DJ's, Actors, Musicians and other Performers
Many artists, entertainers, actors and DJ’s who are performing in the United States or providing services in the United States and living in the Netherlands (outside the U.S.) are subject to US Income Tax Withholdings. In many cases, the rights of taxation are not clear due to specific income sources and clash between different tax rules, which can lead to double taxation. We have an experience with preparation of U.S. tax returns for performers, artists, and DJ's. We are experienced in the allocation of taxation rights between the Netherlands and the United States and application for refunds of U.S. Withholdings in cases involving different performers and artists.
The client is a Dutch DJ and doesn’t have a U.S. citizenship or valid Green Card. The client received some earnings for recording a commercial song in the U.S. Client had submitted the W-8BEN form, however, the U.S. withheld Federal and State income tax. Client wanted to confirm how he has to report the income in both, the U.S. and the Netherlands.
Advice to client
The client was not sure whether he has a valid ITIN number, therefore we advised him to contact the Withholding Agent and see what number they were using on the statements. The client also wasn’t sure of the nature of the income – whether it is considered a salary or royalties. The client has to file a non-resident U.S. federal income tax return in order to receive the overpaid tax refund. The client had already filed Dutch income tax return.
Services to client
1.Assessing the information
The client did not hold a valid ITIN number and was using his Dutch BSN number on the form W-8BEN. In order to apply for an ITIN number, we needed a true copy of client’s passport.
The client was not sure about the nature of the income. In order to assess whether he is receiving royalties or income, we had to look into the contract and confirm it with the Withholding Agent. Client provided us with U.S. workdays in the relevant tax year in order to allocate workdays and U.S. income earned.
2.Preparing the tax return and additional forms
We prepared the non-resident tax return to claim a tax refund on overpaid withholdings on U.S. source income. We attached an application for an ITIN number to the non-resident return, as we confirmed that the client had no valid ITIN number and he had been using Dutch BSN number instead.
In addition to that, we prepared a correctly filled W-8BEN form in order to prevent further withholdings on royalties that are tax exempt in the U.S. due to the Netherlands – U.S. Double Tax Treaty. Regular earnings are not covered by this exemption.
The client is a U.S. citizen who is living in the Netherlands and working in various countries in and out of the United States. Client is receiving royalties from acting in movies recorded in the U.S., Universal Studios. Besides that, Client is receiving income from UK based subsidiary of U.S. Production company.
Advice to client
The client, as a U.S. citizen living and working outside the U.S., is required to report his worldwide income which includes his salary, interest and/or dividends and all other income acquired in the Netherlands. In addition to Form 1040 and all subsequent forms, the client will also need to file specific forms, namely the forms 2555 and 1116. As an owner of a Dutch bank account, the client must file an FBAR form with the U.S. Department of the Treasury if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
Services to client
1.Gathering the information
The first step is to gather all the relevant information from the client. Information required could be found in the following documentation: year-end salary statement from all the employers (Dutch, U.S. and UK); all the royalty statements received in the applicable tax year, year-end financial statements (U.S., Dutch, UK and other bank statements); copies of the previous year U.S. and Dutch tax returns, copy of the Dutch tax return for the reporting year.
For the FBAR forms, we need to know the highest account value of each non-U.S. (bank) account for each year.
Once the information is gathered (timeliness depends on the client) we start with the preparation of the U.S. tax return. In this step we ask additional questions that may arise while examining the documentation and information received, for example, clarifying the source of royalties.
2.Assessing the information and preparing the tax return
From the information received it can be concluded that the client’s tax home is in the Netherlands. The client is entitled to exclude from his gross income the amount of his foreign earned income up to the prescribed amount. The form 2555 is used to figure the foreign earned income (and housing cost) exclusion. The client also has to report royalties and residuals received from all the sources. While performing as a self-employed, we had to distinguish between business income and employment income, depending on what kind of contract was signed.