Understanding the IRS W-8 Forms

Need to fill out and submit a W-8 form? Good news first: we can help you with it! But before that, here is an overview for you and anyone else interested: what these forms are, which types of W-8 forms exist and who needs to submit each one.

1What are W-8 forms?

W-8 forms are issued by the US tax authority, the Internal Revenue Service (IRS). Both foreign individuals who do not live in the US and foreign companies may need to submit them to prove their tax residence and to document that they qualify for a lower withholding rate (or even an exemption). The W-8 form asks for details about the person or company, where they are from and what income they earn.

So W-8 forms apply only to foreign individuals and foreign companies. The comparable IRS W-9 forms, by contrast, apply only to US citizens, resident aliens and US companies.

Foreign individuals or companies earning income in the US have to pay a 30% tax on certain types of income. If you want to reduce that withholding or be exempt from it altogether, you should use the right W-8 form. If you don't, the full 30% rate that applies to foreign companies and individuals may be withheld.

W-8 forms are issued by the IRS, but you don't send them to the IRS! Instead, they are requested and kept by the payers or withholding agents.

W-8 forms are fairly complex. Besides basic details such as name, country of origin and TIN (taxpayer identification number), they also ask, for example, about the sources from which the filer receives the reported income. It's no coincidence that many people bring in an expert to help fill them out.

Learn more about the purpose of W-8 forms here.

2Types of W-8 forms

There are five different W-8 forms:

• W-8BEN (W8 BEN)
• W-8BEN-E (W8 BEN-E)
• W-8ECI (W8 ECI)
• W-8EXP (W8 EXP)
• W-8IMY (W8 IMY)

Which form to use depends on whether you are an individual or an entity, what kind of income is earned and whether the organization qualifies for special tax treatment.

All W-8 forms are valid for the year in which they are signed and for the three full calendar years that follow.

Below, we explain the five types of W-8 forms in detail and when each one should be used.

3Form W-8BEN

Some people also know this form as the "Certificate of Foreign Status". It is meant for foreign individuals who receive non-business income in the US from US payers, in other words from US sources.

The standard rate that applies to foreign individuals on this kind of income is usually 30%. Examples include interest, dividends, rents, royalties, premiums, annuities and compensation for services.

The form proves that the person is both a foreigner and the beneficial owner of the income in question. It also lets them claim a reduction of or exemption from US withholding, provided they live in a country that has a tax treaty with the United States and the income falls under that treaty.

Foreign persons must give Form W-8BEN to the withholding agent or payer if they are the beneficial owners of income subject to withholding. Form W-8BEN has to be submitted whether or not a reduced withholding rate is claimed.

The form must be given to the payer or withholding agent before you receive any income or credits from them. So if you fill out Form W-8BEN as a PDF, you send it back to the payer or withholding agent, not to the IRS, which only issues the form. If Form W-8BEN is not submitted, you may end up paying either the full 30% rate or backup withholding under Section 3406.

Just as Form W-8BEN is used by foreign individuals receiving non-business income in the US, there is also a form for foreign companies receiving this type of income, namely

4Form W-8BEN-E

Form W-8BEN-E carries the unwieldy title "Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)". As mentioned above, it is submitted by foreign companies, not by individuals.

Non-business income earned by foreign companies is also normally subject to a 30% withholding rate in the US, withheld by the payer or withholding agent. With Form W-8BEN-E, however, foreign companies can claim a reduced rate if the country where the company is based has a tax treaty with the United States.

So what Form W-8BEN is for individuals, Form W-8BEN-E is for entities. It also covers the same sources of income. If a foreign company does not submit a correctly completed W-8BEN-E, it will generally have to pay the full 30% rate.

5Form W-8ECI

Now let's move from non-business to business income. That's what Form W-8ECI is for. It must be submitted by foreign persons (individuals and entities alike) who run a trade or business in the US and earn income from US sources.

This income is generally treated as "Effectively Connected Income", whether or not there was a connection between the income and the US trade or business in a given year.

The key point: this income is not subject to the same 30% withholding that applies to non-business income. Instead, after applicable deductions, it is taxed at the graduated rates paid by US citizens and resident aliens.

For your income to qualify as effectively connected income, or ECI, you generally need to have carried on a trade or business in the US during the tax year.

6Form W-8EXP

Form W-8EXP is intended for, among others, foreign governments, foundations and tax-exempt organizations, as well as governments of US possessions and foreign central banks. Accordingly, its full name is "Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting". Payees in this category use it to claim a reduction of or exclusion from withholding.

To receive a reduced rate or an exemption from withholding, an organization must qualify under IRS Code sections 115(2), 501(c), 892, 895 or 1443(b).

If none of these exemptions applies, the organization must file either a W-8BEN or, if it has received ECI, a W-8ECI.

Like every W-8 form, the W-8EXP must reach the payer or withholding agent before the income is paid out. If it doesn't, you may face withholding at 30 %, a backup withholding rate or the ECI tax rate.

7Form W-8IMY

This form certifies that a person or entity has received withholdable payments on behalf of a foreign person or as a flow-through entity. It is meant for intermediaries and should not be used by the beneficial owners of a business. Copies of withholding statements and other supporting documents should be attached when the form is submitted.

For a full list of the persons and entities that must file Form W-8IMY, see the IRS Instructions for Form W-8IMY.

8How W-8 forms are submitted

W-8 forms are sent out by the business making payments to the foreign person or entity. You return the form to the business or organization that sent you the W-8, not to the IRS, and normally before the first payment is made.

By the way, W-8 forms are not meant to be filed with a tax return either!

9A few examples

• A nonresident alien receiving interest or dividends from US-issued securities would most likely file Form W-8BEN;
• People receiving retirement income or doing occasional freelance work for US clients may also need to file Form W-8BEN if they want to reduce the tax withheld;
• A foreign nonprofit organization operating in the US may need to file Form W-8ECI;
• Money a foreign person earns by investing in a partnership engaged in a trade or business in the United States would likely also be treated as ECI;
• And finally: neither US citizens nor resident aliens need to fill out a W-8 form!

10Summary

So there is one form for foreign individuals earning non-business income in the US and one for foreign companies and other legal entities in the same position. Then, all else being equal, there is another for individuals engaged in a trade or business, plus one for foreign governments and other foreign organizations. And finally, a fifth W-8 form used by intermediaries receiving withholdable payments on behalf of a foreign person or as a "flow-through" entity.

The forms go to the payer or withholding agent, not to the IRS. They differ, but the key details required on all of them are the name of the person, company or organization, the address and the TIN. The same applies to online business: before you return an IRS W form to a US payer, have this information (name, address and TIN) ready, because without a valid form the payer withholds 30 % on many types of income.

Find out more about the W-8 form here.

11What this means for you

As mentioned at the start, choosing the right form and, above all, filling out W-8 forms correctly isn't quite that simple. That's what professionals like us are for. We're happy to help: our W-8 service handles it for you. Get in touch. You'll find all our tax topics in our Taxes hub.

In short

• There are five W-8 forms: W-8BEN for individuals, W-8BEN-E for companies, W-8ECI for income from a US trade or business, W-8EXP for governments and certain organizations, and W-8IMY for intermediaries.
• The form goes to the payer who requested it, not to the IRS.
• Without a valid form, the payer withholds 30 % on many types of income. With the right form, a tax treaty can lower the rate.
• A W-8 is generally valid until the end of the third calendar year after it is signed.

How we help you

• Withholding taxW-8 forms, withholding and treaty benefits, done right.
• Corporation tax returnForm 1120 and Form 5472 for your US corporation.
• LLC and LP Tax ReturnForm 1065 and K-1 for your LLC or LP.
• Your US Tax ReturnForm 1040 or 1040-NR, handled in English.
• US Tax ConsultationYour US tax question, answered by people who know both sides.