Freelancers' Questions: How to invoice a client in the USA?
Freelancer’s Question: As a sole trader who is direct-to-client, how would I go about making an invoice for an American company? What information needs to be on such an invoice, or how might it differ to a UK invoice? I’m UK-based but the company is in Silicon Valley. Lastly, will this work be heavy on tax or red tape?
Expert’s Answer: From your description, I assume that you are a UK-registered sole trader invoicing a California-based client for work carried out in the UK.
While you would expect to issue a cross-border invoice constructed under UK law, it will only be settled by your client if it also meets State and Federal law in the USA. Contract terms issued by your client should include guidelines on how to invoice. So, I suggest you submit a draft of your standard invoice and ask for client input on content and format. This is a sensible route because if the invoice does not meet the legal and commercial needs of your client, payment may well be delayed.
Also, bear in mind, foreign individuals are still subject to US tax at a 30% rate on income received from US sources for services performed. As stated in my previous responses to UK/USA cross-border questions, this tax is imposed on the gross amount paid by your client to you. It is generally collected by your client, acting as the withholding agent under Section 1441. However, it is possible to mitigate some of the withholding tax. You should complete Form W-8BEN to:
- establish you are not a US national, and secondly,
- to state you are the beneficial owner of the expected contract income, and thirdly,
- to claim a reduced rate of, or exemption from, withholding as a resident of a foreign country (in your case, UK) with which the USA has an income tax treaty, thereby making you eligible for treaty benefits.
You must give the completed Form W-8BEN to your client who, in turn, deals with the IRS (US Internal Revenue Service) which solely determines the actual amount to be withheld from your invoice(s).
As you have remained UK tax resident, you may be able to offset the amount of withheld tax against the worldwide liability on your UK tax return. A UK accountant should be able to guide you but be advised; USA cross-border rules are a minefield. For a thorough review, and if this work is going to be more than a one-off supply of work or services, you should seek an accountant or lawyer duly regulated to give definitive freelancing in the USA advice.
The expert was Mike Philips, a director of its international, a consultancy specialising in tax and finance for UK contractors who freelance overseas.
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3rd January 2017