Form W-8 BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)) is a document certifying that an individual who is not a U.S. citizen or resident alien is entitled to certain benefits under the Internal Revenue Code.
The form is used to certify that a person’s country of residence for tax purposes is not the United States. It is important for Non-Resident Aliens as they might be subject to a 30% tax withholding on their U.S.-sourced income. It allows foreign persons to claim a reduced withholding tax rate because they’re residents of a foreign country with which the U.S. has an income tax treaty.
If you’re a foreigner earning an income from a U.S. company, you will most likely be asked to complete this form and submit it back to them, because of the compliance requirement from the Internal Revenue Service (IRS).
What benefits can I get from it?
In the case of Canada, the W-8BEN form can be used to claim a reduced withholding rate on dividends, interest, and other types of income under the terms of the U.S.-Canada Income Tax Treaty. By submitting a properly completed W-8BEN form, a Canadian beneficial owner can reduce the amount of tax withheld on their U.S.-sourced income. However, to be eligible for the reduced withholding, certain criteria must be met, and the form should be filled with accuracy, any invalid information would lead the form to be rejected.
This is a significant advantage, as the withholding tax rate is normally 30%. By filing an updated Form W-8BEN, you could benefit from a reduced tax rate of either 15% on dividends or 0% on interest.
The completed W-8BEN form confirms:
1) That you are not a resident of the United States;
2) That you own the income to which the form relates;
3) It is also used to take advantage of a reduced rate of withholding tax by virtue of being a resident of a country that has a tax treaty with the United States.
How to file Form W-8BEN?
This form is requested by the payer who’s paying you. 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 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.
Once you file form W-8 BEN, this form is good for the next three years and this form goes to the payer in the U.S. who is paying you. This form doesn’t go to the IRS and this form is only for foreign nationals. It’s not for a US citizen – a US citizen would file from W-9 instead.
How to complete form W-8BEN? Step-by-Step tutorial
In the first part, you enter your name.
Box 2 is your country of citizenship
Box 3 is your address
Then coming to box 5, if you do not have a U.S. social security or an ITIN, you can leave that blank.
Box 6a is your foreign tax identification number so if say you are from Canada you could always put your SIN number over here or any tax identification from any foreign country that you have from your resident country.
Box 8 is your date of birth
Now the most tricky part of this form is part two and how do you complete that will definitely show you how to do that in an easy way so in this case our beneficial owner is a resident of Canada so we put the name of the country you can put whatever country you’re from or here and then coming to box 10 so in our case our owner is from Canada we have to see the treaty between Canada and the United States and in that we need to figure out for royalties what section of your treaty applies and what is the percentage of tax that the payer has to withhold.
Publication 901 – Tax Treaty Tables – can be used as a shortcut to find the appropriate treaty rate. In our case, it would be zero or 10 percent.
If receiving interest and you are a resident of Canada, the rate would be zero.
How to complete form W-8BEN-E
I previously showed you how to complete the W-8 BEN form which is for individuals and sole proprietorships.
The W-8 BEN-E form is for business entities like corporations and partnerships and is much longer and honestly feels quite intimidating because it’s 8 pages long there are many scenarios when completing the W-8BEN-E form.
I’m going to cover one of the most common scenarios that are applicable when a corporation is requested to complete form W-8BEN-E.
In line 1, enter the name of your organization.
In line 2, enter the country of incorporation.
In most cases, you can leave line 3 blank.
In line 4, check this box for a corporation.
In line 5 check this box for active NFFE which is a non-financial foreign entity.
An active NFFE is any entity in which less than 50 percent of its gross income for the preceding calendar year is passive income and less than 50 percent of its assets are assets that produce or are held for the production of passive income (i.e. cash, investment securities).
And here it tells you that you need to complete part 25.
But first, let’s continue to complete part 1. Let me scroll down to line 6 and enter the permanent residence address of your organization. You can leave line 7 blank if your mailing address is the same as your permanent address.
Lines 8 and 9a can be left blank.
In line 9b for foreign tin or tax identification number: enter your business number in Canada you’ll be assigned a nine-digit business number.
In line 10 you can leave it blank.
Part 2 is not applicable
Part 3 is related to claiming tax benefits. Canada has a tax treaty with the U.S. so you can avoid double taxation by checking this box. For line 14a, enter the name of your country in my case Canada. Check this box for line 14b, which is related to U.S. tax treaties that have limitations of benefits article as is the case for Canada.
In line 15 enter article 7 business profits and enter 0 for percentage rate of withholding enter services for type of income and for the explanation you can write something like the beneficial owner has a permanent establishment only in Canada and all work is performed in Canada as per article 5.
Next, you can skip all of these parts of the W-8 BEN-E form and then go straight down to part XXV which is active NFFE and check the box on line 39.
Finally, we can scroll down to part XXX which is certification make sure that you read all these declarations enter your signature in this area, print a name here, enter the date and finally check this box certifying that you have the capacity to sign for the entity and that’s pretty much it.
Why do I have to complete the W-8BEN form?
Due to agreements between the Canadian and US governments, account holders are required to file Form W-8BEN even if they do not hold any investments in the United States. Additionally, the U.S. Internal Revenue Service (IRS) requires U.S. securities brokers to obtain a W-8BEN form from all holders of a Tax-Free Savings Account (TFSA) or TFSA. a Registered Education Savings Plan (RESP) who wish to trade in US securities.
Note: If you are a citizen or resident of the United States (or if you opened your account in the name of a United States partnership, corporation, estate, or trust), you would file Form W-9 instead of Form W-8-BEN.
What happens if my W-8BEN form expires?
If your Form W-8BEN expires and you do not file another, any U.S. source income you receive will be subject to a withholding tax rate of 30%. In addition, your account may be subject to restrictions.