Appropriate Use of a Form W-8Tax Professionals Resource
September 4, 2012 — 1,422 views
If you are a foreign citizen but earn money from a company based in the
United States, you are generally liable to pay income taxes of up to 30 percent
on your earnings. However, the federal government has made special tax treaty
agreements with some countries that allow individuals and businesses to claim
an exemption from this high rate of taxation. In order to avoid problems with
the Internal Revenue Service (IRS), eligible foreign parties must file a form
The form W-8BEN, also known as the Certificate of Foreign Status of Beneficial
Owner for United States Tax Withholding, can only be used in certain
circumstances. In those circumstances, it is used to prove that an individual
or corporation is not a citizen or U.S.-based entity and is
not liable to pay some taxes on income made in the U.S. or while working with
an American company.
Individuals and companies who wrongly or mistakenly file a form W-8 may be
subject to backup withholding by the IRS, so it is important to understand the
circumstances under which you should file this form. Carefully evaluate the
following information and decide if you need to file a form W-8.
If you are a resident alien or are considered a resident according to IRS
guidelines, do not file a W-8. The IRS and the United States Customs
and Immigration Service (USCIS) have slightly different definitions of what
constitutes a resident for tax purposes. If you are in the process of
immigrating to the U.S., you should call the IRS to garner further information
about your status wherein filing taxes is concerned.
If your government has a tax treaty with the U.S., you should file a form
W-8. If the country of which you are a resident has an established tax
treaty with the U.S., it is important that you file a W-8 form in order to
avoid being held liable for paying a higher rate of income taxes.
You should generally avoid filing a W-8 form if you are an owner or partner
in a U.S. business. If you own a business in the U.S. either partially
or wholly, you should not file a W-8 form. Instead, you should consult with a
qualified tax attorney who can lead you through the process of determining
which income tax forms you must file in order to comply with IRS regulations.
Failure to file the correct forms may result in the loss of your business.