payment to the non-US corporation, please?

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BobK | Community Administrator | 1/18/2011 - 8:45 am

Hi ... you may want to check out IRS Publication 515 - Withholding of Tax on Nonresident Aliens and Foreign Entities
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BAD32 | Performer | 3/23/2010 - 9:12 pm

The easiest way to answer your question is to find out whether or not the other party (the party you are purchasing from) files a US tax return.  Do they have a physical presence in the US or salespeople in the US?  If so, they most likely are subject to the US tax system.  If they do file a US tax return, then you don't have to withhold taxes.  If they do not, then there may be a withholding obligation on your part.  I would suggest checking the IRS's Income Subject to NRA Withholding to find out your obligation.  http://www.irs.gov/businesses/small/international/article/0,,id=105154,00.html

BAD32 | Performer | 3/9/2009 - 8:42 pm

The easiest way to answer your question is to find out whether or not the other party (the party you are purchasing from) files a US tax return.  Do they have a physical presence in the US or salespeople in the US?  If so, they most likely are subject to the US tax system.  If they do file a US tax return, then you don't have to withhold taxes.  If they do not, then there may be a withholding obligation on your part.  I would suggest checking the IRS's Income Subject to NRA Withholding to find out your obligation.  http://www.irs.gov/businesses/small/international/article/0,,id=105154,00.html

BobK | Community Administrator | 3/23/2010 - 9:12 pm

Hi ... you may want to check out IRS Publication 515 - Withholding of Tax on Nonresident Aliens and Foreign Entities

phubai3000 | Window Shopper | 3/7/2009 - 6:13 pm

Hi! I have read through the Publication 515 and the Form W-8 (4 different types of forms) and also called the IRS. However they cannot provide any answer to me as they said that it is out of their scope. I was astonished by their answer. My question is : I need to purchase the materials from overseas, when I need to make the payment to this oversea corproation, do I have to withhold the tax when I make the payment. This is the ordinary business transactions. For the publication 515, it only defines some source of incomes are subject to withholding tax.  

phubai3000 | Window Shopper | 3/23/2010 - 9:12 pm

Hi! I have read through the Publication 515 and the Form W-8 (4 different types of forms) and also called the IRS. However they cannot provide any answer to me as they said that it is out of their scope. I was astonished by their answer. My question is : I need to purchase the materials from overseas, when I need to make the payment to this oversea corproation, do I have to withhold the tax when I make the payment. This is the ordinary business transactions. For the publication 515, it only defines some source of incomes are subject to withholding tax.  

lghancock | Performer | 3/13/2009 - 10:08 am

I would agree with the prior answer.  The purchase by a U.S. person of tangible personal property from a foreign corporation located in a foreign country is not usually a taxable event in the United States because the sale is deemed to be the foreign source income of a foreign person.  In this situation, it is usually the foreign government which has the right to tax the transaction.  On the other hand, if the foreign corporation has a fixed base or permanent establishment in the USA from which it sells tangible personal property, then such income is taxable by the United States, but is not usually subject to withholding of U.S. federal income tax if the foreign corporation files Form W-8ECI with the withholding agent (the purchaser). 

lghancock | Performer | 3/23/2010 - 9:12 pm

I would agree with the prior answer.  The purchase by a U.S. person of tangible personal property from a foreign corporation located in a foreign country is not usually a taxable event in the United States because the sale is deemed to be the foreign source income of a foreign person.  In this situation, it is usually the foreign government which has the right to tax the transaction.  On the other hand, if the foreign corporation has a fixed base or permanent establishment in the USA from which it sells tangible personal property, then such income is taxable by the United States, but is not usually subject to withholding of U.S. federal income tax if the foreign corporation files Form W-8ECI with the withholding agent (the purchaser).