W-8BEN Form: What is it and How to Fill It (US Guide)
Regardless of where you may reside in the world, taxation is a messy, fussy, complicated subject that we all dread to face. And if you’re a small- to medium-sized business owner looking to reap the benefits of globalisation and expand your company onto the global marketplace, it’s especially important to understand how taxes work around the world.
If you’re a business owner looking to do business in the US, or a US-based company looking to hire abroad, you might have heard of the W-8BEN form. But what is Form W-8BEN, and what is it used for? Let’s take you through the ins and outs of everything related to the W-8BEN form, plus give you some pointers as to how to ensure that it’s filled out correctly.
What is the W-8BEN form and what is it for?
The W-8BEN form is a tax from the United States Internal Revenue Service (IRS) that is used to determine the foreign status of non-residents for the purpose of taxation. The official name for the form is “Certificate of Foreign Status of Beneficial Worker for United States Tax Withholding and Reporting (Individuals)”. We know that’s a mouthful, but hopefully, knowing the full, official name of the W-8BEN form can give a clearer picture of what it is for.
Basically, it’s a form that non-American individuals have to file in order to verify their country of residence with the IRS so that the agency can decide whether or not the person qualifies for a lower tax withholding rate.
Anyone residing within the borders of the United States, those who work there, and US citizens will always be subject to a specific US income tax rate. But, the so-called “Non-Resident Aliens” (NRA) who work for US-based entities but live outside the US are taxed at a different rate — subject to any agreements made between the US and the person’s country of residence. Filing the W-8BEN form will confirm the country of residence of the NRA so that the IRS can determine which tax rate applies to them. Note that the income tax rate relies entirely on the person’s country of residence and not the country of citizenship.
How is the W-8BEN form used?
The W-8BEN form doesn’t get sent directly from a worker to the IRS. Instead, the employer is responsible for giving their workers — whether freelance or contractor — the form to fill out. As a worker for a US company, they are perfectly within their rights to request the form from their employer before beginning any work. The employer then will have to use the tax rate determined by the IRS for withholding income for tax reasons, if any.
Those who live and work in the US or are US citizens shouldn’t fill out any of the W-8 forms. Instead, they are required to fill out the W-9 form for tax purposes. You can find the W-8BEN form from the IRS website here.
Who should file the W-8BEN form?
Again, only “non-resident aliens” should fill out and sign the W-8BEN form. This means that non-United States citizens who do not live in the US but work for a US-based company — regardless of whether they are freelancing or contracting. If none of those factors applies to the employee you are looking to hire, then you don’t need to provide this form to them.
We should stress that it is the responsibility of the company or business engaging with the foreign-based worker to provide the W-8BEN form for them to fill out. The tax relationship, so to speak, is legally between the US-based company and the IRS rather than the IRS and the internationally-based workforce. So, in order to keep up with the labour laws of the US while managing a compliant global payroll, be sure to send the W8-BEN form to those you’re employing as soon as possible.
How to fill out the W-8BEN form properly
While it’s the responsibility of the US-based company to provide their global workforce with the tax form, the responsibility of filling out the W-8BEN form lies solely on the worker. Companies are strictly not allowed to fill out the form on behalf of their employee, regardless of circumstance. Should the employee be incapacitated in any way within the 30-day timeframe required by the IRS for the W-8BEN form to be submitted upon hiring international talent, it is still the responsibility of the worker to have it filled out by a relevant third-party — such as a spouse, parent or caretaker, depending on the situation. The IRS should be informed of the reason why the worker is unable to sign the document for themselves, however.
With that said, you’ll need to ensure that the W-8BEN form is filled out properly once returned to you before sending it off to the IRS. To ensure that everything goes smoothly between your company and the IRS, be sure to inform your employee of this simple, two-step guide to filling out the W-8BEN form properly. For that reason, we’ll be writing directly to the worker or employee that needs to fill out the form within this section.
1. Correctly fill out the details requested
Not to sound like a broken record, but it is extremely important to ensure that every piece of information requested by the W-8BEN form is filled out as accurately as possible by the worker of a US-based company. If any information is incorrectly provided or if it’s not kept up to date, then there is a risks of the worker being subjected to higher tax withholding rates than necessary. Essentially, that means potentially less take-home income than they should be getting!
Hopefully, that hits home with the importance of filling out the W-8BEN form as accurately as possible. Plus, we should note that if their country of residence changes at any point after sending off and signing the form, the IRS requires them to provide an updated form within 30 days of the move.
In general, these are the pieces of information that the worker is required to fill out within the W-8BEN form:
- Full name, as per official identification document (written in Latin characters)
- Country of citizenship
- Permanent residence address (P.O boxes or in-care-of addresses are not acceptable)
- Mailing address (if different from residential address)
- If applicable, US Taxpayer Identification Number (ITIN) or Social Security Number (SSN) — more on this in a moment
- Foreign Tax Identifying Number
- Date of birth (written in the MM/DD/YYYY format)
- Foreign country for whose tax laws they claim benefit
- Withholding rates (if applicable)
If the work doesn’t have a US tax identification number, they shouldn't leave the area blank. In fact, they must do their best to avoid leaving any inapplicable section blank, aside from the section labelled “Part II – Claim of Tax Treaty Benefits”. Instead, write “not applicable” or “N/A” within those sections.
Also, if they currently reside in a country that doesn’t have an income tax, such as Bermuda, Brunei or the United Arab Emirates (home to Abu Dhabi, Dubai etc.) and therefore do not have a Foreign Tax Identifying Number, they will need to write “N/A” into section 6a of Part I and tick the box in 6b.
2. Sign the dotted line
This step might sound simple and straightforward — and essentially, it is — but they still need to take great care here. The W-8BEN form is an official government document for the United States and should be treated as such. They must be sure to use an accurate, long-form signature — such as those you’d use when signing up for a bank account or an insurance provider.
Sign where stated (they don’t need to tick the box above that space unless you are incapacitated and require assistance to fill the form), and date the form as close to the date they are returning it back to your employer as possible. The day itself is perfectly fine, but note that forms signed more than two months before returning will not be accepted by the IRS!
Types of W-8 forms
Whether you’re a US-based employer or an employee working for a US-based institution, you might have found that there are a number of “W-8” forms available from the IRS. For contractors, freelancers and non-resident global talent working for an American entity, only the W-8BEN form applies. However, let’s discuss all the forms that fall under the W-8 family of tax forms to better understand what they are and how they function overall.
Including the W-8BEN form, there are five W-8 forms in total. Each of the W-8 forms relate to any foreign persons or business entities that do business in any form with persons or entities based in the United States. In addition to being valid for the calendar year in which they are signed, all W-8 forms are also valid for the next three years unless there is a change in information.
With that said, let’s take a brief look at each of the five W-8 forms and try to break their purpose down into more understandable terms:
As we know from a majority of this article, the W-8BEN form is one provided to and signed by any non-US citizen who earns an income from the United States. Also known as a “Certificate of Foreign Status”, the form acts as proof that the person submitting the form is not a citizen of the United States and that their entity (through freelance or contracting) is also not based in the US.
Certain sources of income earned abroad that are paid by Americans are subject to a 30% tax rate. These sources include:
- Compensation for services rendered
You can use this form to request a reduction or exemption from U.S. tax withholding if you live in a nation with which the United States has a double income tax treaty, such as the UK, the Philippines or certain EU nations, and the income you earned is covered by that treaty. Residents (but not necessarily citizens) of these other countries may be eligible for a reduced rate of taxation or exemption from US taxes on certain types of income earned in the United States under the terms of various tax treaties. Be sure to double-check the full list of countries with tax treaties with the US to be aware of your rights and privileges!
While both Form W-8BEN and Form W-8BEN-E are titled "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting," the latter is used by foreign entities rather than individuals. When providing or receiving a W-8 form to fill out and sign, please pay special attention to the name on the top left corner of the form, lest you submit the wrong form to the IRS, which opens up quite a few problems to rectify!
The United States generally requires the payer or withholding agency to withhold 30% of the revenue generated by foreign enterprises, just as it does from foreign individuals receiving certain types of income. If the foreign company's home country has a tax treaty with the United States, however, it can use this form to claim a tax credit.
The list of income sources that qualify foreign entities to fill out the W-8BEN-E form is exactly the same as those listed above for foreign individuals filing the W-8BEN. Generally, the entire 30% tax rate applies to foreign entities that do not produce an accurate W-8BEN-E when obliged to do so.
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" (Form W-8ECI) is required for any foreign individual or entity seeking to avoid U.S. withholding taxes on income earned in the course of doing business in the country. Regardless of whether there is a relationship between the revenues and the trade or business undertaken in the United States in a given year, such proceeds are typically deemed "effectively connected income" (ECI), and non-US citizens need to fill out this form.
To qualify as ECI, you must have personally carried out trade or business in the United States during a single tax year. This may happen, for instance, if a foreign national worked as a personal service provider in the USA within the duration of the tax year — regardless of the length of time. It's not enough to just ship finished goods to the US; the services themselves must have been rendered there to be considered ECI.
However, unlike interest, rent, and other forms of non-business income, ECI is not subject to a 30% withholding rate. Instead, it's taxed at the progressive rate that residents and resident aliens of the United States pay after deductions. If your labour falls inside the jurisdiction of a U.S. tax treaty, you'll only be subject to the treaty's reduced rate of taxation.
Foreigners are not considered to be engaged in trade or business with the United States if their only source of income in the United States comes from trading stocks or commodities through a broker headquartered in the United States. Therefore, the broker may provide the client with the W-8BEN form rather, as the revenue won’t be classified as ECIs.r
Payees who are eligible for a reduction or exemption from tax withholding in the United States must file Form W-8EXP, formally known as "Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting," with their payers. Foreign governments, tax-exempt organisations, and foundations, as well as governments of U.S. possessions and foreign central banks of issue, fall under this category.
Organizations that meet the criteria of Sections 115(2), 501(c), 892, 895, or 1443(b) of the Internal Revenue Code are eligible for tax withholding exemptions and reductions. If neither of these applies, the company must submit a Form W-8BEN or, if it received ECIs, Form W-8ECI.
Form W-8EXP must be submitted to the payer or withholding agent in order to receive income, just like any other W-8 form. Failure to do so may result in tax withholding at the higher of 30% or the backup withholding or ECI rates.
To certify a foreign intermediary, foreign flow-through entity etc., use Form W-8IMY, or"Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches", for U.S. tax withholding and reporting purposes. The form is meant to verify that a firm or individual received withholdable payments on behalf of a foreigner or while acting as a flow-through entity. Owners of a company's beneficial interests shouldn't fill out the form, as it was designed for middlemen.
The entities that should submit a Form W-8IMY include, but aren’t limited to:
- Non-U.S. people (or U.S. branches located outside the U.S.) who represent themselves as QIs (qualified intermediaries) and agree to file a withholding statement in accordance with Sections 3402(a) and 3403(a) of the Internal Revenue Code.
- U.S. branches acting as an intermediary who seeks to verify their status as a U.S. person for tax purposes or record the receipt of payments for which they will provide a withholding statement.
- Flow-through entities that will be claiming tax benefits under a treaty or certifying that they will be providing a withholding statement
We know that was a lot to take in — tax can be a tricky thing to master, especially when you have to manage an international workforce in-house, including payroll and recruitment. One great way to avoid the headache altogether, especially if you’re the owner of a small- to medium-sized business, is to partner up with an efficient global outsourcing company that will be sure that your business maintains compliance, regardless of where in the world you might want to expand or seek talent!