Yes, You Absolutely Might Possibly Need an EIN to Sell Software to the US
WarningFor qualified advice, ask an organization such as the chamber of commerce. Here is some information from BDO for Canadians on selling to the USA. If you can pay for advice, you should set up an appointment with an adviser.
After many months, your software sale is complete! You've got a purchase order, sent the invoice, delivered the software. You're already handling some support issues from users at BigCorp. Then BANG! Martha from Procurement emails back, as a favour, just to let you know that BigCorp has not received your W8 form with a valid tax id, and therefore will be withholding 30% of the purchase price of your multi-thousand dollar product for taxes, so that the crazy government in the crazy USA that NEITHER YOU NOR ANYBODY FROM YOUR COMPANY HAS EVER SET FOOT IN can buy more guns.
OK, stop and take a deep breath. Refrain from calling your lawyer yet. A quick Googling will tell you that:
- You don't need a W8-form, Martha is wrong.
- Wait that first post was wrong. You absolutely need a W8-form but Martha is incorrect -- you can leave US Tax-ID blank.
- Actually the first two posters are wrong you need to get a tax ID and start paying US taxes, and also file paperwork each quarter to collect sales taxes separately in each state that you are selling in.
- What, really? That can't be right!
Confident people on Internet forums are a wealth of misinformation about the W8-BEN form. The rules are spelled out for you on the form's instructions. The part that is confusing everybody is: what you can get away with. If your customer's procurement is being ultra strict, it is difficult to argue because they must follow the law and you are just a foreigner.
The W8-BEN form must be kept on file by US companies that make payments of any type to foreigners. The government never sees this form unless the company is audited, so the rules are loosely enforced. Most companies will accept these explanations when they ask for one:
- My company has no US presence so I cannot provide this form.
- I do not have a US taxpayer ID so I cannot provide this form.
But the rules that Martha is following are quite clear, no matter how inconvenient it makes your life. You need to provide this form upon request, and it must have a valid US-taxpayer ID for you to claim benefits under a tax treaty, unless the payment is for dividends.
Because Martha's company is making payments to foreigners, they are a withholding agent, and their finance and legal department are being extra careful to follow the rules in this document for withholding agents.
The good news it should only take you about 2 hours time to obtain the documentation to appease Martha. If Martha receives the W8-BEN form, and your country has a tax treaty with the US, then she will probably pay your invoice. Here are the steps.
Obtain a valid US Taxpayer ID
If you are a foreign corporation, the taxpayer identification number you need is called an Employer Identification Number (EIN). It doesn't matter if you have employees, or if you never pay any US taxes due to a treaty.
- Download the SS-4 form, and print it out. Fill it in. Most of it is your company name and address, and date of incorporation, so it will be simple.
- Now you can mail or fax it in. If you need the number right away, you will have to call.
- Phone the US government using the toll number from the instructions of the SS-4 form. As a foreigner you cannot do it online.
- You will be told the wait time is 15 minutes, but you will then wait one or more hours on hold for your opportunity to speak with a tax official. Make sure you have your phone charger.
- The tax official will be tired and rude because she has to deal with indignant foreigners all day. Smile as you talk and be polite. Explain that you need an EIN to fill out the W8-BEN form. Do not offer any other information. The rest of the call will be you spelling out your company name and address from the SS-4 form letter by letter. (See the NATO Phonetic Alphabet)
- She will verbally give you your very own EIN over the phone.
- If you are told you need an ITIN then thank her, hang up and try again with a different agent.
Find your applicable tax treaty
If you are lucky, then decades ago, your country negotiated a tax treaty with the United States. The instructions to witholding agents contains a table of tax treaties and section numbers that they will refer to. They are listed in Publication 515 The actual text of the treaties are helpfully available here. You will need the section number from the table of contents. For my Canadian Company's software sales, I used "Independent Personal Services" because for some reason the 1980 tax treaty failed to forsee the need for a section on "Cloud Platform for Creating UML Diagrams".
Fill out the W8-BEN form
You'd better have a stack of them, because larger companies are asking for original forms with "wet signature". But in the past it has been convenient to put a scanned copy on your web site, in the same place where you accept purchase orders.
Follow the instructions for the form, filling in your name, address, foreign tax id with your corporation's business number, and enter your new EIN on line 6. On line 9-10, fill in your country and put in the tax treaty section number (eg for Canada: XVII Independent Personal Services)
I hope that you are able to get your invoice paid. Always remember that the people you are dealing with are doing their job, and they have to follow the rules. If you are rude and do not follow instructions, then they will compain about you at the watercooler and possibly misplace your invoice. If you are polite and give them their paperwork, then you will get your money, and they will remember you and future sales with the same company will be a breeze.