Selling Software to North America
Companies developing Software and Hardware products or Services will eventual encounter customers from North America. With the countries estimated total I.T spending to reach £1.8 trillion in 2016.
Given the enormity of the market it is prudent to come across professional and with a working knowledge of the tax responsibilities that must be undertaken. Least not to mention, so you avoid paying tax to both Her Majesty Revenue & Customs and the United States Inland Revenue System.
Entities external to North America are subject to U.S. tax at a foreign-entity withholding rate of 30% on all sales of goods and services. To avoid paying this an organisation must document their status of exemption. This is achieved by filing for a Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting, in other words submit a W-8BEN-E form to the Inland Revenue System (IRS).
Failing to attend to this duty or replacement waiver will cost you 30% per sale or worse the sale in toto due to lack of customer confidence.
What is a replacement waiver?
Larger organisations will offer a replacement waiver in substitution of a W-8BEN-E, these forms generally require nothing more than a signature and date stamp.
Note that this has to be replicated for each customer that offers a waiver, in contrast to completing a single W-8BEN-E. Most organisations do not offer this option and it is prudent to file the correct paper work.
What is the W-8BEN-E form?
The W-8BEN-E states that you are a Non-US entity exempt, under certain conditions, from tax liabilities on the sales of goods and services as long as the performance of services are not physically present, for use-in; and/or the provision of the use of tangible or real property located in the united states.
That is to state, your are an international vendor outside of the United States and therefore exempt from tax liabilities.
Who should complete the W-8BEN-E form?
You must give a completed W-8BEN-E form to any withholding agent (customer) if you are a foreign entity receiving payment for goods or services. If a customer fails to request your tax exemption status you should query this situation further.
What sections should I complete?
For UK limited liability partnerships you are required to fill out the following sections.
- Part I: Identification of Beneficial Owner.
- Part III: Claim of Tax Treaty Benefits.
- Part XXIX: Certification.
Please ensure you locate the most up-to-date W-8BEN-E form from www.irs.gov and read the supplied General Instructions. Alternatively consult a qualified professional.
Further Reading
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