Canada Tax Questions Answered by Experts
You are required to have a W8 form on file for each providing the payment is within the rules.
In general, in order for a payment to be subject to NRA withholding, it must be a payment of FDAP income. FDAP is an acronym for Fixed or Determinable, Annual or Periodic. Some of the more common expenses paid by US withholding agents which would result in FDAP income to their vendors and other service providers are interest, royalties, compensation for personal services, rents, pensions or annuities and gains from the sale or exchange of the patents, copyrights and similar intangibles that are described in I.R.C. Sec. 865(d).
If the services are performed in the U.S., the payment for those services is generally U.S. sourced. If it is outside the US then it is not US sourced and would not really be subject to withholding.
If the foreign vendor does not comply with the W8 form then you are to withhold tax. They can then file to have the tax withheld.
Remind the vendor that this form is just to show they are not subject to US tax.