The W8-BEN-E Explained. Advice from an American Accountant.
As a business owner, knowing which tax forms you need to complete or to collect is vital and can be complex. The main US tax forms which are used in regards to employees is the W-8, W-9 and W-8BEN/ W-8BEN-E.
This article will focus on the W-8BEN -E.
If you are a business operating outside of the US and wish to claim tax exemptions on U.S. sourced income you must file a W-8BEN-E. Officially, the documents name is the ‘Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)”
According to IRS tax regulations, foreign companies trading in the US can be made exempt from the mandatory 30% withholding tax amount by filing the W-8BEN-E, if they are residing in a country that has a tax treaty with the US.
Below are the countries that have a tax treaty with the US:
Union of Soviet Socialist Republics (USSR)
What is the difference between a W-8BEN-E and a W-8BEN?
Many self-employed professionals initially come to us confused about the differences between a W-8BEN-E and a W-8BEN, and which one they are required to file.
The W-8BEN is a tax form, which also pertains to the 30% tax rate on foreign business entities. One of the main differences that split the W-8BEN and the W-8BEN-E apart is the reason they are used. The W-8BEN is used to establish that an individual is a foreign person who is subject to the 30% rate on domestic income earned by foreign businesses and to claim that the official owner of a business providing the W-8BEN is an NRA (non-residential alien).
The W-8BEN is also known as “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)”. Essentially, it serves an opposite function to the W-8BEN-E. Where the W-8BEN-E form exempts a foreign entity from the 30% tax rate based on a country’s treaty status, the W-8BEN form documents a business as owing the full 30% rate, and ensures that the tax is filed as payable.
Tips for self-employed professionals who are required to file form W8
Collect all tax and identification forms digitally, when possible, to reduce the risks of inaccurate data.
The W-8BEN-E is a relatively complex document with many different sections to be filled out, each requiring exact precision under penalty of law. Businesses should employ web-based questionnaires and other digital aids to ensure that the forms are properly filled out by payees.
Verify tax forms and information with data automation tools.
Leverage software that automatically tracks the latest changes and developments around tax regulations.
Contact us for expert accounting support on your US tax return