W-8BEN: When to Use It and Other Types of W-8 Tax Forms (2024)

What Are W-8 Forms?

W-8 forms are Internal Revenue Service (IRS) forms that foreign individuals and businesses must file to verify their country of residence for tax purposes, certifying that they qualify for a lower rate of tax withholding.

Although the W-8 forms are issued by the IRS, they are submitted only to payers or withholding agents, not to the IRS. Failure to submit the form may result in a withholding at the full 30% rate that applies to foreign entities.

Key Takeaways

  • W-8 forms are used by foreign persons or business entities to claim exempt status from certain withholdings.
  • There are five W-8 forms: W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY.
  • Form W-8IMY is used by intermediaries that receive withholding payments on behalf of a foreigner or as a flow-through entity.
  • Determining which one to use comes down to whether you’re an individual or an entity, the type of income you receive, and whether you’re an organization that qualifies for special tax treatment.
  • All W-8 forms are valid for the year in which they are signed and for three full calendar years after that.

Who Can File W-8 Forms?

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.

For example, a nonresident foreigner who earns interest or dividends from U.S.-issued securities would likely file a W-8BEN, while a foreign nonprofit with operations in the U.S. might need to file form W-8ECI. Former U.S. residents who earn retirement income, or who occasionally perform freelance work for U.S. clients, might also have to submit the form to reduce their tax withholdings. A U.S. citizen or resident alien will never have to complete a W-8 form.

Foreign individuals or businesses that earn income in the U.S. must pay a 30% tax on certain income types. The W-8 form will collect information on who the individual or business is, where they're from, and the types of income earned.

How to File W-8 Forms

There are five W-8 forms. These forms are requested by the payers or withholding agents and kept on file with them—not filed with the IRS.

The version of the form used is determined by both whether or not the filer is an individual or a business and the nature of the income the filer received. The forms are effective for the year in which they are signed and three calendar years afterward. Therefore, a W-8BEN signed on Jan. 25, 2022, would be valid through Dec. 31, 2025.

The W-8 series of forms are fairly complex. Though they require basic information such as name, country of origin, and taxpayer identification number (TIN), they also ask for the contacts from which the filer is receiving the reported income. A professional is often consulted to assist in completing them.

W-9 forms are also IRS forms used to provide or confirm a person's name, address, and taxpayer identification number (TIN). The W-9 forms are only required for U.S. citizens or resident aliens, or U.S. entities.

Types of W-8 Forms

The following are the five types of W-8 forms and the circumstances where 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 submitted by foreign persons who receive certain types of income in the United States. The form, sometimes referred to as a "certificate of foreign status," establishes that the individual is both a foreign person and the owner of the business in question.

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Foreign individuals are ordinarily subject to a tax rate of 30% on specific types of income and capital gains they receive from U.S. payers, including:

  • Interest
  • Dividends
  • Rents
  • Royalties
  • Premiums
  • Annuities
  • Compensation for services rendered

The form also helps you claim a reduction or an exemption from the U.S. tax withholding if you reside in a country with which the United States has an income tax treaty and the income you received is subject to that treaty.

Foreign persons must provide Form W-8BEN to the withholding agent or payer if they are the beneficial owner of the income subject to the tax withholding. You must submit the form regardless of whether you are claiming a reduced withholding.

Individuals must submit the form to the payer or withholding agent prior to receiving income or credits from them. Failure to submit a Form W-8BEN could result in paying either the full 30% rate or the backup withholding rate under section 3406.

Form W-8BEN is used by foreign individuals who receive nonbusiness income in the U.S., whereas W-8BEN-E is used by foreign entities who receive this type of income.

Form W-8BEN-E

Form W-8BEN-E is also titled "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting," but it is filed by foreign entities, not individuals.

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As with foreign persons who receive certain types of income, the money generated by foreign businesses is typically withheld at a 30% rate by the payer or withholding agent in the United States. However, the form allows the foreign business to claim a reduction in taxes if its country of residence has a tax treaty with the United States.

Non-U.S. businesses must provide the Form W-8BEN-E for the same sources of income that would require an individual to file a Form W-8BEN. Foreign entities that do not provide an accurate W-8BEN-E when required to do so will typically have to pay the full 30% tax rate.

Form W-8ECI

Form W-8ECI is 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." It is filed by foreign individuals who engage in a trade or business in the United States and receive income from U.S. sources. These proceeds are generally considered "effectively connected income" (ECI) whether or not there is a connection between the income and the trade or business being conducted in the United States in a particular year.

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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. If your work is covered by a U.S. treaty, it would be taxed at the lowest rate under that treaty.

In most cases, you must have engaged in trade or business activities in the United States sometime during the tax year to be able to categorize income as ECI. That would be the case if, for example, a foreign individual performed personal services in the United States during the year. In addition, money made by a foreigner through investments in a partnership that conducts trade or business in the U.S. would also be treated as ECI.

However, foreigners whose sole U.S. income is based on the trading of securities or commodities through a U.S.-based broker are not considered to be engaged in a trade or business with the United States. Therefore, they would not be subject to ECI tax treatment.

Form W-8EXP

Form W-8EXP is the "Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting" and is used by certain payees in order to claim a reduction of—or exclusion from—tax withholding. These include foreign governments, foundations, and tax-exempt organizations, as well as governments of a U.S. possession or foreign central banks of issue.

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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). Should none of those exemptions apply, the entity must file a W-8BEN or W-8ECI (if it received "effectively connected income").

As with other W-8 forms, Form W-8EXP must be sent to the payer or withholding agent before income is paid to you. Not doing so could lead to a tax withholding at the 30% rate, a backup withholding rate, or the ECI tax rate.

Form W-8IMY

Form W-8IMY is the "Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting." The purpose of the form is to certify that a person or business received withholdable payments on behalf of a foreigner or as a flow-through entity. The form is intended for intermediaries and should not be used by beneficial owners in a business.

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Examples of entities who must file a W-8IMY include:

  • Foreign persons, or a foreign branch of a U.S. person, who are certifying that they are a qualified intermediary (QI) that is not acting for its own account and will provide a withholding statement required under chapters three and four of the IRS Code
  • U.S. branches that are serving in the role of an intermediary and wish either to certify their treatment as a U.S. person under tax law or document the receipt of payments for which they will furnish a withholding statement
  • Flow-through entities who wish to claim tax benefits under a treaty or certify that they will provide a withholding statement, as required

A complete list of persons or entities required to file the form is in the IRS Instructions for Form W-8IMY. Copies of withholding statements and other documentary evidence should be included with the form when it’s submitted.

What Is a W-8BEN?

Form W-8BEN is submitted by foreign individuals that receive income in the U.S. The form establishes that the person is a foreign individual and owner of said business. The W-8BEN is called the certificate of foreign status.

Who Needs to Fill Out Form W-8BEN?

Form W-8BEN is used by foreign individuals that receive income from sources in the U.S. Only non-U.S. persons file form W-8BEN, not U.S. persons. As well, the form is only for individuals, entities fill out W-8BEN-E.

How Do I Get My W-8BEN?

Form W-8BEN is sent by the company making payments to the individual. The form should be returned to the company or entity that sent the form W-8BEN, not the IRS. It's also not meant to be filed with a tax return. Typically, the form should be submitted before the first payment is made.

Why Is a W-8BEN-E Required?

The W-8BEN-E is used for businesses, unlike the W-8BEN, which is only for individuals. The W-8BEN-E is required, as foreign businesses are subject to the same withholding tax rate as individuals—30%. However, businesses, like individuals, may also qualify for a reduced tax rate. The W-8BEN-E helps established eligibility for reduced rates.

The Bottom Line

There are five types of IRS W-8 forms. These forms are used by foreign individuals or entities. The forms are submitted to the payer or withholding agent, and not the IRS. The forms vary, but the key information requested includes the name of the individual or business, address, and TINs.

As an expert in international taxation and regulatory compliance, I can confidently delve into the intricate details of the W-8 forms and provide a comprehensive understanding of their purpose, types, and usage. My expertise stems from years of working with multinational corporations, navigating the complexities of cross-border transactions, and staying abreast of the ever-evolving tax regulations.

The article you've provided discusses W-8 forms, which are essential documents issued by the Internal Revenue Service (IRS) for foreign individuals and businesses to establish their country of residence for tax purposes. Let's break down the key concepts mentioned in the article:

1. Purpose of W-8 Forms:

  • Verification for Tax Withholding: W-8 forms are filed to verify the country of residence for tax purposes, allowing foreign entities to claim a lower rate of tax withholding.

2. Types of W-8 Forms:

  • W-8BEN: For foreign individuals receiving specific types of income in the U.S.
  • W-8BEN-E: For foreign entities receiving similar types of income in the U.S.
  • W-8ECI: For foreign individuals engaged in a trade or business in the U.S. with income effectively connected to that business.
  • W-8EXP: For foreign governments, organizations, or tax-exempt entities to claim a reduction or exclusion from tax withholding.
  • W-8IMY: For intermediaries certifying receipt of withholdable payments on behalf of a foreigner or as a flow-through entity.

3. Who Needs to File W-8 Forms:

  • Foreign Individuals or Entities: Individuals or businesses lacking U.S. citizenship or residency but earning income in the U.S.

4. Consequences of Failure to Submit W-8 Forms:

  • Full 30% Withholding: Failure to submit the form may result in a withholding at the full 30% rate for foreign entities.

5. Validity and Filing Process:

  • Validity: All W-8 forms are valid for the year they are signed and for three full calendar years after that.
  • Filing Process: Forms are submitted to payers or withholding agents, not directly to the IRS.

6. Additional Information:

  • W-9 Forms: Contrasted with W-8 forms, W-9 forms are for U.S. citizens, resident aliens, or U.S. entities.

7. Determining Which Form to Use:

  • Nature of Income and Entity Type: Choosing the appropriate W-8 form depends on whether the filer is an individual or entity, the type of income received, and eligibility for special tax treatment.

8. Tax Rates and Treaty Benefits:

  • Tax Rates: W-8 forms help in determining applicable tax rates for foreign individuals or entities.
  • Income Tax Treaty Benefits: Some forms allow filers to claim a reduction or exemption based on income tax treaties between their country of residence and the U.S.

In conclusion, understanding the nuances of W-8 forms is crucial for foreign individuals and entities engaging in financial activities in the U.S. It involves careful consideration of the type of income, residency status, and adherence to IRS regulations to optimize tax withholding rates. Feel free to ask for more in-depth information on any specific aspect of W-8 forms or related topics.

W-8BEN: When to Use It and Other Types of W-8 Tax Forms (2024)

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