FOREIGN NATIONALS TAX COMPLIANCE TRAINING 2015 Foreign Nationals Tax Compliance March 19, 2015
Presenters Jennifer Trivette Pacheco OSC s Foreign Nationals Tax Compliance Program Michelle Anderson NCSU s Foreign National Tax Program Manager Disclaimer: The information within this presentation does not constitute tax/legal advice and each participant should seek his/her own counsel in addressing specific situations. 2
Agenda Basic Reminders of Chapter 3 vs. Chapter 4 Withholding and Reporting Forms NC DOR NRA Tax Annual Tax Filing Updates to International Tax Navigator Immigration Updates 3
Chapter 3 vs. Chapter 4 Chapter 4 FATCA Withholding Ensuring U.S. person fulfill their income tax obligations Attempts to determine if anyone is off-shoring their income for tax shelter Chapter 3 NRA Withholding Governs the income tax obligations of non-u.s. person who are earning or receiving U.S. source income Most non-u.s. individuals earning/receiving income will not file a U.S. Tax Return, it is ultimately the payers (withholding agents) responsibility to withhold tax at the time of the payment 4
FATCA Subject Payments FATCA income is: Taxable U.S. Source fixed and determinable, annual or periodic (FDAP) income. Examples of potential withholdable inclusions: Investment advisory, bank, brokerage, or other financial service fees Premiums for life insurance, insurance contracts Fees and other payments in connection with any lending transaction, including loan guarantees No treaty reductions 5
Non-withholdable FATCA Payments Effectively EXCLUDES Payments to Individuals Effectively Connect Income W-8ECI Requires U.S. TIN No Chapter 3 withholding Payments reportable on 1042-S Non-financial Payments made in the ordinary course of business Non-financial services fees Rentals on office and equipment leases Payments for the us of other property Software license fees Transportation Awards Prizes Scholarships Compensation for Services 6
Challenges of Chapters 3 & 4 Withholding Timely requesting new certification forms Prior vendor forms will expire Determining the appropriate W-8 Form Reviewing forms to determine if there are any red flags to potential cause you to question the form Determining whether the payment is subject to FATCA withholding Identifying U.S. Source Income subject to 30% withholding Understand the importance of documentation Invoices Contracts Accounts Payable is taxed based on type of purchase Reviewing each invoice is necessary Potential additional W-8 Form to claim additional tax treaties 7
Reasons to doubt Documentation Current U.S. permanent mailing address Invoice W-8 Form Google vendor U.S. address used, but it s addressed to another addressee (In-Care-Of) U.S. contact telephone number Instructions to pay amount to an address or account in the U.S. 8
Documentation Form W-8BEN For use by individuals 2014 edition required implementation 3/6/14 Chapter 3 sections Individuals are NOT subject to Chapter 4 7/1/14 Foreign TINS can be used for treaty claims New Certification that payee agrees to update if changes 9
Documentation Form W-8BEN-E For use by entities Chapter 3 and Chapter 4 sections Must implement 1/1/15 Prior W-8BENs valid prior to 1/1/15 Earlier of last day of the third calendar year following he year signed OR The day that a change in circumstances occurs that makes any information on the certificate incorrect. 10
Accepting W-8BEN-E Country of incorporation or organization must be fully written out and not abbreviated If omitted, form invalid Abbreviated need additional documentation to support place of incorporation or organization. Chapter 3 status MUST be indicated invalid if omitted. Make sure the capacity to sign box is checked Only required to provide a chapter 4 status if you are the payee of a withholdable payment or are documenting the status of an account you hold with an FFI requesting this form 11
NC-4-NRA Directive and form issued 12/22/2014 Further guidance issued 1/20/2015 New NC-4-NRA is effective 1/1/2015 Required of foreign nationals who are in NRA tax status Removes the standard deduction from the standard tax tables (excluding India Student Treaty) DOR will honor federal tax treaties NC law does not require withholding on Scholarship UNC GA has worked to reduce the manual processing Reference FAQ for potential unresolved questions Processing Challenges???? 12
Contractors or ITIN Holders: Subject to 30% federal tax, unless an exception applies 4% NC tax >$1,500 Contractor provides ITIN or NO SSN OR >$1500 Individual contractor provides SSN Nonresident of NC Providing personal services in connection with a performance, an entertainment, an athletic event, a speech, or the creation of a film, radio, or television program 13
Central Withholding Agent (CWA) Only effective for the tour or events covered and payments stipulated by the CWA The withholding agent that is in receipt of a letter from the IRS regarding a specific CWA is relieved of withholding and reporting on payments that are covered by the CWA Department of Revenue not covered by the CWA Report NC Taxes withheld on 1042-S 14
North Carolina Tax Deposits NC-5 used to make tax deposits for 1042-S withholding Make copies of the 1042-S to include with the tax annual reconciliation 1042-S due last day of February 15
Updates to International Tax Navigator: Withholding Agent 16
Updates to International Tax Navigator: Recipient Chapter 3 and Chapter 4 Status Codes 17
Updates to International Tax Navigator: Foreign TINS being used for Tax Treaty Claims: 18
Updates to International Tax Navigator: Income Codes 19
Updates to International Tax Navigator: Income Codes Other Income Tax Year 2013 Income Code 50 Tax Year 2014 Income Code 51 Tax Year 2015 Income Code 54 Discussion between use of IC 23 (IC 20 for 2014) vs. 51 Gross Income Other Most used Income Codes IC 12 Other royalties (copyright, recording, publishing) IC 15 Scholarships or fellowship grants IC 16 Compensation for independent personal services IC 17 - Compensation for dependent personal services IC 18 Compensation for teaching IC 19 Compensation during studying and training IC 51 Other Income 20
Updates to International Tax Navigator: 1042-S Data Screen 21
Updates to International Tax Navigator: 1042-S Data Screen Chapter 4 Exemption Code: 16 Excluded Nonfinancial Payment Is a type of payment that is specifically excluded from FATCA rules Includes Compensation for U.S. services paid to an individual Wages and other forms of employee compensation Use of Property Office and equipment leases Software license Transportation/freight Gambling winnings Awards/Prizes U.S. source scholarship/fellowship income 22
WHEN Tax Deposits MUST be Made: Largest opportunity for IRS penalties and interest!!! 23
Frequent Questions Form 8233 with Certifying Statement from NRA Filed ANNUALLY!!!! US TIN Required Can attach copy of SSN application receipt Must submit to IRS within 5 days of accepting (signing) Must contain employer s EIN IRS has 10 days to reject treaty Form 8843 Statement of Exempt Individuals Must be filed Annually by your FN who are exempt from SPT Required for ACA Compliance FICA Exemption Annual SPT Errors must be correct by the employer 941X W-2C 24
Frequent Questions Challenges of New Technology Purchase vs. Royalty Digital books Purchase 1 copy with the right to reproduce Purchase 1 copy no right to reproduce 10 hard bound books Software Purchase of software package Purchase of License that is renewable annually Questions Where is the item being used Form 1042-S and 30% withholding Claim treaty benefits on W-8BEN or W-8BEN-E 25
Frequent Questions Scholarships Sourced by location/residence of payer, not location of services Reporting and withholding obligations for payments you make to foreign students who are studying abroad while enrolled Allowing Allowances Procedures in place for only one semester enrolled Do you know that your foreign national did not work during the year? Publication 15 Standard deduction for 2015 is $4,000 Standard deduction for 2014 was $3,950 26
Immigration Updates: J-1 Visa As of January 1st, 2015, the J-1 Exchange Visitor Program is under a new set of regulations. Department of State s 22 CFR Part 62 Subpart A Rule Significant Changes Include: Exchange Visitor medical insurance amounts and monitoring coverage requirement (effective May 15th, 2015) J-1 and J-2 contact information must be updated in SEVIS Final departures for J-2 s must be updates in SEVIS Form DS-2019 electronic sharing prohibition (should not be sent via e-mail) Legal requirement to certify that the Exchange Visitor possesses sufficient proficiency in the English language Cross-cultural activities emphasis (is required to participate in cross cultural experiences)
Immigration Updates: J-1 Visa (cont.) Updates to Health Insurance Requirements While it has always been a requirement, J-1s must now be covered for the duration of their DS-2019 ( Port to Port ) J-2s dependents must be covered for the duration of the J-1 s DS-2019, regardless of their physical presence in the U.S. Sponsors must inform the Exchange Visitor that they and any accompanying dependents may be subject to the Affordable Care Act (ACA) Exchange Visitors may use the healthcare exchange to purchase an insurance policy
Immigration Updates: H-4 U.S. Citizenship and Immigration Services (USCIS) announced that effective May 26, 2015, the Department of Homeland Security (DHS) is extending eligibility for employment authorization to certain H- 4 dependent spouses of H-1B nonimmigrants who are seeking employment-based lawful permanent resident (LPR) status. DHS new amended regulations allow H-4 dependent spouses to accept employment in the United States. Eligible individuals include certain H-4 dependent spouses of H-1B nonimmigrants who: Are the principal beneficiaries of an approved Form I-140, Immigrant Petition for Alien Worker; or Have been granted H-1B status under sections 106(a) and (b) of the American Competitiveness in the Twenty-first Century Act of 2000 as amended by the 21st Century Department of Justice Appropriations Authorization Act. The Act permits H-1B nonimmigrants seeking lawful permanent residence to work and remain in the United States beyond the six-year limit on their H-1B status. Please note the H-4 MUST HAVE A VALID EAD CARD TO WORK
Immigration Updates: Still Under Review Deferred Action for Childhood Arrivals (DACA) Due to a federal court order, USCIS will not begin accepting requests for the expansion of DACA on February 18 as originally planned. The court's temporary injunction, issued February 16, does not affect the existing DACA. Individuals may continue to come forward and request an initial grant of DACA or renewal of DACA under the guidelines established in 2012 and discussed below. Please note they MUST HAVE A VALID EAD CARD TO WORK. STEM OPT The WashTech Lawsuit On March 28, 2014, the Washington Alliance of Technology Workers (WashTech) sued DHS in the U.S. District Court for the District of Columbia, challenging the agency's authority to establish any kind of post-completion optional practical training (both standard post-completion OPT and STEM OPT). WashTech argued, among other things, that the Immigration and Nationality Act provision that created the F-1 category [INA 101(a)(15)(F)] does not permit the creation of regulations for any kind of post-completion practical training, since the statutory language mentions only "students" seeking "to enter the United States temporarily and solely" to pursue "a full course of study." The court's decision allowed the part of the lawsuit regarding STEM OPT to go forward. On March 6, 2015, both parties filed motions for summary judgment, which the court is now considering.
Summary With regard to making any form of payment to foreign nationals it is important to stay on top of new regulatory changes required by: Internal Revenue Services NC Department of Revenue Department of State US Custom and Immigration Services
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