What is a W-8BEN Form and Who Needs to Fill It Out?

Welcome to our informative guide about how foreign income is connected to the W-8BEN Form.

Get all the information you need about the W-8 Forms and more. 

If you are employed in the USA but do not hold US citizenship, you are required to complete the W-8BEN Form. This document proves your foreign status and enables tax exemptions while categorizing you as a foreigner for appropriate taxation. 

Let's begin with a general overview of what W-8 forms are. 

What are W-8 Forms?

The W-8 forms are for foreign individuals and businesses to submit to confirm their country of residence for tax purposes, attesting to their eligibility for a reduced tax withholding rate (Internal Revenue Service). If you fail to submit this form, it may lead to a 30% withholding rate that applies to foreign entities.

Types of W-8 Forms?

There are five types of W-8 Forms:

1. "W-8BEN-E Form:" This form is for submission by foreign entities rather than individuals to save tax.

2. "W-8BEN Form:" It is the form for foreign individuals who obtain certain forms of compensation in the United States. They are required to submit the W-8BEN Form to gain leverage for tax savings.

3. "W-8ECI Form:" The Form W-8ECI certifies that a foreign individual's income is effectively connected to their trade, occupation, or business operations within the entity of the United States.

4. "W-8IMY Form:" The Form W-8IMY acts as the "Certificate of Foreign Intermediary," Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting.

5. "W-8EXP Form:" Certain payees use the Form W-8EXP to receive a decrease or exemption from tax withholding.

You must fill out all these forms with the correct details.  

What is a W-8BEN Form?

"The W-8BEN form; officially titled— "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting"; is used by non-resident alien individuals (NRA) for tax purposes in the United States of America." 

This form is submitted to a US bank or investment firm, to declare foreign status and possibly reduce or eliminate US tax withholding on specific income types. It confirms your status as the beneficial owner of the income for tax purposes.

NOTE: A current W-8BEN form is valid until three years after signing.

Check out this article if you are interested in learning what is FLSA (Fair Labor Standard Act in the USA).

Who Needs to Fill Out This Form?

Simply put, non-resident workers earning income from the US typically have five main types of income:

1. Rents of the houses
2. Royalties
3. Profits of Purchasing/Selling US Assets 
4. Interest payments
5. Dividends

The five types of income sources are significant, but if you claim tax treaty benefits (reduced withholding rates), you still need to file a W-8BEN Form.

What is the Objective of the W-8BEN?

The filled-out W-8BEN form indicates that:

1) You are not a citizen of the USA.

2) You own the revenue to which the form refers.

3) It is also used to take advantage of a lower withholding tax rate due to residency in a nation with whom the United States has a tax treaty.

What Happens if You Don't File?

The payer may withhold taxes at a higher rate (typically 30%) from your income.

Before jumping on the further details of the United States Taxation Policies, learn more about what is a work permit and how you get it in the USA.

It's essential only to submit the paperwork when asked by a party and fill it out before getting any compensation.

How To Fill W-8 BEN Form

If you are completing the W-8 BEN form yourselves, here are the steps you need to follow.

Step 1: Enter Legal Name

Don't forget to double-check the spelling.

Step 2: Mention your Current Citizenship

Your current nationality.

Step 3: Permanent Address

Your permanent address. 

Step 4: Mailing Address

Fill in your email address or an alternate email if you wish to receive documentation at an address different than your permanent address.

Step 5: US Taxpayer Identification Number

The US TIN should be left blank for most non-US persons and foreigners.

Step 6: Foreign Tax Identifying Number

This identification number is more likely to apply to you. Your nation of residency usually gives an FTIN (Foreign Tax Identification Number). For Indian citizens, this is the PAN. If you don't have one, explain why instead of leaving it blank (for example, "NA"). To obtain your FTIN number, please get in touch with your human resources department.

Step 7: Reference Number

The reference number is not required if you are an individual; you may leave this field blank.

Step 8: Date Of Birth

Fill out your date of birth in the format given in the form mm/dd/yy (self-explanatory).

Step 9: Treaty Claim

Certain countries have an income tax treaty with the United States. If you live in one of these countries and want to claim lower tax withholding rates, enter your country of residence in this step. If you have questions about the country's status, please get in touch with your HR department.

Step 10: Special Rates And Conditions

If you want to request exceptional withholding rates under specific treaty standards, go to the IRS instructions. If you encounter any problems, please contact your human resources department.

Step 11: Certification & Verification

Check that you format the date as follows: (MM-DD-YYYY). Sign the form; if you are not the beneficial owner, specify in what role you are acting (parent, legal guardian, etc.).

Are you interested in investing in the US stock market? 

If you wish to trade in the US stock market as a foreigner, you must fill out the W-8BEN form and tell the US tax authorities about your tax status. The form supports you in paying the appropriate taxes in the United States.

Which Countries Have Tax Treaties with the USA?

The United States (USA) has tax pacts with numerous foreign nations; affording individuals residing in qualified countries (regardless of their citizenship) the opportunity to potentially receive lower taxation rates on income originating from the U.S. Such countries include: 

• Canada 
• Finland 
• Israel
• Japan 
• Mexico 
• Philippines 
• Switzerland
• Turkmenistan 
• Venezuela and others

To claim tax treaty benefits under the Internal Revenue Code, individuals receiving eligible income must complete Form W-8BEN.

Filling out the W-8BEN Form before receiving any reimbursement is highly recommended, as it can prominently benefit those with non-residence income sources. 

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