Payments to Foreign Vendors
The University is required to establish the tax status of foreign entities with which it conducts business. The W-8 submitted by a foreign entity indicates whether taxes need to be withheld when payments are processed. Transactions that may trigger tax withholding include services performed in the US, and US-sourced royalties and rents. A foreign entity from a country that has negotiated a tax treaty may be exempt from tax on certain types of transactions. If they are from a country with no treaty benefits, or the activity is not covered by the treaty, payment to the vendor is subject to 30% tax withholding.
Foreign vendors are placed on a payment "hold" to ensure that all requests for payments are reviewed for compliance prior to payment being processed.
Each W-8 is reviewed for tax status determination, and each invoice submitted for payment is reviewed by Accounts Payable for taxable-type transactions.
Payments to foreign vendors are made via U.S dollar checks, and by electronic funds transfer in U.S. dollars or the foreign currency. The process for paying a foreign vendor is described in the Electronic Funds Transfers Policy.
A foreign vendor must provide an invoice that specifies each individual activity and location of the activity:
- For services,
identify: portionattributable to each service provided
- location where the services were furnished
- For tangible goods,
- Merchandise, equipment, etc.
- For cloud computing, identify:
- whether the cloud software is hosted remotely or installed on Northwestern's servers
- If hosted remotely, whether the servers and the employees that maintain/operate the servers located inside the US or outside the US
- whether the vendor outsourced the server hosting and other functions to related and/or unrelated agents or service providers
- For other, identify
- Any portion attributable to royalty fees
- Any rental fees and location of rental
Accounts Payable Process Steps
If the invoiced activity is a taxable type of transaction for that foreign vendor, AP will process as follows:
- Chart string is charged for full amount of invoice.
Taxable portion(30% or % per treaty) is withheld and deposited with IRS.
- Payment produced is net of withholding tax and paid to
Related Links & Forms
- IRS Tax Treaty Tables
- W-8 IRS Forms
- Vendor File Management
- International Vendor - Location of Services Form
- International Supplier - Cloud Computing Form
For questions about processing the invoice or payment status, please contact Gary Ernsteen at 847.491.2781 or email@example.com
For questions about vendor set-up, procedures, or policy, please contact Elizabeth Gladic at 847.491.5338 or firstname.lastname@example.org