Foreign Withholding Tax


J

James

I'm US based and do some work for company in Canada. I sent them an
invoice for, say, $1,000. They paid it but the check it was for $950.
When I called they told me that Canadian tax laws require them to
withhold for work done in Canada, but not for work done on the project
in the US. Their rules are arcane so I can't predict how much they
withhold. For example, they withhold based on how long the flight is
over Canadian territory, so any guess on my invoice for taxes is just
a guess.

Does anyone know how to handle the withholding? I tried creating an
account for it but I couldn't get my underpayment into it.

Thanks.

James
 
Ad

Advertisements

L

Laura

James said:
I'm US based and do some work for company in Canada. I sent them an
invoice for, say, $1,000. They paid it but the check it was for $950.
When I called they told me that Canadian tax laws require them to
withhold for work done in Canada, but not for work done on the project
in the US. Their rules are arcane so I can't predict how much they
withhold. For example, they withhold based on how long the flight is
over Canadian territory, so any guess on my invoice for taxes is just
a guess.

Does anyone know how to handle the withholding? I tried creating an
account for it but I couldn't get my underpayment into it.

Thanks.

James
One way to account for this would be to receive payment for $1000 to
clear the invoice. Post the payment to Undeposited funds. Next make
deposit with the first line being the $1000 "payment". On the second
line post a negative $500 to Foreign Tax expense (or something like
that) so that the net deposit is $950.

Or you receive payment for the amount received. Then use the Discount
button to record the taxes paid as a "discount".

Either way will match the amount received plus clear the invoice in total.
 
J

James

One way to account for this would be to receive payment for $1000 to
clear the invoice. Post the payment to Undeposited funds. Next make
deposit with the first line being the $1000 "payment". On the second
line post a negative $500 to Foreign Tax expense (or something like
that) so that the net deposit is $950.

Or you receive payment for the amount received. Then use the Discount
button to record the taxes paid as a "discount".

Either way will match the amount received plus clear the invoice in total.

The discount method seems to do it. Thanks.
 
E

EXT

James said:
I'm US based and do some work for company in Canada. I sent them an
invoice for, say, $1,000. They paid it but the check it was for $950.
When I called they told me that Canadian tax laws require them to
withhold for work done in Canada, but not for work done on the project
in the US. Their rules are arcane so I can't predict how much they
withhold. For example, they withhold based on how long the flight is
over Canadian territory, so any guess on my invoice for taxes is just
a guess.

Does anyone know how to handle the withholding? I tried creating an
account for it but I couldn't get my underpayment into it.

Thanks.

James
Are you incorporated or proprietor. As a incorporated company, you should be
able to declare that you are a US company and not required to pay income
tax, or are you doing work in Canada, then I would recommend that you
separate the services performed in the two countries on your invoice to
avoid arbitrary separation by your client. The withheld tax should probably
be refundable, but you would have to check with a Canadian accountant.
 
B

BrianT

might not be exactly like your situation and doesn't address your QB
question but,
I'm a US corporation selling a service, I have a Canadian company that sells
my service in Canada.
We have worked out a sales commission agreement, they withhold 10%, some
Canadian law, but they do send me a form (can't remember the CDN form
number) at the end of the year with the total withholding amount listed, my
CPA then deducts the CDN withholding from what I owe in US tax since it's
already been paid, I'm not an accountant but we've been doing this for a few
years now and my CPA says its fine.

Brian
 
Ad

Advertisements

E

EXT

BrianT said:
might not be exactly like your situation and doesn't address your QB
question but,
I'm a US corporation selling a service, I have a Canadian company that
sells my service in Canada.
We have worked out a sales commission agreement, they withhold 10%, some
Canadian law, but they do send me a form (can't remember the CDN form
number) at the end of the year with the total withholding amount listed,
my CPA then deducts the CDN withholding from what I owe in US tax since
it's already been paid, I'm not an accountant but we've been doing this
for a few years now and my CPA says its fine.

Brian

I have a Canadian corporation that sells to clients in the US. US tax law
says they have to withhold a portion of my payment unless I send a signed
"W-8BEN" form certifying that we are not US citizens, nor a US business. I
am sure that similar things work the other way, it may pay to hire a
Canadian accountant to set you up, because if they are withholding tax
money, Revenue Canada is going to be looking for a tax return to match it,
and you don't want that -- double tax form preparation!
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top