We are small Canadian software company selling most of our services and products to US corporations. For a year we were getting payments from US customers without any withholdings. But yesterday we sold a product to US company + maintenance service for 1 year. They asked us to send them w8-ben. Their accountant says that they have to withhold 30%.
Quote: Since a U.S. EIN was not provided in line 6, and lines 9b and 9c were not checked, the tax treaty benefit was not claimed for the software portion of the invoice, and so 30% was withheld. We do not own all of the rights to the software, so it is not considered a purchase. To claim the tax treaty benefit, you will need a U.S. EIN in line 6, will need to also check lines 9b and 9c, as well as provide the rate, article in the treaty, the type of income, and expressly say in the blank lines in line 10 that you do not have a permanent establishment in the U.S. to which the income being paid relates.
Is that true? Do we really need to get EIN to avoid withholdings?
If we get EIN – do we need to report in US?
What is the best way for us? To open a corp in US?
Alex,
A US tax ID number is not required; however, you do need to check Box 9a and 9c, and on line 10 enter Article VII and Article XVII to claim a 0% rate of withholding. On the explanation write that the company is a full time resident of Canada and does not have a permanent establishment located in the United States where they conduct business. (assuming that is a true statement).
If money has already been withheld, you will probably have to file a US tax return to get the money refunded which will necessitate obtaining an international tax id number (ITIN) when you file the return.
(a) You made a typo in the card number, CCV code, expiration date, name or address;
(b) Your card balance is too low;
(c) Issuing bank has declined this transaction for some other reason related to your account.
