Last Updated: February 2, 2023
Are you a foreign national or business earning an income in the US? The good news is that you may be exempt from withholding taxes or be eligible for a reduced withholding rate based on the tax treaties your country of residence has with the US.
In this article, you’ll find out what is a W8, how to file it, different types, the difference between a W8 and W9 form, and more.
What Is a W8 Form?
A W8 form is a form required by the Internal Revenue Service (IRS) to be filed by both foreign individuals and businesses in order to verify their country of residence for tax purposes. In other words, it is filled out and filed by foreign individuals or companies who lack US residency status but have worked or earned income in the US.
However, although they are issued by the IRS, W8 forms are only submitted to payers or withholding agents.
Individuals who are residents or resident aliens do not have to file a W8 form.
Among other things, the main purpose of the W8 form is to help certify that these individuals or businesses qualify for a lower tax withholding rate under any applicable tax treaties. They are used by these entities to claim an exemption from certain tax withholdings on their income within the US. If not filed, the entities in question will be required to pay the standard 30% tax withholding rate on certain incomes.
If the applicable W8 form is not submitted to the payer or withholding agent beforehand, then you could be required to pay the 30% rate or a backup withholding rate.
The types of income that typically fall under the 30% tax withholding rate are:
- Compensation for services rendered
Entities from countries that have tax treaties with the US may enjoy lower tax withholding rates on types of income that are exempted from tax withholding or qualify for lower rates. Different countries that have tax treaties with the US may have different terms and enjoy different tax benefits. You can find a complete list of countries with tax treaties here.
As such, they are a critical part of a foreign individual or business’ tax minimization strategy.
Now that you know roughly what a W8 form is, let’s get into more detail regarding the types of forms, how to file them, and everything else you need to know.
W8 Form Types
So, what is a W 8BEN? Well, there are 5 different types of W8 forms that apply to different types of businesses or entities, depending on their status, country, and income-generating activities in the US. Entities must file the correct form in order to qualify for a possible exemption or reduced tax withholding rates.
This form is titled “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting.” The form applies only to foreign individuals who earn certain types of income in the US – not businesses or other entities. Importantly, this form must be submitted regardless of whether you are claiming an exemption/rate reduction or not.
However, the main purpose of the W8 BEN form is to establish eligibility for a tax withholding exemption or rate reduction.
Like all W8 forms, it must be submitted to the payer or withholding agent prior to receiving income or credits. Otherwise, you might be subject to the 30% tax withholding rate or the backup withholding rate under section 3406.
The form establishes that the applicant is a foreign individual as well as the owner of the business in question. So, by filling this form, you can either claim an exemption/reduction in tax based on not deriving income from one of the sources above or due to your country of residence’s tax treaty with the US.
This document is titled “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities).” Whereas the purpose of W8 BEN is to help individuals apply for exemptions or rate reductions, the W8-BEN-E does the same for businesses.
Typically, income for foreign businesses is also withheld at a rate of 30% if no W8-BEN-E is submitted and there are no applicable exemptions or special rates due to relevant tax treaties. The form applies to the same sources of income as the W8-BEN form.
It’s not much more complicated to file than the W8-BEN and can easily be done with the help of some of the tax software for businesses around today.
Titled “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,” this form applies to foreign persons who engage in trade or business within the US from which they derive an income.
Proceeds that are considered “effectively connected income” (ECI) are generally not subject to the same 30% tax withholding rate that applies to interest and rent. Your tax will then either graduate to the rate paid by residents or resident aliens or to the lowest rate under the applicable tax treaty. Trading of securities or commodities through US brokers does not fall under this form.
This form is titled “Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting.”
Another purpose of the W8 BEN form is to simply verify your identity as an income-earning foreign entity. However, a W8-EXP is filed by payees to directly apply for a tax reduction or exemption from the withholding rate.
Payees that may file this form to apply for exemptions include foreign governments, foundations, and tax-exempt organizations, as well as governments of a US possession or foreign central banks of issue. Eligible entities are determined under IRS codes 115(2), 501(c), 892, 895, or 1443(b).
Form W8-IMY has the lengthy title of “Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting.” This form is filed only by intermediaries that receive withholdable income on behalf of other foreign persons or businesses and is not filed by the ultimate recipients of said income.
US branches of foreign businesses can also submit a W8-IMY. Of course, documents that prove the role of the submitter as only being an intermediary are required.
|A W8 form is used by foreign individuals or business entities that derive an income from the US.|
|The form is used to establish eligibility and apply for the exemption or rate reduction of tax withholdings on this income, particularly where tax treaties with other countries apply.|
|W8 forms are issued by payers or withholding agents and filed with them. They are not filed or submitted to the IRS.|
|There are five different W8 forms that apply under different circumstances and for different entities: W8-BEN, W8-BEN-E, W8-ECI, W8-EXP, and W8-IMY.|
|W8-BEN is the simplest and most common type of form filed by individuals that earn income from sources in the US.|
|All W8 forms are valid for the year in which they are signed and for three full calendar years after that.|
How to File a W8 Form
The information required and the complexity of filling out and filing a W8 form varies significantly depending on which form applies to you. Depending on the exact form, you may also be required to include various other documents, such as withholding receipts and other forms of proof with your submission.
Below are the step-by-step W8 BEN instructions for filling in and submitting the form.
1. Fill in Your Personal Details
- Provide your full name
- Enter your citizenship
- Provide your address of residence
- Provide your mailing address
- Enter your US taxpayer identification number (SSN or ITIN) – if applicable
- Fill in your reference number
- Provide your date of birth
2. Claim Tax Treaty Benefits
- State the name of the country under which you are claiming tax treaty benefits
- Enter the article and paragraph of the treaty under which you are claiming benefits
- Enter the percentage of the withholding tax rate that you are claiming
- State the type of income you are claiming for
- Provide an explanation as to why you are eligible for the benefits under the specific article and paragraph
- Carefully read the penalties of perjury
- Provide your official signature and write your name in print
- Enter the date of signature
If you’re concerned about how to do taxes by yourself, the good news is that the W8 form instructions are fairly straightforward. However, others might be harder to complete and to establish eligibility for.
As mentioned, W8 forms are not submitted or requested by the IRS and do not form part of your tax returns. Instead, they are usually requested by payers from which you derive taxable income or credits. If they are not requested, you should take the initiative and submit the application form to any of your beneficiaries where it may be required for tax withholding purposes. This applies to all W8 forms.
What Happens if You Don’t Submit a w8 Form?
So, now that you know what a W8 form is used for you might wonder what are the consequences for not filing it.
Simply put, if you do not submit a W8 form, you might be charged the 30% tax withholding rate for income derived from the US by foreign individuals or entities. This means you’ll receive your income or payment minus the 30% tax withholding rate imposed by the IRS or the backup rate under section 3406.
That is why the application form with its reasons for exemption/rate reduction must be filed with your payers before receiving any payment.
W8 vs W9 Form: What’s the Difference?
Since they share similar codes, many people find it hard to differentiate between W9 vs W8 forms as well as to understand which one they need to file. Their names might be close, but these forms don’t have the same purpose.
A W9 form is an IRS tax form that is used to confirm a person’s name, address, and taxpayer identification number (TIN) for employment or other income-generating purposes. The details in this form are used to generate a 1099 tax form, which is required for income tax filing.
A W9 form is provided to employees from an employer to verify the identity of the employee for tax purposes. Unlike a W8 form, it plays no role in applying for tax exemption or rate reduction status.
So, if you’re wondering whether you should complete and file a W8 or W9 form, it simply comes down to your residency status. If you have US citizenship or you’re an alien resident, you need to file a W9 with your employer.
In short, if you are a foreign individual or company that earns income from sources in the US, you need to complete and file a W8 form with your payers or withholding agents. There are different types of W8 forms that apply in different circumstances to different entities. You should always be aware of any possible tax treaties your resident country has with the US in order to apply for exemptions or rate reductions from your tax withholdings.
The W8-BEN-E form is the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting” that applies to foreign businesses that receive income originating in the US. It establishes the identity of the beneficial owner and business and provides the opportunity to apply for tax withholding exemptions.
There are different types to consider that apply to foreign individuals, businesses, or other organizations with income-earning activities in the US. The five types are W8-BEN, W8-BEN-E, W8-ECI, W8-EXP, and W8-IMY.
Knowing what is a W8 or W9 form and which one to file is vital if you want to avoid filing mistakes. W8 forms are filled in and filed by foreign entities that earn income in the US and filed with payers or withholding agents. W9 forms are filed by employees who are US citizens or resident aliens to their employers in order to verify their identity for tax purposes.