I have a German vendor to whom we pay an annual maintenance fee for software which we lease out. They don't provide services here, everything is done remotely. Do we need to file a 1042-S?


Your payment of an annual license fee to the German vendor falls under royalty—it apparently includes a copyright right to sell/lease to others. Royalties income is sourced according to where the material is used, which in this case would be the U.S., making the royalty payment U.S.-source income, subject to 1042-S reporting and withholding (unless a tax treaty exemption is claimed).

(By the way, the code on all this is Regulation §1.861-18.)

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