What do I need to know about Payments to Foreign Vendors, Individuals, Entities?

Payments to foreign-- i.e. non-U.S.-- individuals, vendors, and other entities are controlled by a number of compliance considerations and regulatory agencies, including:  Tax (IRS); Immigration (Homeland Security); Foreign Asset Control (Office of Foreign Asset Control).  To ensure compliance, all payments to foreign vendors, individuals and entities require central review by Accounts Payable.  In some cases, tax withholding on a payment is required.

Payee Categories

Foreign Person - A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, a foreign estate, and any other person that is not a U.S. person.  A foreign payee is subject to withholding.

Nonresident Alien – A nonresident alien is an individual who is not a U.S. citizen or resident alien.  A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding.

Resident Alien – A resident alien is an individual that is not a citizen or national of the United States and who meets either the “green card test” or the substantial presence test for the calendar year, and does not have special treaty status.  Not subject to withholding but is subject to reporting via 1099. Must provide SSN.

Governing Agencies

You might review the websites of the following federal agencies to learn more about pertinent laws regarding non-resident aliens, visa compliance, employment authorization, length of stay authorization, tax treaties and tax reporting, sanction enforcement and more.

Dept of Homeland Security - U.S. Citizenship & Immigration Service - Customs & Border Protection (CBP)

Department of Treasury - Internal Revenue Service (IRS)

Department of Treasury - Office of Foreign Assets Control (OFAC)

Questions to Ask Yourself

What is the resident status of the foreign individual I am trying to pay?  What activities are authorized with his/her status?

Are any payments subject to income tax withholding?  Can payee claim any tax exemptions?

What tax form(s) are necessary?  Have these been filled out prior to conducting business activity with my organization?

Is it allowable for Columbia to conduct business with this foreign person? Are there any US sanctions regulations that need to be considered?

Additional Resources

Allowable Payments by Visa Type