Articles

Doing Business Overseas? Know Changes in IRS Reporting Requirements by James W. Spencer, CPA


Posted on April 14, 2015 by Jim Spencer

To conform with provisions of the Foreign Account Tax Compliance Act (FATCA), the IRS introduced new reporting guidelines for U.S. companies doing businesses with foreign contractors in 2015.

 

Effective January 1, 2015, IRS Form W-8BEN-E replaces Form W-8BEN for taxpayers making fixed and determinable, annual and periodic payments to foreign financial institutions (FFIs)  and other foreign entities.  The eight-page form allows foreign entities to demonstrate their foreign-tax status and to substantiate and certify claims for reduced rates of withholding under a tax treaty or a FATCA Intergovernmental agreement.

 

Among the challenges included in the new BEN-E form, is the selection of an entity’s FATCA status, also known as Chapter 4 status.  An entity must make the selection on line 5 of the form, only if it is “the payee of a withholdable payment or is documenting the status of an account it holds with an FFI requesting this form.”  Withholdable payments include:

 

  1. Any payment of interest (including any original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the United States, and
  2. Any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends from sources within the United States (excluding payments for services) starting January 1, 2017.

 

U.S. source payments for services performed outside of the U.S. generally are excluded from withholdable payments.  One’s failure to withhold appropriately can result in a significant tax liability.  Payors unsure of whether or not withholding is required should err on the side of caution and withhold or ask questions and seek the counsel of experienced international tax advisors.

 

About the Author: James W. Spencer, CPA, is a director in Berkowitz Pollack Brant’s Tax Services practice.  He can be reached in the Miami CPA firm’s offices at 305-379-7000 or via email at info@bpbcpa.com.