Foreign Artists and Entertainers

Payment to a Foreign Artist or Foreign Artistic Group:

The IRS has withholding requirements and procedures that organizations should follow when inviting NRA artists to perform within the United States. (Treasury Reg 1.1441-1(b)(2)(ii) and IRS Pub. 515.)

To Explain:

1. Payments to NRA artists for personal services performed in the US are generally considered US source income irrespective of the payer's place of residence, where the contract for services was made, or the place of payment.
   
   
   
2. Payment is considered made if the person or group realizes income.
   
   
   
3. Personal services include wages, salaries, commissions, fees, per diem allowances and employee allowances and bonuses. The income is taxable to the foreign artist whether paid in the form of cash, services or property.
   
   
   
4. Generally, a foreign person, whether a foreign corporation or an NRA individual, is subject to US tax on US source income at a tax rate of 30% on the gross payment.  UR is required to withhold the 30% and remit the amount to the IRS.  Tax laws and regulations are clear on the matter that the 30% withholding applies to the gross payment, not net after commissions.  So, even if the commission amount is paid separately to the agent, the 30% must be calculated on the full amount, not just the amount that is paid to the foreign nationals.
   
   
   
5. IRS employee Cecile Glunt, the CWA Program Manager, has given an opinion on travel reimbursements in relation to NRA artists.  The document, with editor notes from OIT specialist Nancy Colón, is available to read.
   
   
   
6. If a company, whether US or foreign, is acting as an agent of the foreign entertainer, the withholding and reporting must be done as if the payment were made to the entertainer directly. This is in the Section 1441 regulations which were issued for payments made on or after January 1, 2001. This is because the withholding and reporting is supposed to reflect the beneficial owner of the income. The individual's company is acting merely as the agent for the individual.
   
   
   
7. Foreign artists should follow tax regulations carefully, as the IRS is looking carefully at foreign entertainers by reviewing visa, passport, and flight information to find high-profile entertainers who have failed to file tax returns.
   
   
   
8. The NRA artist may apply for an ITIN (individual taxpayer identification number) on IRS Form W-7.  An ITIN is required to file an income tax return where the NRA artist seeks credit for the taxes withheld or to claim tax treaty benefits.  An artist may apply for an SSN (social security number), however issuance is unlikely.  University of Richmond's Office of International Taxation is able to assist with the ITIN application.  Contact:  ncolon@richmond.edu. 
   
   
   
9. An NRA artist paid by a US organization for personal services performed in the US is required to file a Form 1040 NR (or 1040NR-EZ) and to report such income. A tax return should be filed even if the income is exempt from US income tax.
   
   
   
10. At year end, the University of Richmond will file a Form 1042 with the IRS, whether tax was withheld or not.  The beneficial owner of the income is the person whose name and address is on the 1042-S
    
    
    
11. Further information maybe found in IRS Publication 515 "US Withholding on Nonresident Aliens and Foreign Entities."  And, another helpful website is www.artistsfromabroad.org. 

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Payment to an Agent (US or Foreign) of a Foreign Artist or Foreign Artistic Group:

Section 1441(a) of the IRS code states:  "any person having the control, receipt, custody, disposal, or payment of any item of taxable income payable to a nonresident alien or other foreign person is subject to the requirements to withhold 30% US federal income tax on the payment of such item of income."

Treasury regulation section 1.1441-1(b)(2)(ii) reads in part, "a withholding agent making a payment to a US person & who has actual knowledge that the US person receives the payment as an agent of a foreign person must treat the payment as made to the foreign person."

To Explain:

Forms Required by the University of Richmond

Based on who is performing and who is receiving payment, various forms are required.

To Explain:

1. Payment made to Individual Artist:
• Documents to be collected:
1. copy of passport ID page
2. copy of visa
3. copy of I-94 card (front and back)
4. completed Foreign National Information Form
5. copy of performance itinerary
6. SSN or ITIN (if applicable)
• Form(s) to be completed:
1. Form W-8BEN (used for certification of foreign status) -- no ITIN or SSN required
2. Form 8233 (treaty claim OR daily personal exemption claim) -- ITIN or SSN required
• Tax form to be issued at yearend:
1. 1042-S in the name of the individual NRA artist
   
   
   
2. Payment made to Artistic Group:
• Documents to be collected:
1. List from entity or agent registering each performer's full name, passport ID number and country of issuance, visa type and SSN or ITIN (if applicable)  OR  copy of the I-129 petition
2. copy of the performance itinerary
3. offical letter stating that the activities to be performed at and compansated by UR are permitted under the related Form I-129 petition
4. group's US TIN/EIN number (if applicable)
• Form(s) to be completed:
1. Incorporated Artist Group:
• Form W-8BEN signed by entity's owner -- no TIN or SSN required.  (Treaty:  Parts 1 & 2 w/EIN)
• Must be able to prove official incorporation in group's official home country.
2. Unincorporated Artist Group:
• Form W-8BEN from each artist.  NOTE:  Not required if agent provides artist list and copy of I-129 petition.  
• Form 8233 completed by each artist (required for treaty claim OR daily personal exemption claim with SSN or ITIN)
• Tax form to be issued at yearend:
1. Incorporated Foreign Artistic Group:  Will receive one Form 1042-S. 
2. Unincorporated Foreign Artist Group:  Will receive individual Forms 1042-S
   
   
   
3. Payment made to a US agent:
1. Documents to be collected:
1. Individual artist -- see above
2. Artistic group -- see above
2. Form(s) to be completed:
• Individual artist -- see above
• Artistic group -- see above
• Agent -- W-9 (optional)
3. Tax form to be issued at yearend:
• Individual artist -- see above
• Artistic group -- see above
  
  
  
4. Payment made to a foreign agent:
• Documents to be collected:
1. Individual artist -- see above
2. Artistic group -- see above
• Forms to be completed:
1. Individual artist -- see above
2. Artistic group -- see above
3. Agent -- Form W-8IMY
• Tax form to be issued at yearend:
1. Individual artist -- see above
2. Artistic group -- see above 
   
   
   
5. CWA Payment (made to an artist or artistic group):
• Documents to be collected:
1. The documentation required is minimal because the CWA considered the withholding agent
2. All that is required is a copy of the first and last page of the CWA.
• Forms to be completed:
1. None
• Tax form to be issued at yearend:
1. No reporting or withholding is done by UR.
2. If a CWA is filed through an agent, the agent will receive a 1099-MISC (the artist or artists will not receive a form.)

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Special Instances when a Foreign Artist or Foreign Artistic Group is not Taxed:

There are instances when a particular artist or artistic group meets specific criteria where federal withholding is not required.

To Exlain:

1. Central Withholding Agreement:  An individual NRA artist or each individual member of an artistic group may enter into a Central Withholding Agreement (CWA) with the IRS.
   
• A CWA is when the IRS has agreed to accept a smaller withholding amount based upon the foreign artist's net income rather than upon gross receipts.
  
• Payment with a CWA:
1. The group becomes reliable for the withholding taxes.
2. University of Richmond's obligation to withhold and report taxes is eliminated.
3. No 1042 or 1042-S need be generated to report the income.
4. If the CWA is with an agent, the reporting will be on a 1099 in the name of the agent.
   
• A CWA is highly recommended by the IRS because this will prevent the gross payment being taxed at the normally required 30%.
  
• The documentation required is minimal because the CWA is considered to be the withholding agent.  All that is required is the first and last page of the CWA.
  
  
  
2. Tax Treaty: The IRS permits, but does not encourage, the offering of tax treaty benefits when allowable to foreign entertainment groups.
   
• Most tax treaties provide special limits with respect to income earned by performing entertainers (including musicians.) If cumulative personal service income from all sources exceeds the treaty limit, including paid or reimbursed expenses, during a tax year, the NRA artist looses the treaty exemption. If the treaty exemption threshold is exceeded, the entertainer's total personal services income from the first dollar earned will be subject to US tax and withholding.
  
• Tax treaty forms:
1. Individual claiming tax treaty -- Complete Form 8233 (SSN or ITIN required)
2. Artistic Group claiming tax treaty -- Complete Form W-8BEN, both Part 1 and Part 2 (EIN required)
   
• The nontaxable treaty income will be reported on a 1042 and a 1042-S in the name of the NRA artists or artistic group (i.e. not the agent.)
  
  
  
3. Salaried Employees of a Foreign Producer: When the performers are salaried employees of a foreign producer, they are not the ones making the profit from the performance so the foreign entity is not a subterfuge. The rules regarding ignoring the entity receiving the funds would not apply.  Tax withholding, in this case, is done by the employer.
   
• Salaried employees of a foreign producer:
1. do not derive beneficial income from the performance itself
2. can't be an owner or have control in any way of the company (i.e. no input on scheduling, salaries, etc.)
3. can't be the ones making the profit from the performance
   
• Required forms
1. W-9 signed by the owner of the production company
2. Letter stating, under penalty of purjury, that the performers are employees of the production company and that none of the performers are either an owner or have control over the actions of the corporation.  (This releases UR from any tax obligation in the future.)
3. List of all the performers, home addresses and social security numbers (if available)
   
• The income will be reported on a 1042-S in the name of the NRA artist or artistic group (i.e. not an agent.)
  
  
  
4. Salaried Employees of a Foreign Producer Offered a Tax Treaty:
   
• The entity must have an US EIN
• The producer must provide a W-8BEN with a treaty claim that states that the entity has no permanent establishment in the US as that term is defined by the treaty.  In this case, the payment to the foreign entity can be exempt from tax.
  
• It would be the responsibility of the foreign entity to collect the Forms 8233 from their employees for exemption from US tax, or alternatively, to comply with US payroll obligations.
  
• The treaty limit applies to total receipts in the calendar year and the foreign entity would know whether the total pay to the performers will exceed the treaty limit.
  
• The income will be reported on a 1042-S in the name of the NRA artist or artistic group (i.e. not an agent.)
  
  
  
5. Tax Exemption:  A foreign organization must prove that it is a tax exempt organization under section 501(c) of the Internal Revenue Code, or that it would be exempt under that section if it applied for tax-exempt status, and that is is not subject to a withholding tax on amounts that are not income includible.  A foreign organization is not exempt from US withholding tax based on its foreign tax-exempt status because many foreign countries have more liberal tax-exempt rules than the US.
   
• Form W-8EXP:  Provided by a foreign tax-exempt organization to claim an exemption from withholding.
  
• IRS requirements:
1. The form must include an EIN.  It is required by the IRS (see line #6 on Form W-8EXP and in the IRS' directions.) 
2. NOTE:  Foreign organizations can apply for an EIN on Form SS-4, available at the IRS website www.irs.gov.  (Entities with a foreign address cannot currently apply for an EIN online.)
   
• Proof of tax exemption:
1. Copy of a tax exemptoin letter from the IRS Notice of Tax Exempt Status (see Line #12a on Form W-8EXP) OR
2. Letter from an attorney in the US who attests that the organization would likely obtain tax-exempt status from the IRS if it applied to the IRS for such status (see Line #12b on Form W-8EXP)
   
• In addition, such a foreign tax-exempt entity must attach an affidavit stating that it is not a private foundation and so indicate in Box 12c, or indicate that it is a private foundation in Box 12d.  (The 4% excise tax on private foundations is not overridden by a tax treaty exemption because excise taxes are not covered by tax treaties.)
  
• The income will be reported on a 1042-S in the name of the NRA artist or artistic group (i.e. not an agent.)  It is reported under Recipient Code 07 and Exemption Code 02 on Form 1042-S.  No tax return is required.
  
• SPECIAL PROVISIONS FOR EXEMPT ORGANIZATIONS:
1. The tax treaties with Canada, Mexico, Germany and the Netherlands include special provisions for organizations that are tax-exempt under the laws of the respective countries.  Under such tax exempt provisions, it is the tax-exempt rules of the respective treaty county that determine whether the income is exempt from tax.  Companies from these 4 countries do not have to do the EXP or get the certifications, they can complete W-8BEN instead.
• Canada:  Paragraph 1 of Article XXI
• Germany:  Article 27(1)
• Mexico:  Article 22(1)
• The Netherlands:  Article 36(1)
2. The company should provide a copy of its tax-exempt paperwork from its home country.  For practical reasons, an English-language translation should accompany foreign-language documentation of tax-exempt status.
3. The company MUST have a EIN
4. The company must cite the treaty article that provided for the exemption in order to claim exemption based on tax-exempt status.  The treaty article must be cited on Line 10 of the W-8BEN and elsewhere, the same as is done for any treaty claim.  (Restrictions must be met.)
5. The income will be reported on a 1042-S in the name of the NRA artist or artistic group (i.e. not an agent.)  It is reported under Exemption Code 04.  No US income tax return is required for the tax-exempt claim based on these provisions.
   
   
   
6. Form W-8ECI:  If the organization's income is unrelated business income under Section 512 of the Code (and therefore not tax exempt) such income may be exempt from withholding if the income is effectively connected with the conduct of a trade or business in the US.  Provided by a US company to claim that unrelated business taxable income is exempt from withholding because the income is effectively connected with the conduct of a trade or business in the US. They are making an estimated tax payment based on the net income. This form must include an EIN.
   
• A foreign company can't use this exemption.
  
• Payments must be for activities that relate to their tax-exempt purpose; payment for unrelated business income as that term is defined for US tax purposes may be exempt ECI or Treaty-Exempt ECI.
  

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Explanation of a Central Withholding Agreement

A Central Withholding Agreement permits a withholding agent to collect a smaller amount of withholding tax with regard to gross income paid to a non-resident alien athlete or entertainer (after taking into account deductible expenses) in exchange for personal services.  Thus, the benefit of a CWA is a lower rate of withholding tax on the estimated net amount of income and a greater cash flow. Conversely, without a CWA in place, the withholding agent must collect a flat withholding tax of 30% on the entire gross income earned from U.S. activities by the nonresident alien athlete or entertainer.

To Explain:

1. Usually nonresident aliens who do not have an employee-employer relationship with the University of Richmond are subject to the 30% rate of withholding of U.S. federal income tax.
   
   
   
2. However, an NRA (or foreign artistic group) who is engaged in a trade or business in the US during the tax year may have the compensation for personal services as an independent contractor (independent personal services) entirely or partly exempt from withholding by reaching an agreement with the IRS on the amount of withholding required.
   
   
   
3. Resident aliens do not qualify for CWAs.
   
   
   
4. A CWA becomes effective for payments covered by the agreement after it is agreed to by all parties.
   
   
   
5. A CWA will not take into account any treaty exemptions.
   
   
   
6. With a CWA, a W8-BEN is not required.  All that is rquired to be on file at UR is a copy of the first and last pages of the CWA.
   
   
   
7. When a CWA has been signed, the designated withholding agent agrees to assume the responsibility for withholding and reporting tax on the entire tour or event, relieving all other withholding agents involved in the tour/event from the potential withholding liability that exists.
   
   
   
8. A designated withholding agent is assigned by the artist (or group) and must agree to:
   
   
• Withhold income tax from payments made to the nonresident alien(s)
  
• Pay over the withheld tax to the IRS on the dates and in the amounts specified
  
• Submit Form 1042 and Form 1042-S to the IRS for each tax year in which income is paid to an NRA(s) covered by the CWA
  
• Issues 1042s to the NRA(s) covered by the CWA
  
  
  
9. To request a CWA an NRA must submit the following at least 90 days before event:
   
• A request for a CWA should be sent to the following: Internal Revenue Service, Chief, Special Programs (International), SB/SE, Stakeholder Liaison, SE:S:CLD: SLHQ:SP, 1111 Constitution Ave., NCFB C2-233, Washington, DC 20224
  
  
• A list of the names and addresses of the NRAs to be covered by the agreement
  
  
• Copies of all contracts that the aliens or their agents and representatives have entered into regarding the time period and performances or events to be covered by the agreement including, but not limited to, contracts with:
  
1. Employers, agents, and promoters
2. Exhibition halls
3. Persons providing lodging, transportation, and advertising
4. Accompanying personnel, such as band members or trainers
   
   
• An itinerary of dates and locations of all events or performances scheduled during the period to be covered by the agreement.
  
  
• A proposed budget containing itemized estimates of all gross income and expenses for the period covered by the agreement, including any documents to support these estimates.
  
  
• The name, address, and telephone number of the person the IRS should contact if additional information or documentation is needed.
  
  
• The name, address, and Employer Identification Number (EIN) of the agent or agents who will be the central withholding agents for the aliens and who will enter into a contract with the IRS. A central withholding agent ordinarily receives contract payments, keeps books of account for the aliens covered by the agreement, and pays expenses (including tax liabilities) for the aliens during the period covered by the agreement.
  
  
• When the IRS approves the estimated budget and the designated central withholding agents, the Associate Chief Counsel (International), or another designated IRS office, will prepare a withholding agreement. The agreement must be signed by each withholding agent, each nonresident alien covered by the agreement, and the Commissioner of the Internal Revenue Service or his delegate.
  
  
  
10. Interested persons should go to the IRS website to learn more about how to apply for a CWA -- www.irs.gov

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Invalid Arguments for Not Withholding of Federal Taxes