Non-resident individuals and business entities are subject to a 30% withholding income tax in the US, therefore they have to file their tax returns with a tax agent by using form W-8 BEN or W-8 BEN-E.
What is Form W-8 BEN?
Form W-8 BEN or W-8 BEN is an Internal Revenue Service (IRS) tax form issued for collecting withholding tax from non-residents of the US.
A 30% withholding tax applies to the income sources of foreign residents of the US. The IRS collects withholding tax from non-resident aliens through tax agents. Non-resident aliens pay income taxes in their countries of residence. Therefore, they must submit this form to avoid being double-taxed.
The form W-8 BEN and form W-8 BEN-E are used for non-resident individuals and businesses respectively.
What is the Purpose of Form W-8 BEN?
The foremost purpose of using a form W-8 BEN is to establish a taxpayer’s filing status. Foreign residents in the US and businesses should declare their foreign status with the IRS to avoid any double taxation.
Non-resident aliens of the US should pay a 30% income tax on revenue sources generated within the US.
These income sources include:
- Interest earned
- Dividends received
- Rental income
- Annuities and premiums
- The compensation received for performing services
- Substitute payments from securities investments
- Any other fixed or determinable income generated through periodic or annual gains, profits, or income
By filing a Form W-8 BEN or W-8 BEN-E, taxpayers will establish their non-resident tax filing status with the IRS.
Who Should Use Form W-8 BEN?
Generally, all non-resident aliens should use a form W-8 BEN. The form comes with different variations for individuals and business entities.
Individuals who are non-resident aliens and are subject to withholding tax should use this form. Also, individuals receiving any income from a disregarded entity should use a form W-8 BEN.
Thus, regardless of the primary purpose; whether you seek an exemption, a reduction, or a filing status, all non-resident aliens should submit a form W-8 BEN.
You should not use W-8 BEN if:
- If you are a US citizen or other US person (a resident alien)
- You are acting as a foreign intermediary
- If you are a non-resident alien but you seek an exemption from withholding tax on income from personal income sources in the US. Thus, you’ll use a form W-4 here.
- You are receiving income that is linked with trade or business in the US. You’ll use Form W-8 ECI here.
Form W-8 BEN vs Form W-8 BEN-E
These are simply two variations of the same form used for filing the withholding income tax returns in the US.
Form W-8 BEN is used by non-resident aliens for filing withholding tax in the US.
Form W-8 BEN-E is used by non-resident business entities and partnerships for filing withholding tax in the US.
The withholding tax rate for both individuals and entities is the same at 30% unless the taxpayer’s resident country has a double tax treaty with the US.
Where to File Form W-8 BEN?
Usually, taxpayers need to file their tax returns with the IRS directly. They can file electronically or through a tax agent. However, Form W-8 BEN is collected through tax agents.
Also, the person paying to a non-resident individual or entity may ask for a Form W-8 BEN. An FFI may also require a form W-8 from individuals.
The information submitted through a form W-8 BEN is valid for the last day of the third year from the submission date. However, unless certain circumstances (such as a change in regulations) occur, the information will be valid indefinitely.
Importance of Form W-8 BEN Filing
Several countries including Canada, the UK, Japan, and Israel have a double tax treaty with the US. Foreign residents of these countries need to establish their tax filing status when they earn income in the US.
A form W-8 BEN establishes your non-resident tax filer status. Individuals and business entities comply with the withholding tax requirements as well.
Therefore, using this form means that you:
- Comply with the IRS requirement of withholding tax filings
- Establish that you’re not a US citizen or resident tax filer
- Qualify for a tax reduction or exemption through a tax treaty
- Received income from a US source as an individual or a business entity
Instructions to Fill Form W-8 BEN
Form W-8 is used by certain tax filers in the US to report their withholding income tax. Both individuals and business entities need to file a suitable Form W-8 for their income earned in the US. Therefore, here are the different types of Form W-8 and the instructions to fill it properly.
Types of W-8 BEN Form
There are five variations of the W-8 BEN form for individuals and owners of sole proprietorships:
This is used for non-resident individuals filing income tax returns in the US.
This form is used by non-resident business entities (corporations and partnerships) to file withholding income tax returns in the US.
This form is used when a non-resident's income is linked with a US business or trade.
This form should be used by third-party service providers acting as intermediaries or pass-through entities.
Foreign government entities and other public groups should use this form to seek exemption from withholding tax in the US.
Instructions to Fill Form W-8 BEN
There are three sections of the W-8 Form. Although there are five variations of the form, the general instructions to complete the form are similar for all types.
Line 1: Identifying the Beneficial Owner
Part one of the Form is to identify the beneficial owner details including name, country of residence, and other important information.
Line 1 is to write the name of the beneficial owner as an individual. If the person received income from an entity that is claiming tax treaty benefits, then an individual must use Form W-8 BEN-E.
Line 2: Identifying your citizenship
Line 2 is to enter your citizenship. US citizens and resident-aliens do not need to fill this form. Only non-resident aliens receiving income in the US should fill their country of citizenship.
Line 3: Your address
Line 3 is to write your residence address. This is your address where you are a resident for tax purposes and not your ordinary workplace address. For residents claiming a tax reduction under a tax treaty, they should use guidelines provided in the treaty.
Line 4: Mailing address
In line 4, write your mailing address here if it is different from your Line 3 address.
Line 5: SSN and ITIN
Line 5 some taxpayers may need to provide their social security number (SSN) or an individual tax identification number (ITIN) here. Individuals and partners of a business entity in the US are allocated an ITIN. If a partner transfers ownership interest, the partner will be subject to US income tax. Either way, they will need to provide an SSN or ITIN.
Line 6: Foreign tax identification number
Line 6 is meant for you to provide your foreign tax identification number (FTIN) here on line 6 (a). This line is for individuals holding a US office of a financial institution and receiving income in the US identified as an account holder with respect to a financial account.
You can leave line 6 (a) if:
You are a US citizen or your tax jurisdiction does not issue an FTIN and your jurisdiction is also identifiable to the IRS.
Line 6 (b) should be used if you do not have an FTIN. However, you may need to present sufficient proof to the IRS of not having an FTIN.
Line 7: Relevant information
Line 7 is to write any reference numbers or relevant information about the taxpayer. For example, tax agents may enter useful information if the taxpayer is also filing a W-8 BEN IMY.
Line 8: Date of birth
Line 8: Enter your date of birth in the format MM-DD-YYYY in this line.
Part II: Claiming Exemptions or Reductions Through a Tax Treaty
The second part is used for claiming tax exemptions or reductions when a taxpayer’s residence country has a tax treaty with the US.
Line 9: Country of residence
Line 9 is where you provide your country of tax residence information here if you are claiming tax exemptions or reductions under a tax treaty.
You will be considered a tax resident of a country in the tax treaty as defined by the terms of the tax treaty signed by the US and that country.
Note: if your withholding tax aggregate exceeds the $ 550,000 annual limit, you should use form 8833.
Line 10: Different tax treaties
Line 10: Complete this line if your tax treaty claims do not fall within the scope of line 9 above.
Some examples when you should use line 10 include:
- Individuals claiming royalty benefits under a tax treaty where tax rates are different for different royalties.
- Individuals claiming business income or gains from a business that is not a permanent establishment in the US.
- Foreign students and researchers
Part III: Certification
The third part of form W-8 BEN is the certification part. An individual must sign and write the date by acknowledging the correctness of the information provided in the form.
A tax agent with a power of attorney can also sign the form on behalf of the taxpayer. Some important points that the taxpayer certifies under the penalty of perjury:
- Beneficial ownership receiving all the income mentioned in the form
- Establishing that person named in this form is not a US citizen
- The income mentioned on this form does not relate to conduct of business or trade in the US
- For tax treaty claims, the person mentioned on line 9 is the resident of the country that has signed the treaty with the US
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