What, Why, When, And Who Needs Form W-8 BEN?


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I thought I would start off this post with how I started writing my blog and posting it on Twitter back in 2013. It is funny though isn't it, making this a "Back In The Day" post about Social Media, considering how quickly everything changes on Social Media? You see tax veterans jostling for space with not-veterans disbursing minuscule sound bytes of tax knowledge on popular platforms. I admit, I too have jumped on that wagon. I want to make sure I am one of the voices who talk about the right way of doing things without sensationalizing tax issues. 

Why are we talking about this? Lately, I have had individuals contact me asking about a US payor withholding 30% tax before disbursing their payments and what they could do to mitigate the withholding. On a closer look, we found that the payors DID NOT need to withhold 30% tax, but guess where they got their advice from? We will come back to that later. 

But first we will address the What, Why, When, and Who of Form W-8 BEN? 

WHAT? WHY?: Form W-8 BEN is required to be filed by foreign persons for claiming exemption from or reducing the rate of tax withholding  on their US source income under Chapters 3 and 4 of the Internal Revenue Code.

Chapter 3 deals with the source and types of income and chapter 4 deals with establishing status as a foreign person. 

Generally, these US income sources are:

  • Interest 
  • Certain OID Interest
  • Dividends
  • Rents
  • Royalties
  • Premiums
  • Annuities
  • Compensation for, or in expectation of, services performed
  • Substitute payments in a securities lending transaction
  • Other FDAP {fixed or determinable annual or periodic} gains, profits or income such as: 
    • Foreign partner's distributive share of income under §1446.
    • Amount realized from the transfer of partnership interest, if the gain from the transfer can be treated as effectively connected gain under §864.

The tax @ 30% is imposed on gross amount of payment and is generally collected by withholding at source under §1441 on the above types of income.

Other US income sources that may require a Form W-8 BEN are:

  • Broker proceeds;
  • Short-term (183 days or less) OID;
  • Bank deposit interest;
  • Foreign source interest, dividends, rents, or royalties;
  • Proceeds from a wager placed by a nonresident alien individual in the games of blackjack, baccarat, craps, roulette, or big-6 wheel; and
  • Amounts of United States source gross transportation income, as defined in section 887(b)(1), that are taxable under section 887(a).
WHEN?: Give Form W-8 BEN to the person requesting it before the payment is made to you, credited to your account, or allocatedThe payor retains this form in their records. It is not submitted to the Internal Revenue Service. 

Submit Form W-8 BEN when requested by the withholding agent, payer, or FFI whether or not you are claiming a reduced rate of, or exemption from, withholding.

The Form generally remains in effect for three calendar years starting with the period in which it was first provided. 

If there is a change in circumstances, the payor/ withholding agent must be notified within 30 days of the change. A new Form must be submitted. 

There are other expiration dates for purposes of chapter 4 and periods of validity for chapter 3. Links provided in Bibliography below. 

WHO?: You must provide a to the withholding agent/ payor/ payment settlement entity, the Form W-8 BEN if you are any of the following: 
  • A non-resident individual/ person who is a beneficial owner of an amount subject to withholding. 
  • An account holder of a Foreign Financial Institution documenting yourself as a nonresident alien. 
  • A Single owner of a Disregarded Entity. 
  • A seller of a life insurance contract under §6050Y. 
If you become a US citizen/ resident alien/ tax resident by passing the Substantial Presence Test, you will need to notify the withholding agent/ payor of the change within 30 days and provide a Form W-9 instead. 

Coming back to our story from earlier, the payors did not need a Form W-8 BEN because the income was not sourced to the United States. We needed to dig into the story a little bit to make sure that the income was not FDAP {fixed or determinable annual or periodic} gains, profits or it was not effectively connected income for US taxation. 

Guess that is a post for another day! 

As always, please consult with tax professionals who are knowledgeable with foreign income/ tax compliance if you have questions or any of the above applies to you. 

Our obligatory disclaimer is here. 



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