Nov 10, 2016

Form W8-BEN - Reduce US tax withholding

Form W8-BEN - Reduce US tax withholding

Foreign individuals are subject to a flat 30% withholding rate on income received from US sources even if they are not US residents or citizens.

A foreign individual can reduce this rate of withholding if their country of residence has a Income Tax Treaty with the USA, by completing a W8-BEN and submitting it to the payor/withholding agent.

The payor/withholding agent is responsible for ensuring the correct tax is withheld and paid over the the Internal Revenue Service (IRS). If thy fail to do this correctly they may be held personally responsible for the tax owed. Therefore, they use the W8-BEN to obtain certification from the payee to establish if they are US residents/citizens or are foreign nationals (subject to reduced withholding).

US residents and citizens file a W-9. The payor then is aware not to withhold the 30% as it applies to foreign individuals.

Is there particular income that is subject to the 30% withholding?

The 30% applies to foreign individuals on any US income sources. Some examples include:

Dividends
Interest
Rental Income
Royalties
Compensation for (or anticipation of) services performed
Annuities
FDAP income - fixed, determinable, annual or periodic

More information can be found on the IRS website - Withholding on Specific Income

Some sources of US income are not subject to the 30% withholding rate. Examples:

Certain gambling winnings - see blog post - Obtaining an ITIN for Gambling Winnings
Broker proceeds such as the sale of US stocks and securities
A foreign payor of interest, dividends, rents and royalties

You may still be asked to complete a W8-BEN for each of these at the request of the payor.

Can I get reduced tax withholding?

If you are resident in a country with a tax treaty with the USA then more than likely the answer is yes.

In order to claim the reduced withholding under the tax treaty you will need to complete a W8-BEN and submit it to the payor. The W8-BEN has to be signed and dated by the foreign individual or by an authorised agent as evidenced by a power of attorney (Form 2848).

You must:

Be resident in the treaty country
Be the beneficial owner of the income

Does the W8-BEN expire?

A W8-BEN that is completed without a US TIN remains in effect from the day it was signed until the last day of the third consecutive year.

A W8-BEN that is completed with a TIN remains in effect until a change in your circumstances make any of the details incorrect or invalid. This only applies if the payor issues an annual

1042-S showing at leas one annual payment.

How do I fill in a W8-BEN?

Part 1

Box 1 - enter you full name
Box 2 - enter your country of citizenship. If you are dual resident enter the country you are both resident and citizen at the time of completing the form
Box 3 - enter your permanent resident address (i.e. for income tax purposes)
Box 4 - enter a mailing address if different, else leave blank
Box 5 - if you have a US taxpayer umber enter it here (e.g. ITIN)
Box 6 - enter your UK national insurance number or country equivalent
Box 7 - enter your account number with the payor
Box 8 - enter your date of birth MM-DD-YYYY

Part 2

Box 9 - enter your country of residence on the dotted lines (i.e. the treaty country). Do not abbreviate.
Box 10 - enter the Article number of the treaty claim being made and the % withholding per the treaty. Next to explain reaons, you can leave this blank or fill in the reason.

Part 3