Witholding tax & foreigners
Submitted by CT on Tue, 05/06/2008 - 23:22.
1. Usually the tax involves payment to foreigners is witholding tax. USA has witholding tax too.
The payer are liable to deduct payment (from amount pay to payee) and pay the amount to IRB.
http://en.wikipedia.org/wiki/Withholding_tax
"...The USA for example has over twenty different types of income subject to withholding tax."
But not sure if payment for internet/ programming services are subject to this witholding tax.
2. CJ requires foreign affiliate to fill up tax declaration.
Good find. International tax is a complex issue. I don't even understand the US tax code ;)
I just consulted with my tax partner here at my firm and he said that no withholding has to take place neither does a 1099 have to be sent. The Phillipino is doing his work in the Phillipines and not making money off of commission that take place in the United States like something at Commission Junction. So no withholding has to be filed for him. He takes care of his income that was earned in the Philippines, because that is where he performed his contract services.
I hope this sheds more light on the subject. Please note that Wikipedia is not the source of US tax code and is just for casual reference only.
Thanks Jon, more important lesson learned is tax for each country is just so different.
In my country, witholding tax is charge on non-resident performing services for local, i.e. payment to overseas services like Bloomberg, Reuters, etc.
Interesting thread because it affects a lot of people. I'm a US citizen living in the Philippines. A US citizen is subject to US tax on US earned income world-wide, so when I deal with US firms I just fill up my US information and deal with US taxes like any other taxpayer.
US companies are required to withhold taxes for US citizens and US resident aliens. They are _not_ required to withhold taxes for non-US persons _outside_ the US. Many merchants are not very aware on this subject. I think CJ is, but whatever, just contact the merchant directly and state you are not a US citizen and not residing in the US and that you certify you are not subject to US withholding... this may require a direct email or phone call (Skype is cheap). I note many merchant sites that _do_ have a selction for this option.
If you want to deal with a merchant who is ignorant of the facts, or if you have had money witheld which is not US-taxable, you may file a US tax return, as a foreign citizen, solely for the purpose of having it refunded. Whatever anyone says about the US IRS, they provide lots of information:
http://www.irs.gov/publications/p519/index.html
Be careful about advice even from tax professionals on this issue, because many of them never deal with non-residents (I mean, why would they?) so they may not be as familiar with the rules as they are with day-to-day US resident citizen issues.
Empowering Retirement
www.retiredpay.com
The interesting part is how tax principles of each country different from each other. In Malaysia, witholding tax is final tax charge on non-resident with local income.
CT (and others), yes indeed. Most non-US nations I have lived in have much simpler tax laws than does the US ... even though some of them have much higher overall tax rates. US tax rates are actually quite benign compared to, say, the Scandinavian countries... but the US tax code, especially for folks who live overseas, never enter the US, but earn money from US sources (until the past few years, these were very rare birds indeed).
In the Philippines, for example, as CT pointed out in Malaysia, if I earned money from a source _in_ the Philippines, their income tax share would be deducted before I even received the money (as my bank account interest income already is) and there is nothing for me to file, because I am not getting any deduction/rebates at the end of the tax year. In fact the whole system is so streamlined it would make a US attorney or tax accountant look for a new job ... Fili[onos don't even actually file a tax return form ... just visit branch offcies or kiosks in the mall at tax time and certify the records ... you're done.
Living where I don't earn income and earning income wher I don't live works well for me ... but every country's rules are certainly not the same.
Dave
Empowering Retirement