Client wants me to fill out W8-BEN?

[thomasparra]

I run a HK limited company, rendering business services to a new client in the US. (B2B)

As part of their vendor onboarding process, they initially asked me to return a W9 form but I told them as I am not US based, it should not apply. They came back to me saying I would need to fill out a W8-BEN form instead.

Does this apply to me? Will they withheld tax?

 

[JohnnyDoe]

Yes this is correct: your client will act as your withholding agent. You must give them a W8-BEN-E form: https://www.irs.gov/pub/irs-pdf/fw8bene.pdf
But there is no DTA between HK and the USA.

 

[thomasparra]

Yes this is correct: your client will act as your withholding agent. You must give them a W8-BEN-E form: https://www.irs.gov/pub/irs-pdf/fw8bene.pdf
But there is no DTA between HK and the USA.

Thank you. That's crazy if it's 30% lol, especially as it's a B2B relationship between two separate corporate entities. Do you think the client will withhold or I get to recover the revenue from IRS thereafter? I am not in the US, and the work is not performed in the US.

 

[JohnnyDoe]

Thank you. That's crazy if it's 30% lol, especially as it's a B2B relationship between two separate corporate entities. Do you think the client will withhold or I get to recover the revenue from IRS thereafter? I am not in the US, and the work is not performed in the US.

Client will withhold and you will not recover anything from IRS
Might be worth considering a different jurisdiction and even a different business structure (For example royalty based)

 

[thomasparra]

Client will withhold and you will not recover anything from IRS
Might be worth considering a different jurisdiction and even a different business structure (For example royalty based)

That means that a business than has a gross margin of less than 30% would be automatically losing money? Except if there was a tax treaty in place

Is this specific to the US? I don't have this issue with my clients in Dubai, Singapore etc.

The thing is that I don't have a lot of business with US clients yet, hence creating & managing a US LLC might not make sense at this point in terms of costs/admin.

Also not surprised that I would never get anything back from IRS

 

[JohnnyDoe]

That means that a business than has a gross margin of less than 30% would be automatically losing money? Except if there was a tax treaty in place

It would be automatically paying taxes Which means, unfortunately, losing money (that is, falling victim of theft).

Is this specific to the US? I don't have this issue with my clients in Dubai, Singapore etc.

Every country has its own rules, DTAs help ensuring your taxes are duly paid and every member of the mafia club gets its fair slice of the pie.

The thing is that I don't have a lot of business with US clients yet, hence creating & managing a US LLC might not make sense at this point in terms of costs/admin.

US LLCs are super cheap but be careful with using them for US operations.

Also not surprised that I would never get anything back from IRS

Why should you?

 

[thomasparra]

It would be automatically paying taxes Which means, unfortunately, losing money (that is, falling victim of theft).

Every country has its own rules, DTAs help ensuring your taxes are duly paid and every member of the mafia club gets its fair slice of the pie.

US LLCs are super cheap but be careful with using them for US operations.

Why should you?

This is insane.

Are they doing this to push companies to open LLC/companies in the US, and/or to push domestic business services consumption while getting as much of a cut from foreign companies on the clients they serve in the US?

US LLC might be cheap to open, but maybe not to maintain (accounting, accounts auditing if required) etc. What do you mean with being careful with US operations?

 

[thomasparra]

I read contradicting information online but the consensus seems to be "If the vendor is located outside the U.S and all services are performed outside the U.S., then this is considered non-taxable foreign source income for the vendor and there is no withholding of taxes"

I hope this is true