The W-8 series of Internal Revenue Service forms all relate to U.S. tax withholding for non-U.S. individuals or entities. Depending on the countries involved, beneficial ownership, and type of payment, the tax withholding may be eligible for a rate lower than the standard 30 percent.
Although the W-8 is an IRS form, it's submitted only to payers that request it and not directly to the IRS – its primary purpose is to help brokers, mutual funds and other withholding agents apply the correct tax withholdings. Failure to submit the form as requested can result in a 30 percent tax withholding.
The IRS recently announced some updates to the W-8 in connection with the Foreign Account Tax Compliance Act (FATCA) for foreign individuals and entities. Here's a brief rundown:
- In general, a date of birth must now be provided
- Withholding agents must also obtain a foreign TIN if either:
- The foreign person is claiming a reduced rate of withholding under an income tax treaty and the foreign person does not provide a U.S. TIN as required to make a claim for certain payments
- The foreign person is an account holder of a financial account maintained at a U.S. office or branch of the withholding agent and the withholding agent is a financial institution disbursing U.S. source income payments.
- For beneficial owner withholding certificates furnished on or after Jan. 1, 2018, if a W-8 does not contain a foreign TIN, the W8 will be invalid unless the beneficial owner provides a reasonable explanation for its absence (such as that the country of residence does not issue TINs), which generally must be validated by the withholding agent.
Computershare has mailed out updated W-8 beneficial owner forms to those accounts for which a previously provided W-8 expires on Dec. 31. If such non-U.S. shareholder does not provide their date of birth or foreign TIN, as above, they will generally be subject to 30 percent U.S. withholding tax on distributions made after 2017.Variations of the W-8 Form
Managing the W-8 process can be tricky due to the multitude of different forms involved and the potential lack of clarity when dealing with non-U.S. residents and entities. However, it's important to stay on top of these regulations both for compliance and because of the large number of overseas shareholders of U.S. companies – nobody wants to pay more taxes than they have to!
There are several versions of the W-8 form. Let's take a look at each to help make sense of the alphabet soup of W-8 abbreviations:
- The most common form used by shareholders is the W-8BEN. It is used to certify foreign residency status of individuals for tax withholding on income and claim tax treaty benefits. In order for such investor to be eligible for a reduced withholding tax rate under a tax treaty with the U.S., such investor must be resident in such treaty country and must provide a tax identification number.
- There is also the W-8BEN-E, which is used by foreign entities to certify foreign status and receive certain tax benefits.
- The W-8ECI, which can be used by a non-U.S. individual or non-U.S. entity, certifies that the U.S. source income received from the withholding agent is effectively connected with the conduct of a trade or business in the U.S. (ECI "effectively connected income").
- The W-8IMY is for foreign custodians, nominees, agents or middlemen who act as intermediaries rather than as beneficial owners.
- The W-8EXP is used by an international organization, foreign government, foreign tax-exempt organization, foreign central bank of issue or government of a U.S. possession claiming exemption from U.S. withholding tax.
As always, we remind you that Computershare does not offer tax advice and nothing in this article should be viewed as such. For questions relating to taxes, you should contact your accountant or tax professional.