When is a Form W-8 Required?

Tax Professionals Resource
August 8, 2012 — 2,545 views  
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A Form W-8 is an Internal Revenue Service (IRS) form that grants a foreigner exemption from certain United States information return reporting as well as backup withholding regulations. According to Investopedia, one of the main purposes of the W-8 form is to show mutual fund companies and brokers that a foreign investor is not subject to typical taxation practices. A foreign investor may not be subject to certain typical taxation practices including where tax is withheld from investment income, such as with dividends and coupon payments. A foreign investor will be held responsible for normal rates of backup withholding if a W-8 form is not provided.

The W-8 Series includes a variety of W-8 forms which handle several international issues. However, the form that is most commonly referred to simply as the W-8 is Form W-8BEN, or the Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. A foreign person or corporation will use this to certify their non-American status. A foreign person must provide a United States Taxpayer Identification Number if the income is not dividends or interest from actively traded investments.

The W-8BEN is typically requested by firms or brokers, not the IRS, and is used to lower withholdings from dividends from foreign nationals. A withholding agent will typically request this W-8 form from a foreign client and, by filling out this form, a foreign investor can potentially save a great deal from tax withholdings. While a withholding agent must usually withhold around 30 percent of the income distributed to a foreign national, a Form W-8 can allow a foreign person to claim tax treaty status.

However, foreign individuals who are receiving non-service payments and who want to claim a tax exemption because they are eligible for tax treaty status in the United States must complete the Form W-8BEN as well as Form 8233. These forms will be given to the withholding agent, not the IRS. A Form 8233 will also be provided by an individual who is a nonresident alien and who claims exemption from withholding on compensation for independent or dependent personal services performed in the U.S.

A foreign person and the beneficial owner of an amount subject to withholding are required to give Form W-8BEN to the withholding agent. The IRS states those who are not required to use Form W-8BEN include: US citizens, even those living outside the US, those who are a disregarded entity with a single owner who is a U.S. citizen, those who are nonresident aliens who provide Form 8233, those who are filing for a foreign government or international organization and who those are receiving income that is effectively connected with the conduct of trade or business in the U.S.

Tax Professionals Resource