What is Form W-8BEN, and why is it so important?

If you use an FMS like Liquid, you should be able to request W-8 forms from your international freelancers/vendors and store the forms securely online . Learn about IRS Form W-8, required when you make payments to foreign freelancers and vendors. Other parts of the form will only be completed if required, based what is a w8 form used for on certain selections made in the above requirements. This is why it’s important to understand the form, so you know what other sections should or should not be completed by the foreign entity. If you’re not a resident of the country where you have citizenship, you should enter your country of residence .

• An EOR ensures that you remain compliant with all local laws and regulations.
• The IRS website provides instructions to help you fill out the W-8BEN-E form.
• The beneficial owner is the name given to individuals required under U.S. tax law to pay taxes on their gross income.
• Once you receive the form from the foreign entity, there are certain steps you’ll need to take.
• Barbara has an MBA degree from The University of Texas and an active CPA license.

You may need this information later on when filing your taxes or if you need to provide evidence that you attempted to submit the form if the party never receives it. Some tax treaties have a saving clause to prevent U.S. citizens or residents from taking advantage of the tax treaty to avoid taxation on their in-country income. Any entity that wants to claim treaty benefits should complete Form W-8BEN-E. Nonresident aliens who have worked in the US, or have received income from US sources, should complete W-8 forms.

Form W-8EXP

Should none of those exemptions apply, the entity must file a W-8BEN or W-8ECI (if it received “effectively connected income”). Crucially, ECI is not subject to the same 30% withholding that applies to interest, rents, and other nonbusiness income. Instead, after subtracting applicable deductions, it is taxed at the graduated rate that U.S. citizens and resident aliens pay. If your work is covered by a U.S. treaty, it would be taxed at the lowest rate under that treaty. These proceeds are generally considered “effectively connected income” whether or not there is a connection between the income and the trade or business being conducted in the United States in a particular year.

Provided none of your details on the form change, your W-8BEN should be valid for up to three calendar years after the completion date. When filling out the form, you will be asked for some straight-forward information such as your name, country of citizenship, and mailing address. Form W-8BEN will be sent by the organization that is making payments https://www.bookstime.com/ to you. The US has more than 65 open tax treaties with countries around the world. The W-8 forms are notoriously tricky for nonresidents to complete. I previously showed you how to complete the W-8 BEN form which is for individuals and sole proprietorships. Please refer to the individual instruction forms for specific details about each W-8 form.

What is a W-8 BEN Form?

They are only for foreign people and/or entities without citizenship or residency—a US resident or resident alien will never be required to fill out a W-8 tax form. The W-8BEN is used to confirm that a vendor is a foreign person and must be provided even if the vendor is not claiming a tax treaty reduction or exemption from withholding. Therefore, all foreign vendors must provide a W-8BEN even if no ITIN or SSN exists, unless another W-8 series form is provided.

• It is important for Non-Resident Aliens as they might be subject to a 30% tax withholding on their U.S. sourced income.
• This form is not sent to the IRS, rather it is used by the withholding agent for purposes of payment and withholding regulations.
• If you do not provide the appropriate W-8 form when expecting payment from your US client, they may withhold some of the overdue funds to pay tax on your behalf to the IRS.
• Because entity income is typically more complex than individually-sourced income, your best option is to work with a professional familiar with your entity’s financial situation and countries of operation.
• Vanderbilt’s online Business Visitor Questionnaire should be completed and submitted as soon as possible and can be submitted up to 30 days before services are provided in the USA.
• Larger US clients are more likely to ask you to provide and fill out the W-8BEN-E form.
• Know when to request the form, what it includes, and best practices for digital documentation.

The same is true of foreign corporations sending you a W-8BEN-E form. Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll. Please declare your traffic by updating your user agent to include company specific information. Unless you have a local legal entity, an EOR is the only way to employ workers abroad.

PART II: Claim of Tax Treaty Benefits

The Internal Revenue Service, America’s tax authority publishes all of its forms and instructions at , including the W-8BEN form and Instructions for Form W-8BEN. That the individual in question is the beneficial owner of the income connected to Form W-8BEN. One option is to establish a local legal entity in the country where you will be hiring workers. If establishing a legal entity doesn’t make sense for your situation, you can work with an EOR, which will allow you to hire and onboard international employees in days instead of months. If a worker does not fill out Form W-8 BEN, they are subject to a tax rate of 30%, even if they qualify for a lower rate. Without the form, they may not receive all of the money to which they are entitled. Workers should return forms to the requesting body, usually an employer or withholding agency.

It is taxed at 30%, unless a tax treaty specifies otherwise. The specific W-8 form used by the international vendor depends on the type of payment being paid and the status of the business itself. Form W-8BEN-E is valid for three calendar years after the end of the year the form was signed. For example, if a foreign entity gave you a form signed July 1, 2021, that foreign entity’s W-8BEN-E would be valid until Dec. 31, 2024.