Learn about Foreign Payment Tax Considerations
Is Payment Subject to Withholding?
Almost all payments to foreign persons are potentially subject to withholding.
The only categorical exceptions are:
- Qualified scholarships, i.e. directly tied to instruction and achieving a degree (tuition, books and course materials, lab fees)
- Expense reimbursements
- Payments for goods manufactured outside the U.S.
Payment types that are subject to withholding:
- Payments for services
- Royalties, licenses
- Prizes, awards
- Non-qualified scholarship, fellowship, stipends
Most payments subject to withholding have a withholding rate of 30%. The withholding rate for a non-qualified scholarship, non-qualified fellowship, or stipend payments is 13% - 15%. AP must withhold at the time of payment and submit withheld amount to IRS.
For a foreign person/entity to successfully claim an exemption from all or part of the withholding, the payee must:
- Claim an existing tax treaty with the U.S. and
- Provide an acceptable Tax ID
- The tax treaty is claimed via Form W8-BEN or 8233
Certain other statuses may allow for exemption.
Only certain countries have a tax treaty with the U.S. under tax treaties. Residents (not necessarily citizens) of foreign countries are exempt from US income tax or are taxed at a reduced rate on certain types of income received from a US source.
Length of Stay
For certain payments (mostly managed by Payroll), if a foreign person has spent over a certain number of days in the U.S. (see Substantial Presence Test), they are not able to claim a tax treaty.
Acceptable Tax ID Numbers Issued By IRS & SSA
- Social Security Number (SSN)
- Employer Identification Number (EIN)
- Individual Taxpayer Identification Number (ITIN)
Unacceptable Numbers for Claiming a Tax Treaty
- Passport Number
- Visa Number
- Foreign Tax ID Number
Complete Foreign-Related Tax Forms
Find a Tax Form (Suppliers / Payees)
Visit Find a Tax Form for a list of frequently used supplier/payee tax forms.
Making Payments to Foreign Persons and Entities
For key background information on the regulations that govern payments to foreign persons and entities —
- Please refer to the course resource: Making Payments to Foreign Persons and Entities
- Or the web-based training: Making Payments to Foreign Persons and Entities