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May 1, 2015IM -
by Robert Baird, President Baird Artists Management (BAM!)
The issue of United States Taxation for foreign artists came up in a recent letter:
I have a band that is looking to play a corporate event in the US at the end of June. My accountant just informed me of the Central Withholding Agreement that could keep as much as 30% of our income—the final total being left at their discretion. My accountant tells me that it is likely just a matter of incorporating the business, which can be done fairly quickly. Can you help?
Dealing with taxation in any country is complex. The regulations regarding taxation for a foreign artist are customarily contained in a tax treaty between the two countries, and will apply differently to individuals than to businesses. However, it is not simply a matter of incorporating an individual or a performing group as a business because the IRS considers who the “beneficial owner” of the income is and, if any individual is named in the corporation, then the income is considered personal, not corporate.
In the US, the requirement is that anyone paying a foreign artist has to withhold 30% in taxes on US income. Anyone who withholds tax, be it a promoter, a venue, a presenter, a manager, or an agent, is designated by the IRS as a “withholding agent.” If the foreign artist fails to file a tax return and pay the required taxes, then the “withholding agent” is liable for any unpaid tax.
There are exceptions to this general principle:
A tax treaty may exempt a business from paying tax in a foreign country if it is recognized as a business by the IRS and has no “fixed establishment” in the US.
A tax treaty may allow a certain level of income for independent personal services to be earned tax-free, if the individual has no “fixed base” in the US and spends no more than a certain number of days in the country. For example, the Canada-US Tax Treaty allows an individual artist to earn $15,000 annually without taxation. However, earning more than $15,000 annually would make the individual taxable for the whole amount.
An individual (not a business) can enter into a Central Withholding Agreement (CWA) with the IRS whereby the IRS will estimate the actual tax liability of the artist and withhold less than the required 30%.
In years past, it was often enough to provide a US employer with a W-8BEN or a Form 8233 to avoid the required 30% tax withholding. Now, this is no longer regarded as sufficient. An employer cannot rely on these forms to avoid enforcement of the IRS requirement.
If it transpires that a foreign artist has been “over-taxed,” then a refund can be obtained by filing a tax return. Even if your income is exempt from US income tax, it’s a good idea to file annually. Individuals should file a Form 1040NR or Form 1040NR-EZ. Businesses should file a Form 1120-F.
At some point in the future it may become necessary to have your tax filings current before you are granted a work visa for the US. It’s a good idea to comply with all requirements for foreign taxation.
—I welcome your questions and concerns. Please write to me at: email@example.com. While I cannot answer every question I receive in this column, I will feature as many as I can and I promise to answer every e-mail I receive.