How do we tax a vendor if it's UK-based? What documents do we need?


If you are paying a foreign vendor for services, you need to have them complete the appropriate IRS form W-8. There are several, and which form depends on whether the vendor is an individual or an entity, what they are providing for you, and the source of the payment (U.S. or non-U.S.).

There are a number of considerations regarding your responsibilities. On The Accounts Payable Network please see the series in the 1099/1042-S/W-9/W-8 section of the AP Compliance Suite: Forms W-9 & W-8. This provides guidance on the various forms and includes links to the IRS Instructions for each form, including the changes brought about by FATCA.

The keys to foreign tax withholding and reporting are to know who you are paying and what you are paying for. For help with withholding & reporting, see the 1042-S Reporting section on TAPN.

That said, the short summary for most accounts payable vendor payments is as follows: If you are paying for merchandise, you do not have to withhold or report.  If you are paying for services, or for rent or royalties, then it depends on the source of the payment—if services were performed in the U.S., you must report and withhold 30% (unless the vendor claims reduced withholding under a treaty, on the appropriate W-8 form). For rent, source is determined by the location of the leased property—for example, if you are renting space in the U.S., or using leased software in the U.S., then it’s U.S. source and you must report and withhold (except as above); for royalties, source is determined by where you use the property.

For more information, again, see TAPN content in the Tax & Regulatory Section under 1042-S Reporting.

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