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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29569
Experience:  Taxes, Immigration, Labor Relations
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I have an IT company located switzerland and I am going to

Customer Question

I have an IT company located switzerland and I am going to provide IT consultancy services for a client located in the USA. In Switzerland I am not obliged to charge Swiss VAT to the client because it is export turnover.
However, I do not know about the american law - am I in some way obliged to charge US VAT? Do I need to register for an US VAT number? May my client be obliged by US law to withhold parts of the invoiced sums?
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
The form of the company is a "GmbH" (swiss limited liability company. they are taxed like s-corps)
-My company has a swiss VAT number and needs to charge swiss VAT for services provided within switzerland
Expert:  Lev replied 1 year ago.

There is NO VAT in the US. And there is no "VAT number" in the US.
Instead - there are sales taxes in the US - which are regulated on the state level - not federal level.
In general - services are not subject to sales tax - only sales of tangible goods are subject to sales tax.
As a nonresident alien - you might be subject to US income tax - but ONLY on income from US sources.
There are some complex rules to determine the source of income.

You may take a look - page 13 IRS publication 519 -

see - Table 2-1. Summary of Source Rules of Nonresident Aliens.

As you see the factors in determination of the income source income: Personal services - Where services performed.
So the location of the payer is not relevant - but the physical location where services are provided is important for that determination.

So when services are provided by nonresident aliens and are provided outside the US - that income is not taxable in the US.
Generally - the payer asks to fill a form W8 to certify your nonresident status - and that will allow to avoid income tax withholding.

Customer: replied 1 year ago.
Thank you for your reply. Maybe I have not stated this clearly, but it will not be me (personally) who will bill the client but my company. While I, as an employee of my swiss based company, will reside in the US (180 days) to provide the consultency services, I (as a private person) will receive my income from my company in switzerland, and my company will invoice the client based on the consulting services I provide on-site.
So, my question is not about the tax I as a person may be obliged to pay, but whether my company is obliged to pay any tax (or charge the client any additional tax) in the US?
Expert:  Lev replied 1 year ago.
That makes NO difference whether you personally provide services or services are provided by other persons....
As long as services are physically provided in the US - a foreign corporation will receive income from US sources - and such payment will be subject to US income tax and mandatory withholding.
In additional - as an employee of a foreign corporation - your personal wages are subject to US income and employment taxes unless specifically excluded by the tax treaty between countries.
A foreign corporation generally doesn't charge the customer for income taxes.
I assume services will be provided in California - and California doesn't impose sales tax on services.
However - a foreign corporation will be liable f or INCOME tax on federal and state level - because that income will be treated as from US (and California) sources based on the fact - services are physically provided in the US.
In additional - a foreign corporation must be registered in California before conducting any business activities - and will be liable for California franchise tax.
Expert:  Lev replied 1 year ago.

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