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I am developing software program (I live and work outside of US - Europe, I don't have a company), and now have a client from US which wants to license my program (pay me money so he can use it).

He has requested me to fill an W8BEN form. The issue is about US Tax ID number. Currently I don't have one, and if I don't provide it, my client needs to withold 30% of my payment.

I know I can obtain a Tax ID (EIN) by forming Delaware LLC company online (3-5 days). So my question is: if I create the LLC, and put the EIN tax id in the W8 form, what kind of taxes as the LLC do I need to pay, and how? (where do I pay it?)

I know delaware company has 200-250$ flat annual tax. But what about income tax with source from US (from my client), state tax, federal tax? If I operate my LLC company from Europe do I still need to pay these? (in mean the case of my US client)

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You should not form a company in the U.S. simply to get the identification number required for a W-8BEN form.

By establishing a U.S.-based company, you'd be signing yourself up for a lot of additional hassle! You don't need that. You're a European business, not a U.S. business. Selling into the U.S. does not require you to have a U.S. company. (You may want to consider what form of business you ought to have in your home country, however.)

Anyway, to address your immediate concern, you should just get an EIN only. See businessready.ca - what is a W8-BEN?. Quote:

[...] There are other reasons to fill out the W8-BEN but for most of you it is to make sure they don’t hold back 30% of your payment which, for a small company, is a big deal. [...]

How do I get one of these EIN US taxpayer identification numbers?

EIN stands for Employer Identification Number and is your permanent number and can be used for most of your business needs (e.g. applying for business licenses, filing taxes when applicable, etc). You can apply by filling out the Form SS-4 but the easier, preferred way is online.

However, I also found at IRS.gov - Online EIN: Frequently Asked Questions the following relevant tidbit:

Q. Are any entity types excluded from applying for an EIN over the Internet?
A. [...]

If you were incorporated outside of the United States or the U.S. territories, you cannot apply for an EIN online. Please call us at (267) 941-1099 (this is not a toll free number) between the hours of 6:00 a.m. to 11:00 p.m. Eastern Time.

So, I suggest you call the IRS and describe your situation: You are a European-based business (sole proprietor?) selling products to a U.S.-based client and would like to request an EIN so you can supply your client with a W-8BEN. The IRS should be able to advise you of the correct course of action.

Disclaimer: I am not a lawyer. Consider seeking professional advice.

  • Thank you very much for your answer. I don't however have a company in my country. I've checked this online form for requesting EIN sa1.www4.irs.gov/modiein/individual/index.jsp however there is requirement of "The business location must be within the United States or U.S. territories." Forming a US Delaware company is not so much hassle, there are many companies which can do it for few hundred bucks, and they can get EIN for alien citizens too. – user2734 Feb 11 '11 at 21:00
  • I've been researching the income tax more, and it seems I wouldn't need to pay it, because it can be considered as personal service (programming), performed outside of the US, so the income source would be non-US, am I right? – user2734 Feb 11 '11 at 21:01
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    @Tom I was just going to come here and say 'I don't think you need to pay this' but the only way you can be certain is to pay a US accountant who has experience with this and have them talk to the buyer. – Michael Pryor Feb 11 '11 at 21:29
  • I would think/hope the IRS could confirm his sales would not be taxable by the U.S..? – Chris W. Rea Feb 11 '11 at 22:29
  • Related.. anybody outside U.S. who gets AdSense revenue from Google has to contend with a similar issue: google.com/adsense/support/bin/answer.py?hl=en&answer=32387 – Chris W. Rea Feb 11 '11 at 22:34
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I realize this is a stale topic, but to anybody who may swing by looking for an answer to this question (on the recently revised W-8BEN), a foreign taxpayer can get an individual taxpayer identification number (ITIN) without being resident in the US. However, an ITIN will often not be necessary for W-8BEN purposes if you have a tax number from your local jurisdiction. Check the Form W-8BEN instructions for your specific situation, but some taxpayers will need neither a US-issued ITIN nor a foreign-issued TIN.

Forming a Delaware or Nevada LLC would be expensive and generally subject to federal and state tax and filing obligations. It would also moot the need for a W-8BEN, which only applies to foreign taxpayers; the equivalent form for domestic taxpayers is Form W-9.

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