Overcoming US Withholding tax with a W8BEN

Question posted by David Zeidman, on behalf of Zeidman Development in NW7

We have sold software to organisation in the US for many years. Sometimes we are not asked to fill out any forms sometimes we are asked to fill out a W8Ben form which gives the reasons why we should not have 30% withholding tax retained.

I now have an organisation that is not only requesting that I submit an older W8Ben form (I have already sent one from February 2014 they are asking me to fill out the form from February 2006 instead). They also said that the IRS has just released the new W8Ben-E for entities but given that there are no instructions yet I should fill out the older W8Ben form.

They are also insisting on me obtaining an EIN number from the IRS. This is despite the fact that on the form it is optional.

All the correspondence has come from a Managing Accountant
at the Tax Compliance/ Controller's Office of the University in question.

I am wondering if there is anything that I can do or documentation that I can point them to that would enable me to get through this somewhat painful experience!

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Roger Frampton, on behalf of ExportAction in Clearwater, Florida, USA.

Hi David

The IRS are very good at getting people (companies) who make money in the USA to pay tax in the USA. Paying tax is good: it means you are making money.

The best way, in my experience, of dealing with Withholding Tax is to form a US company (see www.ExportAction.com). You will automatically get an Employer Identification Number (EIN - which doesn't mean you have employees), you will make it easier for US organizations to do business with you, you should be more tax efficient, and you will put your UK personal and corporate assets at arm's length from US litigants.

It sounds as though your client's administrators are not being helpful. You would probably find them more helpful to a US company - if you had one.

Best of luck

Roger Frampton
rogerf@exportaction.com

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David Zeidman, on behalf of Zeidman Development in NW7.

Really?

I find that hard to believe. I understand that you have an interested in getting me to form a US company but this is the first time I have ever encountered such a stubborn issue in selling to the US in almost 10 years. Most are satisfied once I have completed the W8Ben form.

I don't know how much it costs to set up, run and administer a US company. Given that corporation tax is much lower in the UK, the last thing that I want to do is to start paying that in the US when I have never had that problem in the past. What is more given that I have no assets in the US, this all seems a bad idea to me.

David

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Roger Frampton, on behalf of ExportAction in Clearwater, Florida, USA.

Hi (again) David

I don't want to engage in a war of words, and I am certainly not trying to persuade you to become a client of ExportAction, but in case others read this, I would like to make a couple of points.

In our experience, the amount of Corporation Tax paid in the USA (as distinct from the graduated rates) is less than in the UK. Further, our US company is incorporated in the state of Florida and at the end of each fiscal year, we elect to be taxed as individuals rather than a company. As there is no state personal income tax in Florida, this is very tax efficient.

Please read again my point about assets, which is to protect your UK assets from US litigants.

I was trying to be helpful. I am not saying having a US company is right for every UK company wishing to do business in the USA, but it does address some significant hurdles. Let me give you one small example, most telephones in the USA cannot dial more than ten digit numbers - this is particularly true in the public and not-for-profit sector. Your web site offers a 13 digit number.

As I say, I was trying to help and we don't have sales executives to bombard you with telephone calls or emails. I'll leave it at that.

Sincerely, we do wish you and all UK SMEs the best of luck in doing business in the USA.

Roger
rogerf@exportaction.com

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Sue Marsden Gilpin, on behalf of UK Trade & Investment USA in United States.

Dear David,

Thanks for reaching out through the Open to Export portal. UK Trade & Investment is not able nor qualified to advise on tax issues, but we recently compiled an article signposting further information: http://opentoexport.com/article/top-ten-u-s-trade-questions-4-tax/

Additionally, here is a recent note from the U.S. Internal Revenue Service about the W-8BEN-E: http://www.irs.gov/Businesses/NOTE-to-Users-of-Form-W-8BEN

Hope you find this useful.

Best,
Diana Lau
UKTI USA

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