US tax withholding for downloadable subscription software

As of January 1, 2022, FastSpring withholds tax on sales of downloadable subscription software (DSS) US-sourced income. The IRS taxes US sales of subscription software that generate royalty income for foreign sellers through withholding.

Note: Most products, including SaaS, non-subscription (perpetual) software licenses, and other digital goods, do not qualify for withholding.

DSS criteria

To determine if your product falls under the new withholding requirements, it must meet all of the following criteria to be considered Downloadable Subscription Software (DSS).

FastSpring product tax categories that classify as downloadable computer software include the following: DC010500, DC020000, DC020100, DC020200, DC020400, DC020500, DC020501, and DC020503

Sales subject to US tax withholding

For withholding to occur, DSS sales must meet two specific conditions related to the seller's tax status and the customer's location.

Sales of DSS are subject to US withholding under the following conditions:

• You have a foreign tax status and are based in a tax withholding country.
• A US-based customer purchases your DSS

A foreign tax status is represented by a seller when completing a form W-8 in the online questionnaire.

Your subscription must meet both criteria for FastSpring to withhold a percentage of proceeds. For more information on withholding rates and country qualifications, click on Tax Withholding Rates below.

What does this mean?

If your product configurations are set up as DSS, withholding will apply to your US sales. If you feel this is inaccurate, please ensure your products are not configured in your store to withhold.

A product is configured to apply withholding if:

• It’s assigned a tax code of DC010500, DC020000, DC020100, DC020200, DC020400, DC020500, DC020501, or DC020503. Use tax code DC020600 for perpetual software or find another applicable tax code here.
• Set up as a product subscription. It’s been added under the subscription dropdown in your store.

For more information on product configurations and tax categories, see Set a product tax category.

Tax withholding rates on US-sourced income

The following table shows US tax withholding rates under the income tax treaty with that country. Countries not listed do not currently have a treaty with the US and are subject to a default 30% withholding rate under IRS guidance.