W-8 forms are IRS forms required for foreign individuals and businesses to verify their country of residence for tax purposes, certifying that they qualify for a lower tax withholding rate. These forms are submitted to payers or withholding agents and not directly to the IRS. Neglecting to submit the form can result in a 30% withholding rate applicable to foreign parties.
Key Insights
- W-8 forms are used by foreign individuals or entities to claim exemption status from certain withholdings.
- There are five types of W-8 forms: W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY.
- Form W-8IMY is intended for intermediaries receiving withholding payments on behalf of a foreigner or as a flow-through entity.
- The appropriate form to use is determined by whether you’re an individual or an entity, the nature of your income, and if your organization qualifies for special tax considerations.
- All W‑8 forms are valid for the year in which they are signed and for three full calendar years afterward.
Who Can File W-8 Forms?
Foreign individuals or entities without U.S. citizenship or residency, who have earned income within the U.S., are required to file W-8 forms. This includes foreign-domiciled businesses and non-resident aliens. For instance, a nonresident foreigner who gains interest or dividends from U.S.-issued securities would file a W-8BEN, while a foreign nonprofit with U.S. operations might need to submit form W-8ECI. Former U.S. residents with retirement income or freelance work for U.S. clients might also use the form to reduce tax withholdings. A U.S. citizen or resident alien will not use a W-8 form.
Foreign individuals and businesses earning income in the U.S. are subject to a 30% tax on certain income types. The W-8 forms collect information about who the individual or business is, their place of origin, and the types of income earned.
How to File W-8 Forms
Five distinct forms belong to the W-8 series, each requested by payers or withholding agents and retained by them. The relevant form is chosen based on whether the filer is an individual or a business, and the nature of the income. Each form remains valid for the year it’s signed and three subsequent calendar years. For instance, a W-8BEN signed on January 25, 2024, is valid through December 31, 2027.
Although these forms require basic details like name, country of origin, and taxpayer identification number (TIN), their complexity may often necessitate professional assistance.
Types of W-8 Forms
The following is an overview of the five types of W-8 forms and when they should be used.
Form W-8BEN
Form W-8BEN (“Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting”) must be used by foreign individuals receiving certain types of income in the U.S. This form establishes that the individual is both a foreign person and the owner of the business in question.
Foreign individuals typically face a 30% tax rate on specific income and capital gains received from U.S. payers, including:
- Interest
- Dividends
- Rents
- Royalties
- Premiums
- Annuities
- Compensation for services rendered
The form also enables the claimant to reduce or exempt U.S. tax withholding if they reside in a country with a U.S. tax treaty applicable to their income.
Foreign persons must provide Form W-8BEN to the withholding agent whether or not they are claiming reduced withholding. Neglecting to submit this form can lead to the full 30% rate or backup withholding under section 3406 of the IRS code.
Form W-8BEN-E
Form W-8BEN-E is similar to W-8BEN but is for foreign entities, not individuals. It allows foreign businesses to claim tax reductions if their country has a tax treaty with the U.S. This form must be provided for the same income sources as W-8BEN, and failing to submit may cause businesses to incur the full 30% tax rate.
Form W-8ECI
Form W-8ECI stands for “Certificate of Foreign Person’s Claim for Exemption That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States.” Foreign individuals conducting trade or business in the U.S. and earning effectively connected income (ECI) from U.S. sources need to file this form.
Form W-8EXP
Form W-8EXP is titled “Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting” and is used to claim tax reductions or exclusions by specific foreign entities such as governments, foundations, tax-exempt organizations, or foreign central banks of issue.
To be eligible for these exemptions, entities must be recognized under specific IRS codes. Failing to submit the form can result in withholding at the 30% rate.
Form W-8IMY
Form W-8IMY stands for “Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting,” and certifies that payments were received on behalf of a foreign entity. This form must be used by intermediaries, not by beneficial owners in the business.
Understanding W-8BEN
Form W-8BEN is for foreign individuals earning income in the U.S. and establishes the individual’s foreign status and ownership of the corresponding business.
Who Needs to Fill Out W-8BEN?
Form W-8BEN is essential for non-U.S. persons earning income from U.S. sources to establish their foreign status.
How to Obtain W-8BEN?
Companies making payments to individuals send the W-8BEN form, which should then be returned to the issuing company, not to the IRS. The form is generally submitted before the first payment is released.
Importance of W-8BEN-E
Unlike W-8BEN for individuals, W-8BEN-E is for businesses, which are subject to a 30% withholding tax rate similar to individuals, though eligible for reduced rates under applicable tax treaties. The form aids businesses in establishing their entitlement to reduced rates.
Conclusion
IRS’s five W-8 forms cater to different foreign individuals or entities, facilitating rightful reductions or exemptions from U.S. tax withholdings. While the forms must be submitted to the payer or withholding agent, not the IRS, accurate completion is crucial to avoid the defaulting 30% rate. Consulting with a tax professional may be advisable for complex scenarios.
Related Terms: W-9 forms, tax treaty, taxpayer identification number, backup withholding, effectively connected income.
References
- Internal Revenue Service. “NRA Withholding”.
- Internal Revenue Service. “Instructions for Form W-8BEN”. Page 3.
- Internal Revenue Service. “Instructions for the Requester of Form W-9 (10/2018)”.
- Internal Revenue Service. “Form W-8BEN”.
- Internal Revenue Service. “Instructions for Form W-8BEN”. Page 2.
- Internal Revenue Service. “Instructions for Form W-8BEN-E (10/2021)”.
- Internal Revenue Service. “Form W-8BEN-E”.
- Internal Revenue Service. “Instructions for Form W-8BEN-E”. Pages 1-2.
- Internal Revenue Service. “Form W-8ECI”.
- Internal Revenue Service. “Effectively Connected Income (ECI)”.
- Internal Revenue Service. “Instructions for Form W-8ECI (10/2021)”.
- Internal Revenue Service. “Instructions for Form W-8EXP (10/2023)”.
- Internal Revenue Service. “Form W-8EXP”.
- Internal Revenue Service. “Instructions for Form W-8IMY (10/2021)”.
- Internal Revenue Service. “Form W-8IMY”.
- Internal Revenue Service. “Instructions for Form W-8BEN”, Pages 1-3.
