What withholding taxes (please provide percentages and calculations
methods) should withheld by US companies and paid to the IRS on
invoices from Chilean and Canadian service providers (management,
legal and technology consulting) that are invoicing US based
companies?

Answer must include references from documentation (preferreably
online) issued by the compentent tax authority which I would assume
would be the IRS in this case.

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Clarification of Question by optik_nerd-ga on 15 Feb 2006 15:18 PST

Please provide answers for three different scenarios.
1.) where the services are performed in the country where the
invoicing company is resident.
2.) where the service are performed in the US.
3.) where the services are performed primarily in the country where
the invoicing company is resident but there is one meeting of two days
in the US.

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Clarification of Question by optik_nerd-ga on 16 Feb 2006 08:55 PST

And last but not least, if a Chilean or Canadian company does not have
a United States TIN,GST or Social Insurance number, can they legally
be paid by a company in the US?
If yes, what are the advantages of having a TIN, GST or Social Insurance number?

I believe the answer you are looking for is in the tax treaties with
Chile and Canada.

If I were being paid for this I would look them up for you but here is the link.

http://www.irs.gov/businesses/international/article/0,,id=96739,00.html

Also check out pub 901 it has info on Canada.

Please provide answers for three different scenarios.
1.) where the services are performed in the country where the
invoicing company is resident.

**Compensation for labor or personal services performed outside the US
is foreign source income (IRC 862(a)(3).


2.) where the service are performed in the US.

**Compensation for labor or personal services performed within the US
is US source income (IRC 861(a)(3).


3.) where the services are performed primarily in the country where
the invoicing company is resident but there is one meeting of two days
in the US.

**You would need to apportion the income between the time in the US
and time outside the US. However, under section 861(a)(3) if the
compensation is for services performed by a nonresident alien who is
present in the US for not more than 90 days and the compensation does
not exceed $3,000 then this remains foreign source income. Note that
the nonresident alien must be an employee/contractor of either a non
resident alien corporation or partnershipnot engaged in a US trade or
business OR an office of a US citizen or resident/domestic
corporation/partnership.


Income from sources outside the US is exempt from withholding tax (IRC
1.1441-1(b)(4))

Treaties may improve the result also.

Thank you for your comment but I think I addressed the point with my
comment about US source or non-US source income.

Income from sources outside the US is exempt from withholding tax (IRC
1.1441-1(b)(4))