Page 40 - Withholding Taxes for Foreign Entities

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Tax treaties. Certain tax treaties provide a The designated withholding agent must blackjack, baccarat, craps, roulette, or big-6
limited exemption from U.S. income tax and agree to withhold income tax from payments wheel in the United States. A Form W-8BEN is
from withholding on compensation paid to non- made to the nonresident alien, to pay over the not required to obtain the exemption from with-
resident alien students or trainees during train- withheld tax to the IRS on the dates and in the holding, but a Form W-8BEN may be required
ing in the United States for a limited period. In amounts specified in the agreement, and to for purposes of Form 1099 reporting and
addition, some treaties provide an exemption have the IRS apply the payments of withheld backup withholding. Gambling income that is
from tax and withholding for compensation paid tax to the withholding agent's Form 1042 ac- not subject to Chapter 3 withholding is not sub-
by the U.S. Government or its contractor to a count. The designated withholding agent will be ject to reporting on Form 1042-S.
nonresident alien student or trainee who is tem- required to file Form 1042 and Form 1042-S for Nonresident aliens are taxed at graduated
porarily present in the United States as a partic- each tax year in which income is paid to a non- rates on net gambling income won in the United
ipant in a program sponsored by the U.S. Gov- resident alien covered by the CWA. The desig- States that is effectively connected with a U.S.
ernment. See Tax Treaties, later, for information nated withholding agent will issue Form 1042-S trade or business.
about treaty benefits. However, a withholding to each nonresident alien athlete and enter-
agent who is a U.S. resident, a U.S. Govern- tainer affected by the agreement. Tax treaties. Gambling income of resi-
ment agency, or its contractor must report the dents (as defined by treaty) of the following for-
amount of pay on Form 1042-S. A request for a CWA must be received eign countries is not taxable by the United
by the IRS at least 45 days before the
Claimants must give you either Form States: Austria, Belgium, Bulgaria, Czech Re-
agreement is to take effect, and must
W-8BEN or 8233, as applicable, to obtain these contain all supporting documentation specified public, Denmark, Finland, France, Germany,
treaty benefits. in the instructions, or no consideration will be Hungary, Iceland, Ireland, Italy, Japan, Latvia,
Lithuania, Luxembourg, Netherlands, Russia,
Artists and Athletes given to entering into a CWA. Exceptions will be Slovak Republic, Slovenia, South Africa, Spain,
considered on a case-by-case basis. Form
Sweden, Tunisia, Turkey, Ukraine, and the Uni-
(Income Codes 42 and 43) 13930 must be mailed to the address below. ted Kingdom.
Form 13930-A must be submitted electronically Gambling income of residents of Malta is
Because many tax treaties contain a provision through Pay.gov. taxed at 10%.
for pay to artists and athletes, a separate cate- Claimants must give you a Form W-8BEN
gory is assigned these payments for Chapter 3 Central Withholding Agreement Program (with a U.S. or foreign TIN) to claim treaty bene-
withholding purposes. This category includes Internal Revenue Services fits on gambling income that is not effectively
payments made for performances by public en- Mail Stop: 1441 connected with a U.S. trade or business. See
tertainers (such as theater, motion picture, ra- 2001 Butterfield Rd. U.S. or Foreign TINs, later, for when you can
dio, or television artists, or musicians) or ath- Downer's Grove, IL 60515-1050 accept a Form W-8BEN without a TIN.
letes.
For more information on the CWA program, go Transportation income. U.S. source gross
Use Income Code 42 to report payments to to IRS.gov/Individuals/International-Taxpayers/ transportation income (USSGTI), as defined in
artists and athletes who have not signed a cen- Central-Withholding-Agreements. section 887, is not subject to 30% gross with-
tral withholding agreement (CWA), discussed holding tax, and Chapter 4 withholding does not
later. Use Income Code 43 to report payments apply to this income. Transportation income is
to artists and athletes who have signed a CWA. Tax treaties. Under many tax treaties, com- income from the use of a vessel or aircraft,
pensation paid to public entertainers or athletes
Income Code 42. You must withhold tax at a for services performed in the United States is whether owned, hired, or leased, or from the
performance of services directly related to the
30% rate on payments to artists and athletes for exempt from U.S. income tax if the artist or ath- use of a vessel or aircraft. U.S. source gross
services performed as independent contractors. lete derives receipts for the tax year concerned, transportation income includes 50% of all trans-
See Pay for independent personal services, including expenses reimbursed to him/her or portation income from transportation that either
earlier, for more information. You must withhold borne on his/her behalf, not in excess of begins or ends in the United States. USSGTI
tax at graduated rates on payments to artists $10,000, or in more recent treaties, $20,000. does not include transportation income of a for-
and athletes for services performed as employ- See Tax Treaties, later, for information about eign corporation taxable in a U.S. possession.
ees. See Pay for dependent personal services, treaty benefits. The recipient of USSGTI must pay tax on it an-
earlier, for more information. However, in any Employees and independent contractors nually at the rate of 4% on Section I of Form
situation where the nature of the relationship may claim an exemption from withholding under 1120-F, unless the income is effectively con-
between the payer of the income and the artist a tax treaty by filing Form 8233. Often, however, nected with the conduct of a U.S. trade or busi-
or athlete is not ascertainable, you should with- you will have to withhold at the statutory rates ness and is reportable on Section II of Form
hold at a rate of 30%. on the total payments to the entertainer or ath- 1120-F. Special rules apply to determine if a
lete. This is because the exemption may be foreign corporation's USSGTI is effectively con-
Income Code 43. Nonresident alien entertain- based upon factors that cannot be determined nected with a U.S. trade or business.
ers and athletes who perform or participate in until after the end of the year.
events in the United States can request a CWA Canadian truck and rail income. Under
for a lower rate of withholding. A CWA is an Other Income Article VIII (Transportation) of the U.S.–Canada
agreement entered into by the athlete or enter- treaty, any U.S. source income derived by a
tainer, a designated withholding agent, and the For the discussion of Income Codes 24, 25, and Canadian company engaged in the operation of
IRS. Under no circumstances will a CWA re- 26, see U.S. Real Property Interest, later. For trucks or a railway as a common carrier or con-
duce taxes withheld to less than the anticipated the discussion of Income Code 27, see Publicly tract carrier, and attributable to the transporta-
amount of income tax liability. Traded Partnerships, later. tion of property between Canada and the Uni-
Nonresident alien entertainers or athletes ted States, is exempt from tax in the United
requesting a CWA must submit a written appli- Gambling winnings (Income Code 28). In States, provided the company is otherwise eligi-
cation and appropriate attachments. Use Form general, nonresident aliens are subject to ble for treaty benefits. Payments for the use of
13930 to apply for a CWA, for a nonresident Chapter 3 withholding at 30% on the gross pro- trucks (including trailers) or railway rolling stock,
alien entertainer or athlete that has calendar ceeds from gambling won in the United States if or from the use, maintenance, or rental of con-
year-to-date U.S. gross income of at least that income is not effectively connected with a tainers (including trailers and related equipment
$10,000 before the nonresident alien is eligible U.S. trade or business and is not exempted by for the transport of containers) used to transport
to apply for a CWA. Nonresident alien entertain- treaty. The tax withheld and winnings are re- property between Canada and the United
ers or athletes with gross income of less than portable on Forms 1042 and 1042-S. Chapter 4 States also are exempt from U.S. tax, provided
$10,000 of calendar year-to-date U.S. gross in- withholding does not apply to these proceeds. the company is otherwise eligible for treaty ben-
come may apply for a CWA by submitting the No tax is imposed on nonbusiness gambling efits. Canadian companies must file Form
new Form 13930-A, Application for Central income a nonresident alien wins playing 1120-F and Form 8833 to claim an exemption
Withholding Agreement (Less than $10,000). from tax for profits from their operating income.
Page 38 Publication 515 (2020)