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At G-P, our industry leading Global Employment Platform™ helps companies unlock their full potential by building highly skilled global teams in days instead of months. But how does the everywhere workforce work together best? Here we discuss the opportunities – and challenges – in achieving the kind of global growth and success we can all share.
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Form W-8BEN stands for the Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals). Any individual who provides a service or product for the U.S. market but does not live there is likely familiar with the complexities of paying income tax in more than one country.
Let’s review the purpose of the form W-8BEN, its relationship with U.S. tax treaties, and how it compares to similar forms.
What is Form W-8BEN used for?
Form W-8BEN determines which individuals are subject to paying a 30 percent income tax rate on the gross amount paid for all income earned inside the U.S., including fixed and determinable annual and periodical (FDAP) income, which includes:
- Compensation for services
- Substitute payments, if applicable
The purpose of W-8BEN forms is also to establish whether individuals are considered U.S. persons — meaning they are residents or citizens — and it is necessary to claim ownership for the income you’re submitting the form in reference to. The W-8BEN will also let you claim tax exemption or a reduced tax rate if you live in a country that shares an existing tax treaty with the U.S.
Who should file a Form W-8BEN?
The beneficial owner is the name given to individuals required under U.S. tax law to pay taxes on their gross income. Whether the payment was directly given to the beneficial owner or went through another agent or conduit on behalf of the beneficial owner, all individuals who received payment must file if they are the beneficial owner. Individuals who sign W-8BEN forms are typically nonresident aliens (NRA).
All those who pay income to non-U.S. individuals, known as U.S. withholding agents, are responsible for withholding tax from the income they pay at that income’s source before paying the individual. Failure to do so on the withholder’s part could result in late payments or additional fines. If your tax is eligible for withholding for multiple withholding agents, it only needs to be withheld once.
1. For those receiving forms and withholding income tax
You’re responsible for determining whether the form you receive is accurate and legitimate, to the best of your knowledge. Potential red flags to screen for include:
- Incomplete information
- Illegible handwriting
- No signature or inaccurate signature on the bottom of the form
- Information is inconsistent with known or recorded information
- You have other reasons to believe the information is falsified
If the form you received has inaccurate or incomplete information on it, you may be able to consider it valid if the information is inconsequential and you have adequate documentation to supplement the missing information. For example, if the individual neglected to fill out the date with the signature, you can date it on the day you receive it and consider it valid from that point.
If you’re withholding income tax on behalf of the individual, you should not send the form to the Internal Revenue Service (IRS) when you receive it. Instead, the form should be safely stored in your records for as long as necessary to determine your liability under section 1461, section 1474, or Regulations section 1.1471-4(c)(2)(iv).
What are tax treaties?
If a country has a tax treaty with the U.S., it means that residents in both countries might be eligible for tax reduction, credits, or exemptions for income earned in their nonresidential country. For example, if you live in Canada — one country with a tax treaty with the U.S. — and make income in the U.S., you would claim benefits as an NRA during tax filing season. Individuals are required to pay income tax in the same way, without reduced rates, if they live in a country without an existing tax treaty.
Tax treaties don’t apply to dual residency situations — when individuals are legal residents of more than one country — but dual residents may still be eligible to receive some tax treaty benefits, depending on their location.
Some tax treaties have a saving clause to prevent U.S. citizens or residents from taking advantage of the tax treaty to avoid taxation on their in-country income.
1. Which countries have a tax treaty with the US?
The following countries currently have a tax treaty in place with the U.S.:
- Czech Republic
- The Netherlands
- New Zealand
- The Philippines
- Slovak Republic
- South Africa
- Sri Lanka
- United Kingdom
Each country has its own income threshold requirements for taxation, and those percentages often change. Specific qualifications within tax treaties are also subject to change — stay informed about the laws in your country of residence and adjust your finances and tax forms accordingly.
How to file W-8BEN forms
You will need the following information to complete the form:
- Your legal name
- Your birthdate, written in the mm-dd-yyyy format
- Your country of citizenship
- Your permanent address in your resident country
- Your mailing address if it’s different from your permanent address
- Your social security number (SSN) or Tax Identification Number (TIN), including your international TIN where applicable
- The name of your resident country eligible for tax treaty benefits, if applicable
- All relevant financial information, including income and previous payment amounts
Special additional provisions might be required if you’re a student or researcher operating on a fellowship or through a scholarship fund. A tax expert can guide you through these W-8BEN instructions. If you filed a previous W-8BEN form, you may be able to use the information from it to fill out your new form faster, assuming that information remains current and relevant.
1. Ensure information is accurate
All information submitted must be accurate and up to date. You have 30 days to change your filing and income information if you experience a change in circumstance, like moving to a country without an existing tax treaty from one with tax treaty benefits. You are no longer required to submit this form, and you’re not subject to the withholding rate if you become a U.S. citizen after submission, but you must file those changes.
2. Sign and date the form
Your signature and date of signature are required. If you’re filing directly through an IRS website, you cannot use an electronic signature, but some third-party processing agencies may accept them.
Never sign paper forms with a pencil or marker. The IRS prefers blue or black ink pens because they are easy to read and won’t fade or smudge.
3. Send it to the requesting party
You don’t send your W-8BEN to the IRS with your tax return. Instead, the person or entity that requires your W-8BEN withholding tax — such as a partnership or the person paying you — will formally request it from you. If you give them the form before they pay you for your product or service, they will not have to withhold the 30 percent, or similar, rates.
You can claim several forms for each type of relevant income, but you must use separate forms per agent and income source.
4. Keep a copy for your records
Always keep a copy of each month, quarter, or year’s tax documents. Be sure to make a copy after you’ve signed and dated the official form, then note the date you sent it to the requesting party. You may need this information later on when filing your taxes or if you need to provide evidence that you attempted to submit the form if the party never receives it.
You can view, download, and print a PDF copy of the W-8BEN form on the IRS website. If you’re submitting multiple W-8BEN forms to various requestors, keep a copy of each one with the name of the party listed and the date you sent it to them.
What’s the difference between the W-8BEN and W-8BEN-E tax forms?
The W-8BEN-E also refers to the Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting but applies to international entities instead of individuals. If you operate a non-U.S. company that makes income in the U.S., you’re also subject to a 30 percent withholding rate. You must file forms for all relevant income with accurate and up-to-date information, or you will be subject to late payment and possible fines. You can claim a reduction, credit, or exemption if your entity is in a tax treaty country.
The W-8BEN-E form will also determine:
- Your entity’s non-U.S. status
- The entity’s beneficial owner
- Your entity’s category under the Foreign Account Tax Compliance Act
Because entity income is typically more complex than individually-sourced income, your best option is to work with a professional familiar with your entity’s financial situation and countries of operation. Entities may not use W-8BEN forms to submit their tax information, and individuals should not submit their information on a W-8BEN-E form. Failure to use the correct documents could cause delays.
W-8BEN vs. other W-8 forms
The IRS has several W-8 forms, each applying to different types of non-U.S. tax withholding scenarios. In addition to the W-8BEN and W-8BEN-E, there are:
- Form W-8IMY: The Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting certifies if an individual or entity received withholdable payments from a non-U.S. individual or flow-through entity. Flow-through entities aren’t subject to corporate income tax. This form doesn’t apply to beneficial owners like the above forms — only intermediaries.
- Form W-8EXP: The Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting is for those who want to claim a tax reduction or exemption when eligible under specific IRS codes 115(2), 501(c), 892, 895, or 1443(b). This generally includes non-U.S. governments and tax-exempt organizations. Incorrectly filing this form instead of the W-8BEN could result in tax withholding.
- Form W-8ECI: The Certificate of Foreign Person’s Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States applies to all individuals who operate a business or trade service inside the U.S. and make income from those sources. If you earn Effectively Connected Income (ECI), you’re not subject to the 30 percent withholding tax that may apply to other areas of your operation, like rent, that aren’t related to your ECI. You are instead taxed at a graduated rate or the lowest rate under your resident country’s tax treaty, if applicable.
Working with professional tax consultants and a global employment platform like Globalization Partners is the easiest way to stay informed about the tax documents you’re responsible for requesting, submitting, and sending to the IRS. A tax professional can help determine each of your valid tax statuses, depending on your country and company structure.
These professionals can also help you manage your international employees by aiding in tax document preparation and keeping you up to date on each region’s changing labor laws that could impact taxes for your company.
W-8 forms vs. W-9 forms
While W-8 forms apply to non-U.S. individuals and entities making U.S.-based income, W-9 forms apply to companies, contractors, and similar entities operating under U.S. law. These forms are considered informational form submissions and don’t expire like W-8 forms.
How long is a W-8BEN valid for?
Your Form W-8BEN is effective for international status starting on the date you sign it and ending on the last day of the third calendar year following. Some situations and exceptions apply, including a change in circumstance that could render the information you’ve filed incorrect or outdated.
The form will remain valid through the W-8BEN expiration date or until your circumstances change, like updating your citizenship.
Business payroll and tax compliance solutions from Globalization Partners
Expanding into new markets and diversifying your streams of income are just a few ways to grow your company successfully, but staying compliant with each country’s changing tax laws can be a costly, time-consuming challenge. Working with international employees also means your company is responsible for withholding all relevant taxes required by each country’s tax laws.
If you’re responsible for paying or withholding income tax based on the Form W-8BEN or W-8BEN-E, request a proposal from Globalization Partners. Our expert-backed global employment platform will help with international payroll services and tax compliance assistance in more than 185 countries worldwide. Leverage our AI-driven technology to streamline the required form collection process for all international employees.
Learn more about our comprehensive payroll and tax compliance solutions today.
THIS INFORMATION IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Globalization Partners does not provide legal or tax advice and the information is not tailored to the specific situations of your company or your workforce. Globalization Partners makes no representations or warranties concerning the accuracy, completeness or timeliness of this information. Globalization Partners shall have no liability arising out of, or in connection with, the information, including any loss caused by use of, or reliance on, the information.