Tax laws when trading to the US from europe
What are the tax laws regarding sale of a SAAS to US companies when you are UK based? I know you dont have to charge VAT but would you need to file a US tax return or charge US taxes?
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Just get your W-8BEN filled out and attach it to every receipt/invoice you send. If customer asks for W9, you send them W-8BEN. Your bigger issue will be accepting credit cards and other payments. If you are in position to do it - outsource that. Paypal is not a good idea. Companies like Chargify are much better. – Apollo Sinkevicius 12 years ago
5 Answers
Short answer is that if you are selling GOODS than no. There are no tax implications or reporting requirements in the US.
If you are selling services, than legally the US client is required to withhold 30% from your payment or get a filled out W8BEN from you claiming double taxation treaty benefit. The W8BEN is not difficult to fill out and stays on file with the client, it does not get submitted directly to the US government unless the client is asked to show proof that you can claim tax treaty benefit. There is a double taxation treaty in place between US and UK, so you are certainly eligible to claim tax treaty benefit but to do so you will need to apply for a US EIN number which takes about 10 minutes by submitting a form by fax to the IRS and has no cost and no impact on your US tax liabilities which remain 0 as an offshore non-US company.
Typically you pay 'local' taxes where the company is domiciled. Most major trading countries have double taxation laws in place so you only pay taxes where your company is legally located. This it what it looks like from my end ~ http://www.hmrc.gov.uk/cnr/app_dtt.htm
If you're a UK Ltd company there are currently no tax implications in selling to the US.
You will need to have W-8BEN forms filled in (and it helps to have an EIN as well) and be ready to explain to your customers that W9's and so on are not relevant to you.
More info - Can I sell in the US without a SSN?
Generally speaking you won't have to collect Sales & Use Taxes or file Tax returns in any of the states in the United States, since you don't have physical presence in any State. This however can change at any time so I would suggest getting some professional help with this.
You will have to file an 1120-F to the IRS for any income your company makes from US sources.
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Would I then have to pay some rate of tax? – Tom Squires 12 years ago
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@TomSquires Maybe/Maybe not. That's why I suggested a professional(accountant). US Federal Tax laws are convoluted and in my opinion DIY taxes stop when it goes anywhere beyond 1040-A – Karlson 12 years ago
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I wonder what remedies are available to the IRS if a UK Ltd didn't bother with the 1120-F? They have no jurisdiction over the UK and cannot extradite the Ltd company. – Steve Jones 12 years ago
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@SteveJones One would have to read all the tax related conventions between US and UK to find out. May take me a few months to do but a tax lawyer might be able to do this faster. – Karlson 12 years ago
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You shouldn't be required to fill in an 1120-F we had a very stressful couple of days after being sent a request to supply one. However, after a number of frantic days we were able to establish that someone hadn't ticked a box when applying for an EIN (that says you only want it for the purpose of W8-BENs) and the stress all went away. – Steve Smith 11 years ago
The relevant legislation is VAT Act 1994, specifically paragraphs 7C(a) and 7C(b) of Schedule 5 which deal with “Electronically supplied services”.
This provides that VAT must be added to invoices where the customer is:
- based in the UK
- based in the EEC and is not a business
