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What Is Form W-8BEN & What Is It Used For?

You are earning an income here called 'U.S. source income' being a Non-U.S. resident. As per U.S. tax law if a non resident earns an income in U.S., then the payer (U.S. PERSON) will be withholding 30% tax in advance from any payments made to Non-U.S. resident and it will be treated as a full and final payment of tax liability...which simply means that you (Non-U.S. resident) is not supposed to file U.S. tax return for that year.

But they have an alternative in the form of this W8-BEN form to allow you to file it with your payer (U.S. Person) so that the payer does not withhold 30% tax at source. But do remember that in this case you will have to file U.S. income tax return for that year.

The purpose of the W8-BEN is to:

1. Establish that someone is a foreign person (certificate of foreign status). It is used at audit time to support a 30% tax rate.

2. Claim that an NRA is the beneficial owner of the income for which Form W-8BEN is being provided.

3. Claim a reduced rate of, or exemption from withholding as a resident of a foreign country with which the United States has an income tax treaty.

US Source Income Subject to Withholding Tax

Listed below are some types of income that are subject to withholding when paid to non-US persons, if the payments are from US sources: Certain kinds of Interest (including certain original issue discount / OID); Dividends; Rents; Royalties; Premiums; Annuities; Compensation for, or in expectation of, services performed; Substitute payments in a securities lending transaction; or Other fixed or determinable annual or periodical gains, profits, or income.

Certain types of US source income are not subject to foreign-person withholding. Some examples of such income are:

• Broker proceeds (e.g., sales of US stocks / securities)

• Short-term OID (183 days or less)

• Bank deposit interest

• Foreign source interest, dividends, rents, or royalties

• Proceeds from a wager placed by a nonresident alien individual in the games of blackjack, baccarat, craps, roulette, or big-6 wheel (a later blog post will cover US tax issues on gambling winnings of foreign persons)

However, you may still be required to submit Form W-8BEN to claim an exception from US information reporting and so-called “backup withholding” for these types of US source income.

How Long is the Form W-8BEN Valid?

The Form W-8 BEN must be kept up-to-date. If it is not, the foreign person may find that the agent has wrongfully withheld tax on the income. It is quite time-consuming, costly and cumbersome to get wrongfully withheld amounts refunded from the IRS.

Generally, a Form W-8BEN provided without a US “Taxpayer Identification Number” (TIN) will remain in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. For example, a Form W-8BEN signed on September 30, 2008, remains valid through December 31, 2011. A Form W-8BEN with a US TIN will remain in effect until a change of circumstances makes any information on the form incorrect, provided that the withholding agent reports on Form 1042-S at least one payment annually to the beneficial owner.

For more updated information about Form W-8BEN, Pls reach out to our team and we will be happy to assist you on this, for more info Contact Us

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