By Lynn M. Eller, CPA, APCIT, PFS
If you are reading this article you have likely been tasked to complete the 30 Part, 8 page IRS form filled with mystifying acronyms. We feel your pain.
The key takeaway is that you can save on tax and paperwork grief by completing this correctly.
W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)
One common reason for a request to complete a W-8BEN-E is from an American business to a foreign service provider.
U.S. companies are required to withhold 30% federal income tax on payments to foreign entities, unless an exemption or a lower treaty rate applies.
The purpose of the W-8BEN-E is to certify to the American payer that the foreign payee is indeed foreign and not U.S. Then, depending on the type and nature of the payment it may be exempt from the 30% tax withholding. Or an income tax treaty may apply that allows the 30% to be reduced or eliminated altogether.
The W-8BEN-E is not filed with the IRS, instead it is held by the American payer to support the lower withholding.
Do not complete the W-8BEN-E if you are any of the following:
- A U.S. person or company created in the U.S. Instead, complete a W-9 (which is much easier).
- A foreign individual. Instead, complete a W-8BEN (which is much shorter).
W-8BEN-E, Part I, line 5 Chapter 4 Status (FATCA Status):
The most daunting section is Part I, line 5 asking for your “Chapter 4 Status”. The most common choice here is Active NFFE. This means the business is an Active Non-Financial Foreign Entity. If none of the other categories fit, Active NFFE is the best option.
If your company is not a Foreign Financial Institution (FFI) (bank, insurance, or investment fund), then the options containing FFI can be ignored.
If you check Active NFEE on line 5, then you are required to complete a brief certification in Part XXV and you can skip many of the other 30 Parts.
W-8BEN-E, Part III, Claim of Tax Treaty Benefits:
You do NOT want to skip this part if your business is located in a country that is one of the many that have an income tax treaty with the U.S. If this is the case, then the nature of the payments and treaty articles are referenced to determine the options for a lower withholding rate.
PBMares can assist in navigating the treaties to reduce your tax burden and save you time. For more information contact Lynn Eller, International Tax Team Leader.