W-8BEN Simplified: Understanding Your Tax Responsibilities

Understanding the W-8BEN form is crucial for foreign businesses hoping to hire foreign employees as it enables them to help employees claim tax treaty benefits, avoid excessive withholding taxes, and ensure compliance with U.S. tax regulations. Sounds complicated? We’re here to help.  

What is the W-8BEN tax form? 

The W-8BEN form is a crucial tax document utilized by non-U.S. citizens, to certify their foreign status to the Internal Revenue Service (IRS). Businesses who have foreign citizens working for their U.S. company also need to make sure that their employees file this form as they are usually subject to a 30% withholding tax without the form. 

It serves as a declaration of the individual's non-U.S. residency status for tax purposes and is primarily used to claim beneficial tax treaty provisions that may reduce or eliminate withholding taxes on income generated from U.S. sources. 

Who needs to file a W-8BEN tax form? 

Those that need to file a W-8BEN tax form include: 

• Foreign individuals or employees receiving income from U.S. sources.

• Non-U.S. residents that receive payments such as royalties, dividends, rents, or other types of income from U.S. sources.

• Anyone seeking to claim tax treaty benefits to reduce or eliminate withholding taxes on U.S. source income.

What form do non-U.S. businesses and entities need to file? 

For businesses and employers, the W-8BEN-E form is a tax document used by foreign entities, such as corporations, partnerships, and other entities, to certify their foreign status in the United States. It is an expanded version of the W-8BEN form, specifically designed for entities rather than individuals. The "E" in W-8BEN-E stands for "Entity."

Similar to the W-8BEN form for individuals, the W-8BEN-E form is used to claim beneficial tax treaty provisions that may reduce or eliminate withholding taxes on income generated from U.S. sources. It requires the entity to provide detailed information about its structure, ownership, and country of tax residence, as well as any applicable tax treaty benefits it seeks to claim.

Why is the W-8BEN form important? 

The W-8BEN form is crucial for both foreign employees and U.S. businesses with foreign employees for several reasons:

For foreign employees: 

• Tax compliance: Helps employees declare their non-U.S. residency status to the IRS, ensuring they are correctly taxed on any income earned in the US. 

• Tax treaty benefits: Many countries have double-tax treaties with the U.S, so filing this form reduces or eliminates withholding taxes. 

• Legal requirements: Filing the W-8BEN form is often a requirement for foreign individuals receiving income – ensuring compliance with tax laws. 

For U.S. businesses with foreign employees:

• Employee compliance: This form makes sure foreign employees working for U.S. businesses are compliant with U.S. tax regulations regarding their income earned in the country.

• Tax treaty optimization: Helps U.S. businesses optimize tax obligations related to their foreign employees by correctly applying tax treaty benefits, reducing withholding taxes, and avoiding overpayment of taxes.

• Recordkeeping: The W-8BEN form serves as part of the documentation that U.S. businesses need to maintain for tax and regulatory purposes, aiding in accurate recordkeeping and reporting.

• Avoid penalties: Ensures that U.S. businesses do not face penalties or legal issues related to improper handling of tax obligations for their foreign employees.

When shouldn’t you file a W-8BEN form? 

You generally shouldn't file a W-8BEN form if you are a U.S. citizen, U.S. resident alien, or a foreign resident who is considered a U.S. tax resident under IRS rules. Additionally, if you are not receiving income from U.S. sources or are not eligible for any tax treaty benefits related to U.S. income, you may not need to file a W-8BEN form. A global EOR like Justworks has hyper-local experts who can help you determine which of your employees need to file out this form. 

How do I fill out W-8BEN? 

Before filing Form W-8BEN, ensure that the following information is accurately included.

Part I: Identification of beneficial owner:

• Full name of the individual or entity.

• Country of citizenship or incorporation.

• Permanent residence address (not a P.O. box).

• Mailing address if different from the permanent residence address.

• U.S. taxpayer identification number (TIN) if applicable and required by the specific instructions for the form.

• Foreign tax identification

• Date of birth

Part II: Claim of tax treaty benefits:

• Country of residence for tax purposes.

• Specific article(s) of the tax treaty between the resident country and the United States that provide the claimed benefits.

• Description of the type of income for which treaty benefits are being claimed (e.g., dividends, interest, royalties).

Part III: Certification:

• Signature of the beneficial owner or authorized representative.

• Date of signature.

Who gives a W-8BEN form? 

An employer typically gives a W-8BEN form to an employee or contractor who is a non-U.S. person and will be receiving income from U.S. sources. It’s the employees’ responsibility to accurately and completely fill out the form during onboarding and submit the form back to their employer to file with the IRS. 

Hire and pay employees compliantly with Justworks 

​​Discover how Justworks EOR can simplify tax compliance for your international workforce. From managing W-8BEN forms to ensuring accurate tax withholding, Justworks has you covered. 

With our expert guidance and a global perspective, we navigate the complexities of international employment regulations, freeing you to focus on your core business goals. Partner with us today and experience seamless payroll management and unparalleled compliance support for your global employees. Ready to learn more? Get started today!