REPORTING FOREIGN AND CALIFORNIA NONRESIDENT ALIEN VENDORS PROVIDING SERVICES IN CALIFORNIA

Transcription

1 REPORTING FOREIGN AND CALIFORNIA NONRESIDENT ALIEN VENDORS PROVIDING SERVICES IN CALIFORNIA

2 FOREIGN AND CALIFORNIA NONRESIDENT ALIEN VENDORS PROVIDING SERVICES IN CALIFORNIA Foreign vendors are required to complete the appropriate FormW-8 (remains in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year), instead of the Form W-9 normally used. Similar to the W-9, it is used for reporting when services are supplied. Foreign vendors do not receive a From 1099 Misc, but instead are reported on Form 1042-S. This is applicable whether the foreign vendor is an individual, partnership or corporation. California Nonresident vendors are required to complete Form W-9, but in addition to a 1099 Misc, they must also be furnished with Form 592-B. FEDERAL: When a non-us vendor is paid, additional and separate reporting requirements are necessary. Foreign vendors providing services within the US may be subject to federal tax withholding up to 30% on all payments. There are no threshold amounts for foreign vendors: 1. If the vendor claims treaty benefits on payments for services rendered in the U.S., have the vendor complete Form 8233 for determination of tax treaty. a. The form needs to be mailed to the IRS or faxed to the IRS at within 5 days of your acceptance. b. Allow 10 days to see whether the IRS has any objections to the form. 2. If the IRS objects to the Form 8233, then withhold at 30% for Federal (see IT s recommendations for paying a foreign vendor through Escape). 3. If you make a payment to a foreign vendor for services, you must file a Form 1042-S. This applies even if you did not withhold tax because the income was exempt from tax under a US tax treaty: a. Federal form 1042 must be filed by March 15 i. All federal deposits must be made EFTPS and are due according to frequency of your deposits (see Instructions for Form 1042) 1. Work with Erin Graves in Business Services ii. Must file Form 1042-S to both the vendor and the IRS by March 15. iii. Use 1042-T to transmit original paper forms 1042-S FOREIGN AND CA NONRESIDENT VENDORS 2

3 STATE: When a non-us vendor is paid, additional and separate reporting requirements are necessary. Foreign and non-resident vendors providing services within the state may be subject to 7% state income tax withholding on payments of $1,500 or more: 4. Have the vendor complete Form 590 to determine California Residency. Payments (including payments of leases, rent, and royalties for property located in California) made to California nonresidents, including corporations, limited liability companies and partnerships that do not have a permanent place of business in this state, may be subject to 7% state income tax withholding. a. Non-resident withholding applies to all foreign vendors unless the total payments are not greater than $1,500 or the payment is made to a CA resident or Corporation that has a permanent place of business in California. 5. Have the vendor complete Form 588 to request a withholding waiver (see instructions for Form 588 as to where to send the waiver for approval). a. Allow 21 business days before making payment. b. When approved you will receive a waiver approval letter from the FTB (Franchise Tax Board). 6. Have the vendor complete Form 587 to allocate the amount of Services that are performed within the State of California. a. Only payments sourced within CA are subject to withholding. 7. Withholding begins as soon as the district determines that the total payments for the calendar year will exceed $1,500 (see IT s recommendations for paying a foreign vendor through Escape). 8. Filing and Making Payments: a. State form 592 filed quarterly (do not need to file electronically when the number of payees on form 592 is less than 250) i. Send payment due along with Form 592-V and Form 592 to the Withholding Services and Compliance Franchise Tax Board PO Box Sacramento, CA ii. Cut AP check from Escape out of expense account 9. Before January 31 following the close of the calendar year, provide the vendor with Form 592-B Resident and Nonresident Withholding Tax Statement. FOREIGN AND CA NONRESIDENT VENDORS 3

4 FORM 590 CALIFORNIA WITHHOLDING EXEMPTION CERTIFICATE 1. Districts may choose to require a Form 590 for every vendor as their internal procedure 2. District should require a From 590 when: a. The vendor does not have a California street address and; b. They will be performing services for your district within the state of California and; c. They will receive payments totaling $1,500 or more in the calendar year How to tell if the vendor is a California Non-Resident: You can rely on a California street address as an indication of a vendor s residency status. If the vendor has a California street address, no withholding is required and Form 590 is not needed to verify residency status, unless the withholding agent has reason to believe such address is merely a forwarding address. A valid California street address does not include a California post office box, or an incare-or address. Corporations: A corporation has a permanent place of business in California if it is organized and existing under the laws of this state or, if a foreign corporation, it has qualified through the Office of the Secretary of State to transact intrastate business (i.e., a corporation engaged exclusively in interstate commerce) will be considered as having a permanent place of business in this state only if it maintains a permanent office in this state which is permanently staffed by its employees. FOREIGN AND CA NONRESIDENT VENDORS 4

5 Escape Setup for Foreign Vendor Set up for Non-US vendor and Out of State vendor in Escape. When setting up the vendor record, it s recommended to set the flag to Yes for On Hold. A PO will NOT Print until the flag is set to NO. This allows the AP Clerk to verify the requisition has been setup correctly and review taxes. Use Comment field for description in vendor setup or Notes and Attachment Tabs for more information and detail. 1. Create 95XX Object Liability Account Components: Go to Finance Setup Chart of Accounts Account Components Click New to add Component or Copy from similar account Example: 9581 CA State 7%; 9582 Federal Tax 30% 2. Create 95XX Account Strings: Go to Finance Setup Chart of Accounts Accounts Click New to add account strings Or Search by similar accounts strings to copy FOREIGN AND CA NONRESIDENT VENDORS 5

6 3. Create New Vendor Go to Finance Purchasing Vendors Click New to create a Foreign Vendor Enter Vendor Information Comment field: Foreign Vendor (Comment Field is Searchable) Section 6 Hold Payments: Yes Enter Address Information Save/Close Place Vendor on Hold Section 6 Payment Information Enter Vendor Address Information: Enter the Country first using the lookup. This changes the validation of the address o State is no longer required o Zip Code is not validated Enter the street address Enter the city and zip in the City field. (If you enter the zip code in the Zip field, the zip code will appear BEFORE the city.) Enter the phone number using the plus sign (+) and then the number. (The software will not try to format the phone number.) FOREIGN AND CA NONRESIDENT VENDORS 6

7 4. Create New Vendor Requisition Go to Finance Requisitions Vendor Requisitions Click New to create a new vendor requisition Enter Requisition Information Section 5 - Change On Hold: Yes o This will place the vendor requisition on hold o This will allow the AP Clerk to understand and review the payment/taxes prior to paying the invoice Use the Comment field for notes (This is searchable) Manually calculate the requisition amount based on the total invoice. Reduce the amount paid to the vendor by deducting 7% CA State Tax and 30% Federal Tax Enter this in the Accounts Tab with 3 Account lines See example next page NOTE: Can not print Original PO with Requisition on hold. Must change the On Hold to NO in the Vendor Record and the Vendor Requistion, otherwise an error will be received. FOREIGN AND CA NONRESIDENT VENDORS 7

8 Example: Foreign Vendor Invoice $5,000 Divide by total % to be withheld = $5,000 / 1.37 Equals payment amount to vendor = $3, Total Expense Account = $5, Account CA Tax 7% = ($255.47) 9582 Account Fed Tax 30% = ($1,094.89) Total Requisition Amount = $3, FOREIGN AND CA NONRESIDENT VENDORS 8

9 5. Process Payments Using the Requisition, Direct Payment and EFT Procedures, you will need to process the payments to the Foreign Vendor, State of California and Internal Revenue Service. Payment to the Foreign Vendor Go to Finance AP Enter Payments Enter the requisition payment criteria Final Payment : Yes Click Go From the list go to Tasks to select submit FOREIGN AND CA NONRESIDENT VENDORS 9

10 Payment to State of California Franchise Tax Board for 7% Withholdings Go to Finance AP Enter Direct Payments Enter the payment criteria Use the same vendor invoice number; add SIT (Example: 1234 SIT) Enter Foreign Vendor Requisition Number (Searchable) Click Go From the list go to Tasks to select submit FOREIGN AND CA NONRESIDENT VENDORS 10

11 Payment to IRS for 30% Withholdings must be an EFT (Electronic Funds Transfer) Wire Transfer Procedures for LEAs Per County policy wire transfers need to be greater than $100K unless mandated to do so for a lesser amount. Each wire transfer incurs a $6.00 fee from the bank to send them, and the vendor incurs a fee by their bank for every wire received. Step 1: Step 2: Step 3: Step 4: a. Use the County of Sonoma Vendor Listing to verify the vendor is established. i. jsarsfield@scoe.org and/or egraves@scoe.org to request a current copy of the Vendor Listing. b. When the vendor has not been established, complete the County of Sonoma Supplier Request Form ( jsarsfield@scoe.org and/or egraves@scoe.org for the form) to create a new vendor and the completed form to Supplier-Desk@sonomacounty.org. c. Complete the Wire Transfer Request Form accessed through Escape s SCOE Resources link. d. For International Wires, check the foreign currency exchange rate on the morning the wire is to be sent. i. If the international vendor has billed the district in US dollars, please indicate on the request form so we know no conversion is necessary. e. Allow 5 days advance notice for transfer requests over $1 mil. f. Allow 2 days advance notice for transfer requests over $90K but under $1 mil. g. Use the Index Master to locate the Department Id for your district. i. jsarsfield@scoe.org and/or egraves@scoe.org to request a current copy of the Index Master. h. the completed Wire Transfer Request Form to SCOE s External Fiscal Services (egraves@scoe.org, jsarsfield@scoe.org and shoge@scoe.org ) along with back up from the vendor including the bank information. i. Once the wire has been processed, SCOE External Staff receives a Wire Confirmation Notification from County Treasury. i. SCOE will create a journal charging the district for the wire, using the expense budget code the district provided on the Wire Transfer Request Form, and will attach the Wire Confirmation Notification to the journal. ii. Use the link below for the Wire Request Form or can be found in Escape in SCOE Resources in Forms FOREIGN AND CA NONRESIDENT VENDORS 11

12 Sample Form FOREIGN AND CA NONRESIDENT VENDORS 12

13 5. Manually create a form 1042-S and 592-B Once the forms are complete, recommend to scan and attach to the vendor record. Sample Form 1042-S FOREIGN AND CA NONRESIDENT VENDORS 13

14 Sample Form 592-B FOREIGN AND CA NONRESIDENT VENDORS 14