A Central Withholding Agreement (CWA) is a tax agreement between a foreign individual or individuals, a designated withholding agent and the United States tax collection agency known as the Internal Revenue Service (IRS). It is designed to simplify the tax withholding process for non-U.S. residents who earn income from U.S. sources.

Under normal circumstances, when a foreign person (the Artist in our case) receives income from U.S. sources (the Presenters), the Presenter is required to withhold 30% of that income as a withholding tax. However, through a CWA, the IRS can grant an exemption or a reduced withholding rate, provided certain conditions are met.

To apply for a CWA, the foreign individual(s) must submit an application to the IRS, usually through a designated withholding agent, no less than 45 days prior to the first event to be included on the application. The application typically includes information about the foreign taxpayer, copies of deal memos or contracts for all events to be covered by the CWA. Additionally, requirements include a budget showing the income and associated tour or event expenses, the anticipated net income subject to withholding, and the anticipated tax liability. The IRS will review the application and, if approved, issue a CWA.

Once a CWA is in place, the designated withholding agent will follow the specific instructions outlined in the agreement regarding the amount of tax to be withheld and remitted to the US Treasury for the benefit of the artist(s) covered by the CWA. The CWA letter provides relief from withholding by the payer. Without a CWA, the withholding by the payer can be higher than the actual tax liability of the foreign taxpayer.

CWAs are commonly used by foreign entertainers, athletes, and artists who earn income from performances or appearances in the United States. By negotiating a CWA, they can avoid excessive tax withholding and ensure that they are taxed at a rate that is more reflective of their actual tax liability.

It’s important to note that CWAs are specific to each taxpayer and are generally valid for a specified period. They must be renewed or amended if there are any changes in circumstances that affect the withholding agreement.

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