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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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If a US company pays sales commisionsto a Singapore company

Resolved Question:

If a US company pays sales commisionsto a Singapore company does the US impose a withholding tax?
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

 

Mandatory withholding are required if the payment is to a physical person.

There is no withholding if services are provided outside the US and the payment is to a legal entity (not a physical person)

That should be clear (1) who is a recipient of the payment (2) what is the reason for a payment.

 

Customer: replied 4 years ago.
The services would be supplied from the US i.e. forwarding magazines on a subscription basis for which the Singapore entity is responsible for marketing. Exclusively a US product.
Expert:  Lev replied 4 years ago.

If services are provided in the US - the Singapore entity should be registered in the US and the compensation for such services would be considered as from US sources.

 

 

Customer: replied 4 years ago.

Dear LEV,

I thhink it has just become confused. Lets use Micrsoft as an example. Our Singapore entity sells a M'soft product on commission. The purchaser deals directly with M'soft.

M'soft records the transaction, sends off the product and pays our Singapore entity a commision for promoting the sale.

Expert:  Lev replied 4 years ago.

"promoting the sale" - that where the confusion is started.

To "promote the sale" - some work should be done by people. These people are work either in Singapore or in the US or somewhere else.

The place where these people work determines if the compensation for "promoting the sale" is considered from US sources or from abroad.

As long as actual work is done in the US - the Singapore entity should be registered in the US - either as a foreign entity or as an owner of the US entity.

 

Microsoft is likely not a good example because that is a large company and has legal entities in most countries.

Also selling a tangible product and providing services - are treated differently.

 



Edited by LEV on 12/2/2009 at 3:15 AM EST
Customer: replied 4 years ago.

OK we are doing the promotion in Singapore and it is for a tangible product. The US company then deals with the purchaser and ships the goods to the purchaser (or it can be downloaded) The sales transaction is performed in Cal. The purchaser could be anywhere.

Hope this suffices.

Expert:  Lev replied 4 years ago.

There is no withholding if services are provided outside the US and the payment is to a legal entity (not a physical person).

As long as actual work is done in Singapore - the compensation for services provided is not taxable in the US.

In this case the Singapore company will report the income in Singapore.

 

For the US company - payment for services would be a deductible business expense.

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

 

Let me know if you need any help.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22653
Experience: Taxes, Immigration, Labor Relations
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