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What forms of W8 exist, and which is the best to shoose. W-8ben?

Tax specifics of getting a reduced tax rate (less than 30%)
Wyoming, Delaware, Law, Accounting, Nevada, Taxes, USA

 

Forms W-8 are filed by foreign individuals and corporations with their U.S. withholding taxpaying counterparts. The main purpose of completing it is to certify the country of residence for tax purposes and qualify for a reduced tax rate (less than 30%) under international treaties. You do not have to submit it to the IRS, but give it to a partner you cooperate with in the United States. Accordingly, they become the withholding tax agent because you received your source income in the States. 

 

Thus, Form W-8 should be filed by people who are not citizens/registered or domiciled/residing in the United States but who have worked and earned income from there. A U.S. resident does not need to file such a form.

 

What are the W-8 forms, and why is the W-8BEN popular in IT?

 

In general, there are 5 W-8 Forms to choose from, depending on whether you are an individual or an entity and the nature of the income received by the individual. They are valid for the year they were signed and another 3 years after that. As noted, the form is not required by the IRS, but by your counterparty in the United States:

 

  • The W-8BEN form is filed by foreign individuals who receive income in the United States. Such income can be in dividends, royalties, payments for services rendered, etc., and is taxable at 30%. By filing Form W-8BEN, a person is entitled to a reduced rate or exemption from taxation if an Income Tax Treaty is in effect between the United States and the country in which the person is located. Form W-8BEN-E is similar, except that businesses, not individuals, file it.

 

  • Form W-8ECI is filed by foreign individuals engaged in a trade or business and receive income from sources within the United States. Receipts of such income are also called “effectively connected income,” whether or not there is actually a connection between the trade/business and the income received in the United States in a particular year. The tax rate in such a case is not 30% but is a progressive rate paid by U.S. citizens and resident aliens. For your income to qualify as “effectively connected,” you must be engaged in a trade or other commercial activity during the tax year.
  • Form W-8EXP is used by some recipients of U.S. payments to reduce or exempt from taxes. These include foreign governments, foundations, tax-exempt organizations, and foreign issuing banks.
  • Form W-8IMY is filled out by intermediaries, and its purpose is to certify that the entity or individual received payments that are taxable on behalf of the foreign person. 

 

For example, foreign persons or foreign branches of U.S. persons may certify that they are qualified intermediaries (QIs), do not act from their own account, and provide the statement of withholding tax required by the IRS Labor Code.

 

So filling out Forms W-8 is very important because it determines the tax rate for your U.S. income. Which form to choose is an individual question. We strongly recommend that you consult with a professional who will analyze your case and help you fill out/submit all the necessary paperwork correctly.

 

IMPORTANT!

 

An incorrectly filled-out form can lead to fines and other legal consequences in the future!

 

The Finevolution team will be happy to help and advise you on filling out and filing Forms W-8, W-8BEN, W-8ECI, W-8ECI, W-8EXP, W-8IMY, and on registering a company in the United States and opening a bank account. 

 

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