Whilst one of the most common US tax forms seen amongst non-US persons, Form W-8-BEN leaves many of those who are asked to fill one out, scratching their heads.
Fortunately, at The US Tax Team New Zealand, we are experts in this area, and assist a large number of clients each year with Form W-8-BEN submission.
In our brief article below, we’ll explain a little further about Form W-8-BEN, what it is, and why it needs to be filed.
What is the purpose of Form W-8-BEN?
Form W-8-BEN is part of a wider family of forms, including Form W-9, W-8-ECI and W-BEN-E amongst others.
These forms all serve a similar purpose, to advise the payor of income at what rate tax should be withheld from payments.
The United States has a rigorous system designed to create efficiency and compliance from a tax collection perspective, whereby any payor of income is required to determine the tax status of the individual or company they are paying.
Tax is then withheld automatically from any payments made to the person or company, simplifying the tax collection process.
For US based persons, this is of course quite straight forward, and no different to an NZ bank asking your tax rate for interest. However, for non-US citizens, this can become complicated.
Of course, for a Kiwi individual or company receiving payments from the US, having tax withheld that is incorrect is less than ideal.
Who needs to submit Form W-8-BEN (or its variants)?
Any non-US person, company, trust or other entity must submit Form W-8-BEN (or its variants) to the US payor of income.
For example:
- a Kiwi receiving dividends from a US investment
- An NZ company receiving payments for work performed for a US customer
- A sole trader performing contracting work for a US customer
These are just some of the examples of situations that a W-8-BEN would be needed.
Form W-8-BEN
Form W-8-BEN is designed for non-resident individuals who are receiving income or payments from the US.
To be clear, a non-resident individual is a non-US person, in other terms someone who is not a US citizen, green card holder or otherwise living in the USA.
Many Kiwi individuals receive US sourced income, such as dividends on US stocks, or income from the sale of products. In addition, we also see a frequent need Form W-8-BEN due to US retirement fund withdrawals, from former work performed in the US.
The US company paying this income is required to withhold tax from these payments at the correct rate according to US tax law, and it is the US company which will request a completed Form W-8-BEN from the individual they are paying funds to.
The initial parts of the Form W-8-BEN disclose just basic information, such as a person’s name, address and other identifying information.
Where the form becomes more complex however, is in Part II, whereby the rate of withholding tax.
In this section, we’re required to disclose the tax rate we believe should apply to the income, and why this is. This means disclosing the relevant tax treaty section to the payor of income, along with an explanation.
For most US tax professionals who have experience with the NZ US double taxation treaty, this is something that can usually be quickly assessed.
The NZ/US double tax treaty enables us to determine the type of income the individual is receiving from the USA, and what tax rate applies.
In many cases, the rate is 0%, however it is important to seek professional help as there can be severe implications for submitting an incorrect Form W-8-BEN.
Form W-8-BEN-E
Form W-8-BEN-E works in very much the same way as W-8-BEN, however this form is designed for non-resident companies and trusts.
The main differences however, is that Form W-8-BEN-E requires the company or trust to disclose their FATCA status.
FATCA statuses form part of the Foreign Accounts Tax Compliance Act, which New Zealand signed into law in 2014. It is possible to determine a company FATCA status through research online, however a US tax professional should be able to determine this with accuracy in a much shorter time.
In most cases of NZ businesses, the option for Active NFFE is the correct FATCA status, however this can vary by company.
Again, Form W-8-BEN-E requires a tax treaty article disclose, withholding rate disclosure, and an explanation of why the tax treaty applies. This is something which professional assistance should be sought to ensure accuracy.
Who files Form W-8-BEN?
Form W-8-BEN is requested by the payor of income, who then maintain on their records should the IRS ever require a copy.
If you’ve been requested to provide a W-8-BEN, you do not need to send it to the IRS, only to the company paying income to you.
I’m receiving income from the USA, but they haven’t requested a W-8-BEN, what should I do?
You should prompt the company who is paying income to you, to request a W-8-BEN be submitted by you.
Whilst the onus is on the payor of income to request the W-8-BEN, rather than you, they could be withholding the incorrect amount of tax on payments they make to you. Form W-8-BEN ensures that the rate they withhold at is correct, and you’re not paying more tax than you should.
Summary
Whilst Form W-8-BEN or its variants can seem complicated and overwhelming, with the right support it can be a straight forward process.
If you have been asked to submit this form, and need help, reach out today – info@usatax.nz - 092423445