Payments to Businesses
Vanderbilt uses both domestic and international companies for vendor services. There are specific tax rules related to payments to international companies just as there are to transactions with international persons.
Please note that this article relates only to services; it does not relate to the purchase of goods, (supplies or other tangible property). There is no tax withholding requirement for goods shipped from abroad because ownership of the item simply passes to Vanderbilt.
For a discussion on what are goods and what are services please read our Goods & Services: What Are Goods? What Are Services? article.
Work or Services Performed Outside the USA:
If the company is physically located outside the USA and all services provided are performed outside the USA, then this is considered non-taxable, foreign source income for the company and non-taxable. The vendor simply needs to complete the Statement of Services or Educational Activity Performed Outside the USA form on our website.
Work or Services Performed Inside the USA:
If the international company provides services for Vanderbilt inside the USA, there are reporting and possibly tax withholding requirements. Foreign companies may perform a variety of services in the USA. If Vanderbilt purchases the right to use an article, photo or other resource in the USA, the foreign company retains all proprietary rights but Vanderbilt has a right of use.
"Right of use" (also called "copyright royalty," "film royalty") is taxable. If there is a tax treaty between the USA and the international vendor's country for which the vendor qualifies, Vanderbilt will apply any tax exemption or reduction benefits allowable.
If the international company has a Federal Employer Identification Number (FEIN); has an established branch or location in the USA; or has enough connection to be considered doing business in the USA. The company will file US income tax returns and Vanderbilt will not withhold any income tax on the invoice payment.
If the international company has no FEIN, is in a country that has no tax treaty with the USA and the income is not effectively connected with a trade or business in the USA., tax withholding is required. Tax withholding is 30% and VISIT will provide a 1042-S to report the taxes withheld.
IRS Tax Forms in the W-8 Series (W-8BEN, W-8ECI, W-8IMY, W-8EXP):
International vendors must submit a US withholding certificate (W-8 series of forms) with a Federal Employer Identification Number (FEIN), Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) in order to claim an exemption from or reduction in withholding. With regards to business payments, the FEIN, ITIN or SSN can only be used by the vendor for US business tax obligation and cannot be used for US personal tax obligations.
The US withholding certificate used by the international vendor, depends on the type of payment being paid and the status of the business itself.
- W-8BEN : The payment is exempt from US tax under a tax treaty and the owner has an FEIN, ITIN or SSN. The W-8BEN is used to confirm that a vendor is a foreign entity and must be provided even if the vendor is not claiming a tax treaty reduction or exemption from withholding. Therefore, all foreign vendors must provide a W-8BEN even if no FEIN, ITIN or SSN exists, unless another W-8 series form is provided. A valid W-8BEN must be provided before payment is issued by Vanderbilt.
Expiration of Form W-8BEN . A W-8BEN that doesn't have an ITIN, FEIN or SSN is valid for three calendar years from the date it is signed unless a change in circumstances makes any of the information on the form incorrect. For example, a W-8BEN signed on September 1, 2011, without an ITIN, FEIN or SSN remains valid through December 31, 2013. (Calendar Year #1 is 2011; Calendar Year #2 is 2012 and Calendar Year #3 is 2013).
A W-8BEN that does have an ITIN, FEIN or SSN remains in effect until a change in circumstances makes any information on the form incorrect, provided that Vanderbilt (the withholding agent) issues at least one payment to the vendor per calendar year that is reportable on Form 1042-S. For example, an international vendor who submits a W-8BEN with a valid FEIN and requests tax treaty benefits, will not have to re-submit the W-8BEN as long as Vanderbilt applies tax treaty benefits to at least one payment to the vendor each calendar year (and reports on Form 1042-S).
- W-8ECI : The income is effectively connected with a a trade or business in the USA and the owner has an FEIN, ITIN or SSN. A valid W-8ECI must be provided before payment is issued by Vanderbilt.
- W-8IMY (Withholding Foreign Partnership or Foreign Trust) : The recipient of the income is a withholding foreign partnership or foreign trust that has provided a valid WIMY with a WP-EIN or WT-EIN.
- W-8IMY (Qualified Intermediary Agreement) : The vendor has a qualified intermediary agreement with the IRS to accept primary responsibility for withholding. A valid W-8IMY with a QI-EIN must be provided before payment is issued by Vanderbilt.
- W-8EXP : The beneficial owner of the payment is a tax-exempt organization under US tax rules. A valid W-8EXP must be provided before payment is issued by Vanderbilt.
International companies with a FEIN beginning with "98" can only use this form on the W-8 forms listed above. if the FEIN begins with any other numbers, the company must use a W-9 (see below). Note, again that, the W-8BEN is also used to confirm that a vendor is a foreign entity and must be provided even if the vendor is not claiming a tax treaty reduction or exemption from withholding. Therefore, all foreign vendors must provide a W-8BEN, even if no FEIN, ITIN, or SSN exists unless another unless another W-8 series form is provided
Additional information on these forms and requirements can be found on the IRS website at http://www.irs.gov/pub/irs-pdf/iw8.pdf
IRS Tax Form W-9 and Form 8233 - Vendor Providing Personal Services
If the vendor (or beneficial owner of the compensation) for personal services is a nonresident alien for US tax purposes with an FEIN, ITIN or SSN, who can claim a tax treaty benefit, income tax withholding can be avoided. A W-8BEN and Form 8233 are both usually required and VISIT will provide these forms through the Business Visitor Questionnaire process is discussed below. A new W-8BEN and Form 8233 have to be provided each calendar year the tax treaty is claimed.
If the vendor (or beneficial owner of the compensation) for personal services is a resident alien for US tax purposes with an FEIN, ITIN or SSN and can claim a tax treaty benefit under a saving clause exception, a W-9 is required to claim tax exemption or withholding. A W-9 only has to be provided once. VISIT will provide the form using the Vanderbilt Business Visitor Questionnaire process below.
Saving clause. Most tax treaties have a saving clause. A saving clause preserves or “saves” the right of each country to tax its own residents as if no tax treaty existed. Therefore, once an international person become a US resident or resident alien for tax purposes the tax treaty benefits can no longer be claimed. However, many tax treaties have an exception to the saving clause, which may allow an international person to continue to claim certain treaty benefits even after becoming a US resident or resident alien for tax purposes.
Vanderbilt's online Business Visitor Questionnaire (BVQ) should be completed and submitted as soon as possible and can be submitted up to 30 days before services are provided in the USA). Once VISIT receives the BVQ, a tax record will be created and the necessary tax and record-keeping forms will be forwarded to the vendor. The BVQ can be found on the VISIT website (www.vanderbilt.edu/visit) and directly at /gss/enews/questionnaire.php.
Additional information on the W-9 form and instructions can be found on the IRS website at http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=3.
Detailed information about withholding certificates can be found on the IRS website (www.irs.gov) in IRS Publication 15 Withholding of Tax on Nonresident Aliens and Foreign Entities.