W-8BEN vs W-9: Key Tax Forms Explained for Cross-Border Business

If a withholding agent fails to collect Form W-8 from an individual or entity and doesn’t withhold taxes, the withholding agent may be subject to a penalty of up to 30% of payments they made to a payee outside the U.S. No, U.S. citizens and resident aliens are not eligible to complete Form W-8BEN. Individuals who earn U.S. income, such as dividends, royalties, or interest, must submit Form W-8 BEN to reduce U.S. withholding tax. For foreign governments, tax-exempt organizations, and certain other foreign entities to claim tax exemption. The US has tax treaties with over 65 countries, aimed at preventing double taxation and lowering tax burdens on residents of treaty countries who earn income in the US. The second type of income is for fixed or determinable annual or periodic income, known as FDAP.

Steps to Complete Form W-8 BEN:

This document can help ensure you don’t end up overpaying on taxes or facing legal repercussions down the line. In this article, we’ll explain what W-8 forms are, who needs to fill them out and how to do so correctly. Other users of the W-8BEN tax form may be those who receive a pension from America but live in another country that has an income tax treaty with the United States.

Recommendations for Cross-Border Businesses: Collecting and Storing Forms

Should none of those exemptions apply, the entity must file a W-8BEN or W-8ECI (if it received “effectively connected income”). Crucially, ECI is not subject to the same 30% withholding that applies to interest, rents, and other nonbusiness income. Instead, after subtracting applicable deductions, it is taxed at the graduated rate that U.S. citizens and resident aliens pay.

More In Forms and Instructions

However, a W8-EXP is filed by payees to directly apply for a tax reduction or exemption from the withholding rate. Form W-8BEN is bookkeeping and payroll services used by foreign individuals who receive income from sources in the U.S. In order to receive a reduction or an exemption from tax withholding, the entity must be eligible under IRS code 115(2), 501(c), 892, 895, or 1443(b).

Form W-8: Complete Guide to Foreign Tax Documentation

It is usually from the United States and what this form does is that it frees you from the requirement to file your U.S. tax return. That means that if the appropriate amount of FDAP U.S. tax is Accounting For Architects withheld on form 1042-S, which the payer will give you at the end of the year, based on your form W-8 BEN, you would not have to file a U.S. tax return. Some countries with US tax treaties include Canada, the United Kingdom, Germany, India, Japan, and South Korea.

• If you’re a non-resident alien or foreign business who earned money in the US, read on to learn all about your W-8.
• In short, if you are a foreign individual or company that earns income from sources in the US, you need to complete and file a W8 form with your payers or withholding agents.
• Entities must file the correct form in order to qualify for a possible exemption or reduced tax withholding rates.
• Yes, entities such as foreign corporations or partnerships earning U.S.-sourced income can use Form W-8BEN-E, which the IRS specifically designed for entities as a version of W-8BEN.
• Its purpose is mainly to let brokers and mutual fund companies know that the person or company in question is not subject to the usual tax withholding from investment income.

In short, filing a W8 Form allows individuals to benefit from tax treaties in place between the United States and their country of residence. W-8 forms are filled out by foreign individuals or entities that lack U.S. citizenship or residency, but have worked in the U.S. or earned income in the U.S. This usually applies to foreign-domiciled businesses and non-resident aliens. Simply put, if you do not submit a W8 form, you might be charged the 30% tax withholding rate for income derived from the US by foreign individuals or entities.

Using Form W-9

So think of it as a key to unlocking the potential of global work and income opportunities without the headache of extra taxes. As mentioned, W8 forms are not submitted or requested by the IRS and do not form part of your tax returns. Instead, they are usually requested by payers from which you derive taxable income or credits. If they are not requested, you should take the initiative and submit the application form to any of your beneficiaries where it may be required for tax withholding purposes. Another purpose of the W8 BEN form is to simply verify your identity as an income-earning foreign entity.