Hello,
My client is UK self-employed and will be working on a music tour in the US next year. She has a US tax number and in the past has had tax withheld there, then taken as a credit on her UK tax return. But can she use a form W-8 ECI to avoid the US tax being taken in the first place?
I'm not sure if the payments she gets there are considered to be "Effectively Connected Income"
Thanks in advance
BD
Replies (5)
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I have had clients in this situation. I could not see how to avoid the withholding tax but so long as the client has got an ITIN you can prepare a US Tax Return as a non-resident alien (so US earnings only) and get a refund. This obviously reduced the Double Tax Relief in the UK but is worthwhile as the withholding rate was 30%.
If you do not complete a US Return to get the US tax refunded then the whole of the withholding tax will be available for a DTR claim. But the DTR allowable is restricted to the UK tax liability on the profit attributable to the US earnings - you should not deduct the US tax in full without first calculating the UK tax bill on this part of the profit.
As the US rate is usually 30% the DTR claim is likely to be less than the full amount.