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September 2, 2014IM -
It comes as quite a surprise to some musicians to find that the fee they expected to receive has had a portion withheld: 30% in the US and 15% in Canada. Tax withholding is required for nonresidents in both countries, but there are ways to avoid it.
Here are two recent letters:
Dear Crossing Borders,
One of my artists performed in Canada and had 15% of her fee withheld. I have tried to contact the Canadian government to get this money back, but without success. What should we have done and what can we do now to get this money back?
Dear Crossing Borders,
I am confused. The venue in California where I am going to perform has told me that they are required to withhold 30% of my fee. I really can’t afford to lose that money. What can I do to avoid this?
—California Here I Don’t Come
Foreign artists can apply for an R-105 Waiver from Revenue Canada to lessen or avoid withholding. R-105 Waiver applications are usually treaty-based, which means that the country of residence of the foreign artist has a taxation treaty with Canada. Certain requirements must be met: an individual must earn less than Can $5,000 (including expenses paid on the artist’s behalf) in Canada in the current year and spend less than 180 days in Canada. Artists from a nontreaty country can also apply based on their net earnings in Canada. An exception to the amount earned exists for American artists who can earn up to Can $15,000 in the current year.
The application must be made at least 30 days before the first performance in Canada and, if approved, Revenue Canada will send an official letter to each venue authorizing that no withholding be done.
The R-105 Waiver application requires filling out the waiver application, and attaching complete information on the work in Canada; name, address, date of birth, passport number, date of expiry, country of issue, and identification number in country of birth for each artist; dates of entry and performance(s); a summary of income, expenses and net income; and contract copies.
Businesses must apply for a Revenue Canada Business Number (BN) and all individuals must apply for an individual tax number (ITN) before the R-105 Waiver can be processed. Applications for the BN or ITN can accompany the R-105 Waiver application.
If you are paying employees for work in Canada, or subcontracting for services in Canada, that information will need to be included in the R-105 application.
Finally, you are required to file a Canadian income tax return in the year following the granting of an R-105 Waiver application, in order to be granted future waivers. If your R-105 Waiver application is denied, and you have monies withheld, you should file a Canadian income tax return to try to get a refund.
For withholding purposes, the IRS looks at the recipient of the income, either an individual or a business. An individual may be incorporated as a business and he or she may think that this will prevent withholding in the US. However, if, as an individual, you share in any of the profits of the business, rather than being paid a salary or a set fee, the IRS will consider you an individual for withholding purposes.
There are several exemptions to having 30% of the fee withheld:
1) Tax Treaty Exemptions
a) If the performing group is considered a business and has no permanent residence in the US, then the provisions of the applicable tax treaty with the country of residence of the performing group will allow full payment of the fee. You will need to file form W-8BEN.
b) Individual foreign artists are allowed to earn a certain tax-free sum annually in the US, depending upon the specifics of the tax treaty with the country of residence of the artist. You will need to file form 8233.
2) Foreign tax-exempt organizations may qualify, if the IRS determines they are tax exempt in America, as well. You will need form W-8EXP.
3) An individual artist can apply to the IRS for a Central Withholding Agreement (CWA) and the actual tax liability will be determined, not the blanket 30% withholding.
As in Canada, tax identification numbers are required in dealing with this issue, either an Employer Identification Number (EIN) for businesses or a Social Security Number (SSN) or Individual Tax Identification Number (ITIN) for individuals. The EIN is a simple matter, the SSN or ITIN are a bit of a headache for foreigners.
Finally, all foreign artists who work in the US are required to file a US tax return to report the US income: for individuals, either form 1040NR or 1040NR-EZ and for businesses form 1120-F.
Dealing with withholding regulations is a complex task but one which every artist performing in a foreign country needs to address.
—I welcome your questions and concerns. Please write to me at: email@example.com. While I cannot answer every question I receive, I will feature as many as I can and I promise to answer each and every e-mail I receive.