We made a purchase from a Canadian vendor. We asked the vendor to complete a W-8 form. The vendor said it doesn't file taxes in the United States and doesn't have a U.S. taxpayer ID. What W8 form should the vendor complete instead or is one required?


For chapter 3 requirements, a form W-8 is not required if you are simply purchasing Canadian-made products (tangible goods) from the Canadian vendor. While you don't go into detail, we suspect that what the vendor has told you is correct. Note, however, that while there are not federal withholding and reporting obligations in such a situation, there may be sales and use tax obligations.

U.S. source income paid to non-resident alien independent contractors providing services is taxable and reportable, and generally you must withhold 30% of payments. In such cases you want to get a W-8. But if you are simply buying goods from a foreign incorporated vendor, there is no withholding and reporting (1042S) obligation on your payments to the vendor.

The IRS says "A non-resident alien is subject to tax only on U.S. source income." See IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. It defines source of income and provides a helpful table. When paying for services, source is determined by where the services are performed. Services performed outside the U.S. are not taxable (or reportable) to the IRS, though there may be a requirement to report payment to the foreign government.

When withholding is required, you want the vendor to provide the appropriate form W-8 (comparable to a W-9), and you report payments on form 1042S. See TAPN's Forms and Publications of Interest to Filers of 1099-MISC under 1099 Information--1099 Basics. You can learn more about Form 1042 at the IRS website.

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