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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2880
Experience:  Over 20 Years experience
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We are a UK limited company with no US base, employees or business

Resolved Question:

We are a UK limited company with no US base, employees or business - but we do sell software to US companies. We have secured a US EIN number so that our customers dont "withhold" any of the monies due but we now find ourselves faced with annual US tax forms / returns. How do we quickly ensure that are UK business is not dragged into US filings ?
Submitted: 2 years ago.
Category: Tax
Expert:  R. Klein, EA replied 2 years ago.

Randalltax :

If you are merely selling from your UK base and do not have any nexus in the US, you do not have any US tax liability.

Randalltax :

Selling a product to a US customer does not subject you to any US tax. Unlike Europe, we have no VAT in the US, so sales tax or sales & use tax, is only collected from the customer if the seller has a US presence.

Randalltax :

So, in addition to no income tax liability, you have no VAT or sales tax responsibilities either.

Randalltax :

Sell it to us! We wanna buy!

Randalltax :

Depending on your product, you may have US import tariffs, but that is a horse of a different shape.

Expert:  R. Klein, EA replied 2 years ago.
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Customer: replied 2 years ago.
I know all of this, but my question specifically asked which IRS forms needed to be completed to ensure that we werent taxed. The US IRS is now demanding that foreign recipients of funds from US customers completes all sorts of forms and declarations...what do I file with the IRS to stop this ?
Expert:  R. Klein, EA replied 2 years ago.

What kind of letter(s) did you receive from IRS?

 

Usually there is a number in the top right corner

 

Also, what type of products are you selling to the US customers?

Are you selling wholesale or retail?

 

Customer: replied 2 years ago.

Letter has no ID number other than SS-4 which is the form that applied for the EIN in the first place. They asked us to submit Form 1065 before 04/15/2013 but that is for a Partnership which we arent, and goes into all sorts of revenue and cost declarations. I know we have a double taxation treaty but the IRS form monster seems to have hold of us ! What do we file that satisifes the US that we are a legitimate UK company that should only pay UK tax ?

Customer: replied 2 years ago.
We sell software to large US corporations ....not retail or whoelsale really...just licenses to end users who works for these US corporations around the world
Customer: replied 2 years ago.

Try CP 575 B

Put this into google and you'll see the exact notification am referring to

Expert:  R. Klein, EA replied 2 years ago.

You filed with the IRS to tell them you were subject to US tax as a partnership type entity. A CP 575 refers only to the fact you have an EIN assigned.

 

A foreign entity is not subject to withholding, period. Only foreign persons are, as well as pass-through entities.

 

IRS Publication 515 only references how withholding works if you are an individual or pass-through to an individual. This is meant really to stop foreign wages from being exempt from taxes to individuals. It is not meant to stop international commerce.

 

I am researching that information as to how to indicate to your payer that you are not subject to withholding and it may be a few minutes before I can get that information to you.

 

Customer: replied 2 years ago.
Our payer needed the EIN to pay us gross....so we got that and are recieving gross payments. The issue is the IRS are asking s to submit annual forms....it says 1065 but I believe we should file 8832 to be classified as a foreign entity...would this prevent the annual declaration of revenues, costs etc ?
Expert:  R. Klein, EA replied 2 years ago.

Assuming all of your owners have limited liability on your end, then the entity should be classified as a foreign CORPORATION, not partnership. You will need to write to the EIN office at the IRS to have this corrected, as it is most likely that you should be treated as a corporation.

 

Instead of filing 1065 at the end of the year, you would file a Form 1120-F instead.

 

Revenue derived from US sources is effectively taxed on this form rather than the 1065.

 

You would still be exempt from source withholding.

 

If you file a 1065, each member of the LLC would also need a tax ID number so that the taxation can be flowed to the individual members.

 

 

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2880
Experience: Over 20 Years experience
R. Klein, EA and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks........this is where I ended up !

Its this reporting / accounting that I wanted to avoid...but I think you have reached the same conclusion

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