What is Form W-8BEN?
Form W-8BEN is a tax form required in some cases by the Internal Revenue Service of the United States. The IRS uses Form W-8BEN to track the income that non-US citizens and foreign businesses generate while contracting with American companies.
The form elicits general information about the foreign individual or business entity, including their name, address, and identifying tax number. Additionally, the form provides the opportunity for these non-US entities to certain tax treaty benefits that may limit their tax liabilities to the United States government.
W-8BEN vs. W-8BEN-E?
IRS Forms W-8BEN and W-8BEN-E are largely similar in their contents and intended use, however, Form W-8BEN is used by foreign individuals contracting with US-based organizations while Form W-8BEN-E is used by foreign business entities contracting with US-based companies.
Form W-8BEN-E may be used by an individual in the case that they are operating via a sole proprietorship, LLC, or other formal business structure.
Who uses Form W-8BEN?
Any foreign individual or business that receives an income in the form of interest, dividends, royalties, or compensation for services from a US-based organization must complete Form W-8BEN. After filling out Form W-8BEN, the foreign contractor must provide the completed version to the organization from which they are receiving income.
Provided that the foreign-based contractor is unable to demonstrate exemption from withholding, the American organization is required to withhold 30% of all income generated to be paid later as taxes to the IRS.
Barring any other disqualifying events, Form W-8BEN is valid until December 31 of the third year after its completion.
Claiming exemptions
There are two potential situations in which a foreign contractor can claim exemption from US tax withholdings on the W-8BEN:
- The contractor lives and works abroad
- The contractor lives and works in the United States but their home country shares a tax treaty with the United States
In situations where a contractor lives and works abroad and is not a US citizen, the contractor has no tax liability to the American government and is exempt. However, the US-based organization that has chosen to hire them should still request a completed version of the form to provide itself with protection from any tax fraud allegations.
Contractors that live and work in the United States, however, are subject to 30% tax withholdings if their home country does not share a tax treaty with the United States. The implications of tax treaties can vary and may not provide full exemption from US withholdings. Form W-8BEN requires individuals to identify the specific treaty they are claiming exemption under, which article in the treaty grants them exemption, and what % of withholding they are exempt from.
The following countries share tax treaties with the United States: Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, India, Hungary, Iceland, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Korea (South), Luxembourg, Mexico, Malta, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Tunisia, Trinidad and Tobago, Turkey, Turkmenistan, Ukraine, United Kingdom, United States, Uzbekistan, Venezuela.
Use Borderless to manage your tax requirements
Although Form W-8BEN is relatively straightforward to complete, the hard part is understanding which forms to complete, what tax regulations apply to you, and which exemptions you may be able to claim.
Borderless' contractor management functionality will not only simplify your tax filing process, but also enable straightforward onboarding and a simplified global payroll experience. Using Borderless's global employer of record services will let you focus on what matters most - identifying the right talent for your team.
About Borderless
Borderless is a global company of passionate people brought together by the conviction that hiring local talent anywhere in the world can be the greatest form of opportunity equalization.
Organizations that choose to look beyond their brick-and-mortar offices will not only have access to a wider talent pool of highly qualified individuals, but will also be supporting emerging local economies, improving their workforce diversity, and contributing to emission reduction by removing the daily commute. All while increasing their bottom line and reducing their legal liability.
Borderless enables you to become a distributed organization whose members will be empowered to lead the lifestyle they desire without sacrificing their career opportunities or feeling like 2nd class citizens.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
