The final form we will discuss as part of our blog series on corporate international tax issues is Form W-8. These are a series of IRS forms that are used by foreign individuals or entities to document their foreign status or make a claim of treaty benefits (if applicable). Although the forms are IRS forms, they generally are not submitted to the IRS.
The form is required to be submitted to a payer when non-resident aliens and foreign businesses earn income from U.S. sources and provides documentation that these individuals and businesses should not be taxed in the same way as U.S. persons.
There are several versions of W-8 forms that could be required to be filed. The two most common types of Form W-8 are the Form W-8BEN and W-8ECI.
Form W-8BEN is for individuals and form W-8BENE is for entities. W-8BEN is commonly requested by withholding agents, usually firms or brokers. It is completed by foreign individuals and is used to claim a tax-treaty benefit to eliminate or reduce the 30% withholding.
Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S. sources that consists of interest, dividends, rents, royalties, premiums, annuities, compensation for services performed, or other fixed of determinable annual or periodical gains, profits, or income. Essentially, most types of income are subject to the 30% withholding. An important point to note is that Form W-8BEN should be provided to the withholding agent or payer before the income is paid.
Form W-8ECI, the next most common W-8 form, is to be completed by any foreign person or organization which is receiving a payment and claims that the income is effectively connected with the conduct of a trade or business in the United States. The form is also submitted to the payer to establish that the person is not a U.S. person and that they are the beneficial owner of the income.
There are two other versions of form W-8 that may not be as common—Form W-8IMY and Form W-8EXP. In general, a W-8IMY is to be submitted by a foreign person to establish that she is a qualified intermediary who is not acting for her own account. The form should be provided when receiving a reportable amount or withholdable payment on behalf of another person or as a flow-through entity. W-8EXP forms are filed by entities such as foreign governments, international organizations, foreign tax-exempt organizations, and foreign private foundations.
Due to the complexities of the various versions of W-8 forms that need to be filed timely and before receipt of payment, it is best to consult your tax adviser on these issues.