US Insights

Overview of the W-8 forms

There are three common W-8 forms, and each one is completed by a different type of non-US persons. They are:

• Form W-8BEN: This form is used by non-US individuals who receive income from the United States. This form is used to provide evidence that the individual is not a US person, proves the individual’s status as a non-US person for FATCA purposes, and gives the individual’s foreign Tax Identification Number (TIN), if any. The form is also used to request that a lower rate of US federal withholding tax be applied and includes details of the relevant tax treaty article and how the individual qualifies, if possible.
•  Usually, this form is completed by non-US individuals who have US investment or consulting income.
• Form W-8BEN-E: This form is used by non-US entities that receive income from the United States, or that have accounts with a foreign financial institution that reports to FATCA. This form proves the entity’s status as a foreign person and also gives information about the entity’s FATCA classification, such as what kind of foreign financial institution or non-financial entity it is. This form also gives the entity’s foreign TIN, if any, and its Global Intermediary Identification Number (GIIN), if applicable. This form proves that the income is taxed by the US on a net basis and asks for no withholding tax on that income and includes details of the relevant tax treaty article and how the individual qualifies for this treatment, if possible.
• Usually, this form is completed by non-US businesses who have business income such as income from selling goods or providing services to US-based customers.
• Form W-8IMY: This form is used by non-US entities that function as intermediaries, flow-throughs, or certain US branches that receive payments on behalf of non-US persons, or generally function as go-betweens for US payers and non-US persons. This form proves the status of the intermediary, flow-through entity, or branch, and gives information about their tax withholding and reporting duties. This form also gives the intermediary, flow-through entity, or branch’s foreign TIN, if any, and its GIIN, if applicable. These forms are usually accompanied by W-8BEN or W-8BEN-E form for the beneficial non-US owners.
•  Usually, this for is completed by a non-US partnership who has received a share of US investment of business income which will be allocated to its non-US partners.

While a non-US person must complete a W-8 Form, a US person would instead complete a W-9 Form.
The following table summarises the three different W-8 forms, who would use each form and the example situation:

How to complete and submit the W-8 series forms

Once a taxpayer has determined the correct W-8 form to complete, the following steps should be followed:

• Complete part 1 of the form with the name, address & identification details of the non-US person, business or entity.
• If completing W-8BEN-E and W-8IMY Forms, the US tax classification and the FATCA status of the non-US entity must also be disclosed.
•  If the non-US person business or entity qualifies for a reduction in US federal tax withholding due to a tax treaty, the country of residence of the non-US person business or entity, the type of income which qualifies for the withholding reduction, the relevant article and paragraph of the tax treaty and an explanation of why the non-US person business or entity qualifies for the benefit must all be included.
•  Sign and date the form, using the American date format. The form is signed and certified under penalty of perjury that the information on the form is true, correct, and complete by an authorised individual.
• Send the form to the US payer or financial institution that asks for it before any payments are made or any accounts are opened or kept. The form may need to be sent online or by mail, depending on the payer or financial institution’s preferences.
• The form is not sent to the tax authorities, but instead held on file by the US payor as evidence of the withholding rate they have applied.
• Keep a copy of the form and update it should there be any changes that affects the tax status or benefits. Send a new signed version of the form at least every three years, or more often, depending on the preferences of the payer or financial institution.
  Many of the relevant US tax and FATCA status and tax treaty qualifying criteria can be difficult to understand and apply, so you may want to ask a tax professional or a legal advisor for help if unsure how to fill out the form or what information to give.

When do Treaty benefits apply?

Tax treaties are agreements between two countries that aim to avoid double taxation and promote economic cooperation. The US has tax treaties with many countries, including the UK, which can reduce the amount of US federal tax withheld from payments of certain types of income, such as dividends, interest, royalties, or pensions. To qualify for these benefits, a taxpayer must meet the following criteria:

– The taxpayer must be a resident of the treaty country and not a US citizen or resident alien. This means the taxpayer must be liable to tax in the treaty country by reason of domicile, residence, place of management, or other similar criteria.

– The taxpayer must be the beneficial owner of the income, meaning the taxpayer has the right to use, enjoy, and dispose of the income without any restrictions or obligations to pass it on to another person.

– The taxpayer must satisfy any specific requirements of the relevant treaty article that applies to the type of income. For example, some treaties have a limitation on benefits clause that prevents treaty shopping, which is the practice of using a third country entity to claim treaty benefits that would not otherwise be available.

For example, suppose a UK resident receives dividends from a US corporation. The standard rate of US federal tax withholding on dividends is 30%. However, under Article 10 of the US/UK tax treaty, the rate may be reduced to 15% or 0%, depending on the circumstances. To claim this benefit, the UK resident must fill out Form W-8BEN and indicate that he or she is a resident of the UK, the beneficial owner of the dividends, and eligible for the reduced rate under Article 10. The UK resident must then give the form to the US corporation or its paying agent before the payment is made. By doing so, the UK resident can reduce the amount of tax withheld from the dividends and avoid double taxation in both countries.

Most common examples

The two most common scenarios in which we see our clients are required to complete a W-8 form are:

– When a non-US person opens an account with a US-connected financial institution, such as a bank or a broker. The financial institution needs to verify the identity and tax status of the account holder and report any relevant information to the IRS under FATCA rules.

– When a UK business engages a customer in the US who makes payments to the UK business for services or goods. The US customer needs to withhold tax at a flat rate of 30% on the gross amount of the payment, unless the UK business provides a W-8 form to claim treaty benefits. The treaty benefits reduce the withholding tax rate to 0%, 5%, or 15%, depending on the nature and source of the income.

A request for a W-8 form from a US customer is usually the earliest indication that the UK business has become engaged in a US trade or business, which may trigger US corporation tax obligations. The UK business should consider whether it has a permanent establishment in the US, such as an office, a branch, or an agent, and whether its income is ‘effectively connected’ with that permanent establishment. If so, the UK business may need to file a US tax return and pay tax on its net income from the US sources.

In summary

While a W-8 form is required when a non-US person opens an account with a US-connected financial institution, a request for a W-8 form is usually an indication that a UK business has US tax obligations and should consult a US tax professional.

The W-8 form allows a UK business to claim tax treaty benefits in order to reduce the US withholding tax rate on payments from US customers. Should a UK business fail to provide a W-8 form within the requested timeframe, it may suffer unnecessary US tax withholding on its income which may only be reclaimed by filing a US corporate tax return.

If you are asked to provide a W-8 form to a US-based client, do not hesitate to contact us for expert advice on completing the form and your US tax obligations.

How we can help

Our US/UK Trust and Family Wealth team is specialised in providing advice around trusts reporting requirements and can help plan distributions to US beneficiaries. As we have knowledge of trusts in both jurisdictions, we can help you mitigate double taxation and ensure any tax planning undertaken works in both jurisdictions.

Would you like to know more?

If you have any questions about the above or how it may impact you, please get in touch with your usual Blick Rothenberg contact or Michael Holland using the details on this page.

Personal tax is one of the most complex areas of wealth management and can significantly erode your wealth over time

Blick Rothenberg is considered to be market leaders in the taxation of non-UK domiciled individuals and offshore trusts, as well as cross-border personal taxation.

We have a strong base of clients in the UK and a broad and longstanding international focus too, acting for a large number of non-UK domiciled individuals and international families. So, we understand the complexities that US citizens face when living, working and operating businesses in the UK.

Whether you are a start-up entrepreneur, a wealthy family with complex affairs, or a business executive, our dual-qualified team of tax advisers will look after your US UK personal tax affairs as well as those of your business.

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