US Entity: Validations Required to Setup A Non-US (Foreign) Vendor

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If you work in a Finance, Accounting, Purchasing or Accounts Payable Department of a US Agency or Entity and are responsible for setting up vendors in your Accounting System or ERP – this blog post is for you.  The information below will keep you compliant with regulatory agencies and will also ensure that you are validating that the vendor is real, and the data is not fraudulent prior to updating vendor master file.   

Non-Us (Foreign) Vendors can be overwhelming because the validations are different and can be more complex.  Further, other Stakeholder groups may be involved for required tax filing for VAT or GST, or for Anti-Bribery due diligence efforts.  Ensure you verify with the applicable teams, so the needed vendor information is captured at the time of vendor setup.   

Basic Requirements 

Vendor Legal Name and Tax ID Validated Against Internal Revenue Service (IRS) Records 

  • Reason to Validate: Confirms that vendor is registered with the IRS and is not fraudulent.  Seek assistance with a designated tax professional to determine if the applicable W-8 form submitted is correct and whether the foreign vendor is subject to backup withholding. 

  • Required Document:  IRS W-8x (Non-US/Foreign) 

  • How to Validate:   

 Vendor Value Added Tax (VAT) Number against VAT Information Exchange System (VIES) 

  • Reason to Validate:  VAT is an International Country level sales tax that your company’s tax team may need to use to reclaim VAT that is added to invoices paid.   

  • Required Document:  Invoice or Request from Vendor 

  • How to Validate:   

Additional Tax Number Validations 

  • Reason to Validate:  These tax numbers may not be used by the Accounts Payable Team; however, your company’s Tax Team may need to track for required tax filings.  

  • Required Document:  Invoice or Request Tax Number from Vendor 

  • How to Validate:   

    • The Business Number (BN) -  Canada Revenue Agency (CRA) Required to collect from vendor if you are a government. 

    • GST/HST Number (Canada) – Validate on Government of Canada Website.  

    • GST Number (India) – Validate on Government of Maharashtra, Department of Goods and Services Tax Website. 

 Vendor Legal Name against Specially Designated Nationals List (SDN) from the Office of Foreign Assets Control (OFAC)  

Vendor Address Validated against US Postal Service (US) and Google Earth 

  • Reason to Validate:  Confirms that vendors are not fraudulent attempting to use addresses that do not exist.  Also reduces the potential that check payments or distributed 1042s will not be returned causing rework for the team.  Standardizes address formats in accordance with Universal Postal Union (Non-US).  

  • Required Document:  IRS W-8x (Non-US/Foreign). Invoice (if remit address is different) or Fully Executed Contract 

  • How to Validate:   

Additional Requirements If the Payment Method is ACH/Wire 

Vendor International Bank Account Number (IBAN)  

  • Reason to Validate: Ensure that International ACH or Wire payments are processed successfully. The IBAN is required for all bank accounts in the EU countries plus Norway, Switzerland, Liechtenstein and Hungary. The IBAN is made up of a code that identifies the country the account belongs to, the account holder's bank and the account number itself. 

  • Required Document:  Vendor Letterhead, Bank Letter or Company Branded Banking Setup Form (recommended) 

  • How to Validate:   

  • Free – Verify with Vendor Bank.   

    • Paid - IBAN validations are included with most third party's paid subscription plan. 

Vendor International Business Identifier Code (BIC) or Society for Worldwide Interbank Financial Telecommunication Code (SWIFT)  

  • Reason to Validate: Ensure that International ACH or Wire payments are processed successfully. Countries that do not require an IBAN will have a BIC Code or SWIFT code along with a bank account number. 

  • Required Document:  Vendor Letterhead, Bank Letter or Company Branded Banking Setup Form  

  • How to Validate:   

Vendor Bank Name against Specially Designated Nationals list (SDN) from the Office of Foreign Assets Control (OFAC)  

  • Reason to Validate: Banks that appear on this list should not be setup in your vendor master file. If there is a bank match, please notify your leadership for further action. Compliance with OFAC regulations is required for all US individuals and entities.  Failure to comply can result in both civil and criminal penalties. 

  • Required Document:  Vendor Letterhead, Bank Letter or Company Branded Banking Setup Form  

  • How to Validate:   

Additional Requirement If You Are a Government Agency/Entity 

Vendor Legal Name Against System For Award Management (SAM)  

  • Reason to Validate:  Governments are prohibited from awarding contracts to contractor entities that are on this exclusion list. Search by name to verify the vendor is not on this list.  

  • Required Document:  IRS W-8x (Non-US/Foreign)  

  • How to Validate:   

Additional Requirements If You are A Healthcare Organization 

Vendor Legal Name Against Exclusion List of Office of Inspector General (OIG) 

  • Reason to Validate:  OIG has the authority to exclude individuals and entities from federally funded health care programs. Search by name to verify the vendor is not on this list.  

  • Required Document:  IRS W-8 (Non-US/Foreign)  

  • How to Validate:   

As normal, review these recommendations with your leadership and/or auditing team and adjust based on your Accounting system/ERP or 3rd Party systems for your company processes and your industry. This could include verifications for Insurance Certificates or other due diligence efforts.   

If you have a vendor self-registration portal, review and supplement as needed.   

#stayhappy #puttingtheapinhappy #approcess #vendorsetup #realvendors

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Debra R. Richardson,

MBA, APM, APPM, CPRS

Debra is an accounts payable speaker, consultant, and trainer with over 20 years of experience in AP, AR, general ledger, and financial reporting for Fortune 500 companies including Verizon, General Motors and Aramark.

For the past eight years, Debra has focused on Global Vendor Maintenance, and implemented a vendor self-registration portal for 140k+ global vendors across five Accounting Systems/ERPs. In her consultancy, she focuses on internal controls and authentication to prevent fraud in the vendor master file.

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