The Nevada System of Higher Education (NSHE) has designated a nonresident alien tax specialist for each institution. The nonresident alien tax specialist approves all payments to foreign companies/entities in compliance with IRS tax withholding and reporting.
Vendor/Payment Registration
All foreign entities/companies must register in the Supplier Registration System.
Vendors must complete their registration and one of the W-8 forms listed below based on their entity or structure. The nonresident alien tax specialist must review all vendor registrations and approve them once all information and documentation is completed correctly. Contact the Supplier Registration Team if you are having difficulty registering.
Types of W-8 Forms
Form W-8BEN certifies foreign status and is valid for three calendar years if the individual provides their social security number or ITIN. If no social security number or ITIN is provided, the form is valid for one calendar year.
This form is the appropriate form if the foreign corporation is certifying its foreign status, is the beneficial owner of the income, and is receiving certain types of non-compensatory income, which is either not effectively connected to a U.S. trade or business, or is effectively connected but exempt from withholding under the terms of a tax treaty.
A foreign corporation that claims a treaty benefit on effectively connected income must submit a Form 1120F tax return giving the facts supporting the claim. The W-8-BEN-E must include a U.S. EIN or a foreign TIN to be eligible for treaty benefits.
Foreign vendors who complete Form W-8ECI must file an annual U.S. income tax return to report income claimed to be effectively connected with a U.S. trade or business.
If all available evidence indicates that the foreign entity is a for-profit, taxable entity under that foreign country’s law, then withholding of 30% under IRC 1441(a) is necessary, unless the entity has a fixed base or permanent establishment in the USA. If the entity has a fixed base or permanent establishment in the USA, then the entity can avoid the 30% withholding under IRC 1441(a) by filing form W-8ECI with your institution.
The Form W-8 ECI must include a U.S. EIN. It is the foreign corporation’s responsibility to make estimated tax payments and to complete a U.S. income tax return (1120F).
Under Treas. Reg. 1-1441-4(a)(1), a foreign corporation may deliver a form W-8ECI to a U.S. withholding agent to avoid the 30% withholding only if the foreign corporation has "income which is effectively connected with a U.S. trade or business" (called ECI for short—Effectively Connected Income). Under section 864(b) of the Internal Revenue Code payment for the performance of personal services in the U.S. constitutes ECI by definition. ECI may be established if the foreign corporation has some sort of permanent office, fixed base, or permanent establishment in the USA from which its U.S. sales are derived. A foreign corporation that has ECI is required to file a U.S. income tax return (form 1120F) on which it should report the income and expenses related to its ECI in the U.S. A foreign corporation which has no ECI in the U.S. and which is not filing a U.S. income tax return is not allowed to file form W-8ECI with a U.S. withholding agent.
Treas. Reg. 1-1441-4(a)(1) adds the stipulation that a foreign corporation may not use form W-8ECI to avoid the 30% withholding if the following three conditions apply:
- The foreign corporation qualifies as a personal holding company (i.e., at least 60% of its gross income arises from the performance of personal services by individuals and at least 50% of the stock of the corporation is owned by not more than five(5) individuals);
- The individuals performing the personal services (and not the corporation) have the right to determine who will perform the personal services;
- 25% or more of the stock of the corporation is owned by the individual(s) who are contracted to perform the personal service contracts made by the corporation.
Foreign vendors who complete Form W-8EXP establish eligibility for exemption from withholding for payments exempt from tax under section 892 or for purposes of establishing its status as an exempt beneficial owner.
A Form W-8EXP is used by a foreign tax-exempt organization to claim that they are the beneficial owner of the income and to claim a reduced rate or exemption from tax under IRC 1441(a). The form applies to amounts exempt from withholding under sections 115(2), 501(c), 892 or 895, or amounts subject to reduced withholding under section 1443(b). To claim a reduced rate or exemption from tax, the Form W-8EXP must include an EIN. If you make the payment based on receiving a W-8EXP with no U.S. EIN, you must withhold 30%.
The foreign entity should attach a letter from a U.S. attorney indicating that if the organization had been organized under the laws of the U.S. the organization would have been granted tax-exempt status under IRC 501(c).
Visit the Forms page for more information and instructions on completing the W-8 forms. Contact the nonresident alien tax specialist for assistance.
Tax Withholding and Reporting Information
Withholding Rates
When making payments to foreign corporations, the facts and circumstances must be analyzed to determine the appropriate withholding certificate to request, and which withholding rates or exemptions to apply. Income must be identified as foreign-sourced or U.S.-sourced income, determined whether or not it is effectively connected with the conduct of a U.S. trade or business, whether or not the corporation is actually a personal holding company, and whether or not a tax treaty applies. In order to arrive at the correct conclusions, it is imperative that you correctly classify the income and identify the true beneficial owner of the income.
- For payment of foreign goods only, IRS section 1441 does not apply, and there is no tax withholding or reporting.
- For services performed abroad (foreign-sourced income), IRS section 1441 does not apply, and there is no tax withholding or reporting.
Exception: U. S. citizens performing services abroad are taxed on their worldwide income.
Payments for software or copyright use (unless UNLV owns exclusive rights) is considered a royalty. Royalty income is taxed where it is used (U.S.) and is subject to 30% tax withholding unless a valid W-8 form is received and a tax treaty applies.
Any time you deal with payments, some of which are foreign sources and some of which are U.S. sources, it is important that the payee identifies the payment by source on an invoice. If they do not identify the payment by source, and you know that some of the payment is U.S. source, you must withhold tax on all of the payment(s).
Special tax and reporting issues occur when making payments to a U.S. agent on behalf of a foreign person (entity). These situations arise with performers/artists/athletes. The beneficial owner of the income is the foreign person, not the agent. The payment is subject to 30% tax withholding and reporting unless a valid W-8 form is received from the foreign person (entity) and the foreign person(s) must have a Central Withholding Agreement (CWA) with the IRS.
IRS Tax Treaties
Foreign entities can claim an IRS tax treaty that can reduce or eliminate tax withholding. A U.S. Employer Identification Number (EIN) or Foreign Taxpayer Identification Number (TIN) is required to claim a tax treaty. The nonresident alien tax specialist determines eligibility.
Tax Reporting
U.S.-sourced payments are subject to reporting on Form 1042-S. Our office mails 1042-S forms in February.
According to the new Section 1461 regulations, U.S. source income subject to reporting on Form 1042-S includes amounts subject to withholding under section 1441 even if no amount is deducted and withheld from the payment because of an exemption under an internal revenue code or an income tax treaty provision. Therefore, if the income would have been subject to 30% withholding, you must report the income on a Form 1042-S with an exempt code 2 for a code exemption or 4 for an income tax treaty exemption.
To avoid all the income paid to the foreign company reported on a Form 1042-S, they need to invoice for U.S. source income separately from foreign source income so that you can report the U.S. source income accurately to the IRS. If they do not, you will have to report income that you do not know to be foreign source and let them sort it out on their Form 1120-F tax return when they provide the facts and circumstances supporting the treaty exemption.