14.01.2024 line employer of record

Tax Form W-8BEN (US) Guide

Foreign individuals and corporations submit Forms W-8 to their U.S. withholding taxpaying counterparts. The primary purpose of completing this form is to officially declare the country of residence for tax purposes and qualify for a reduced tax rate (less than 30%) under international treaties. It is not required to be directly submitted to the IRS; instead, it should be provided to a collaborating partner or entity within the United States. In this scenario, the collaborating partner becomes the withholding tax agent, as the income source is derived from activities within the United States.

Therefore, Form W-8 is applicable to individuals or entities that are not citizens, registered, or domiciled/residing in the United States but have generated income through work conducted in the country. U.S. residents are exempt from the obligation to file such a form.

What are the W-8 forms, and why is the W-8BEN popular in IT?

In general, there are five W-8 Forms available, and the selection depends on whether you are an individual or an entity, as well as the nature of the income received. These forms remain valid for the year in which they were signed and an additional three years thereafter. It’s important to emphasize that the IRS does not mandate the submission of the form; rather, it is required by your counterpart or collaborating party in the United States:

  • The W-8BEN form is submitted by foreign individuals who earn income in the United States. This income may include dividends, royalties, payments for services rendered, and more, and is initially subject to a 30% tax rate. By completing Form W-8BEN, an individual becomes eligible for a reduced tax rate or exemption if there is an Income Tax Treaty in force between the United States and the individual’s country of residence. Form W-8BEN-E serves a similar purpose, but it is filed by businesses instead of individuals.

  • Form W-8ECI is utilized by foreign individuals involved in a trade or business who earn income from U.S. sources. The earnings derived from such income are termed as ‘effectively connected income’ (ECI), irrespective of whether there is a direct link between the trade or business and the income received in the United States within a specific tax year. Unlike the flat 30% tax rate, the tax applied in this scenario is a progressive rate similar to what U.S. citizens and resident aliens pay. To qualify as ‘effectively connected,’ it is necessary for the individual to be engaged in a trade or other commercial activity during the tax year.

  • Form W-8EXP is employed by certain recipients of U.S. payments to avail themselves of tax reduction or exemption. This category encompasses entities such as foreign governments, foundations, tax-exempt organizations, and foreign issuing banks.

  • On the other hand, intermediaries utilize Form W-8IMY, which serves the purpose of certifying that the entity or individual has received taxable payments on behalf of the foreign person.

An illustrative scenario involves foreign individuals or branches of U.S. entities certifying themselves as qualified intermediaries (QIs). In this certification, they confirm that they do not operate from their own account and furnish the necessary withholding tax statement mandated by the IRS Labor Code.

Filling out Forms W-8 is highly crucial as it determines the applicable tax rate for your U.S. income. The choice of which form to use is a personalized decision. We highly recommend consulting with a professional who can thoroughly analyze your case and assist you in accurately completing and submitting all the necessary paperwork.

An incorrectly filled-out form can lead to fines and other legal consequences in the future!

If you prefer to manually complete Form W-8BEN or make edits, please adhere to the following definitions and guidelines provided by the U.S. government:

1. Identification of Beneficial Owner

For W-8BEN (individuals): Name — Input your legally given name as it appears on your income tax return.

For W-8BEN-E (entity): Name of Organization — Specify the complete legal name of your organization. If you are a disregarded entity, provide the name of the entity that owns the disregarded entity.

Address (State, City, Address, Address 2, Zip) — In the Address field, include the building number and street name (e.g., “52 Market Street”). For Address 2, include details such as apartment, suite, unit, building, or floor number.

Foreign Tax Identifying Number (TIN) — Enter your tax identification number issued by your country of residence. If unavailable, a National ID number may be acceptable; it is advisable to consult with a government office or local legal advisor for guidance.

2. Claim of Treaty Benefits:

Tax treaties typically permit residents of a foreign country to exclude a specified amount of U.S.-source income.

If you reside in one of the countries listed below, kindly select your country of residence in the section “Claim of Treaty Benefits.”

List of countries:

Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, India, Hungary, Iceland, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Korea (South), Luxembourg, Mexico, Malta, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Tunisia, Trinidad and Tobago, Turkey, Turkmenistan, Ukraine, United Kingdom, United States, Uzbekistan, Venezuela.

3. Certification:

Sign using your full legal name and include the date of the signature.

For the remaining sections of the W-8BEN-E form, mark the applicable boxes based on your circumstances.

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