For many global investment management companies, the completion of the W-8BEN-E form is complicated. Ultimately, the lack of understanding over its completion infringes on many investment firms’ ability to receive US dividend or interest payments at the treaty rate. This is especially true for those investment firms in developing countries. This guide explains the purpose of the IRS’s W-8BEN-E form within the context of foreign withholding tax and what role it plays within the US’s FATCA process.
What is the W-8BEN-E Form?
The W-8BEN-E form is a tax document that allows foreign companies to be exempt from the 30% US withholding tax on US source income. Whereas its sister document the W-8BEN form serves simply to confirm that you’re a non-US resident and subject to the 30% withholding tax, the W-8BEN-E form is to assist foreign companies seek exemption from those taxes.
Understanding the Legislation Around the W-8BEN-E Form
The IRS defines the W-8BEN-E form as a document used by foreign entities to document their status for purposes of chapter 3 and 4 within the income taxes section of the US Internal Revenue Code. Chapter 3 applies only to payments made to a payee that is a foreign person. It does not apply to payments made to US persons. Chapter 4 applies to withholdable payments made to an entity payee that is an Foreign Financial Institution (FFI) unless the withholding agent is able to treat the FFI as a participating FFI, deemed-compliant FFI, or exempt beneficial owner.
The W-8BEN-E Form and FATCA
All FFIs have to register for FATCA purposes and obtain a Global Intermediary Identification Number (GIIN). FATCA – the Foreign Account Tax Compliance Act – requires that foreign financial institutions and certain other non-financial foreign entities report on the foreign assets held by their US account holders or be subject to withholding on withholdable payments. The definition of a FFI includes, but is not limited to Depository Institutions (banks), Custodial Institutions (Mutual funds), Investment Entities (Equity funds, hedge funds) and certain types of Insurance Companies. The GIIN number must be provided on the W-8BEN-E form.
WTax is able to offer assistance with the completion of W-8BEN-E forms where your business may be unsure of your FATCA status.
Why Do Foreign Companies Require a W-8BEN-E Form for Withholding Tax?
In order to understand the need for a W-8BEN-E form, we need to go into the background of US withholding tax payments first.
Foreign persons are subject to US tax at a 30% rate on income they receive from US sources that consists of: Interest (including certain original issue discount (OID)); Dividends; Rents; Royalties; Premiums; Annuities; Compensation for, or in expectation of, services performed; Substitute payments in a securities lending transaction; or Other fixed or determinable annual or periodical gains, profits, or income.
This tax is imposed on the gross amount paid and is generally collected by withholding under section 1441 or 1442 of the internal revenue code on that amount. A payment is considered to have been made whether it is made directly to the beneficial owner or to another person, such as an intermediary, agent, or partnership, for the benefit of the beneficial owner. In addition, the IRC’s section 1446 requires a partnership conducting a trade or business in the US to withhold tax on a foreign partner’s distributive share of the partnership’s effectively connected taxable income.
A withholding agent or payer of the income may rely on a properly completed Form W-8BEN-E to treat a payment associated with the Form W-8BEN-E as a payment to a foreign person who beneficially owns the amounts paid. If applicable, the withholding agent may rely on the Form W-8BEN-E to apply a reduced rate of, or exemption from, withholding. If you receive certain types of income, you must provide Form W-8BEN-E to:
- Claim that you are the beneficial owner of the income for which Form W-8BEN-E is being provided or a partner in a partnership subject to section 1446; and if applicable,
- Claim a reduced rate of, or exemption from, withholding taxes as a resident of a foreign country with which the US has an income tax treaty.
How to Complete a W-8BEN-E Form?
The IRS has provided a detailed guide on the completion of the W-8BEN-E form and can be found here.
What happens if you do not submit a W-8BEN-E form on time?
Here’s the catch. You’ll have to give the form to the person requesting it before the payment is made to you, credited to your account, or allocated. Often this timeline is very short and many companies miss their opportunity to submit it. If you do not provide the W-8BEN-E form, the withholding agent may have to withhold at the 30% rate, backup withholding rate, or the rate applicable under section 1446. Furthermore, you may also be expected to supply many W-8BEN-E forms for different types of income. Once provided, the W-8BEN-E form remains valid for 3 years. Generally, a separate Form W-8BEN-E must be given to each withholding agent. Keeping to deadlines for multiple form requirements across multiple investments becomes administratively difficult despite your and your custodian’s best efforts. Consequently, sometimes the refund opportunity is missed and requires a retrospective refund request.
Requesting a Retrospective Withholding Tax Refund without a W-8BEN-E Form
Should you have missed the deadline for submission, it is still possible to claim the withholding tax refund retrospectively without the W-8BEN-E form. In fact, there are many benefits to claiming your withholding tax retrospectively such as:
- Being able to go back multiple years and capitalize on a larger refund.
- A more holistic approach to all withholding tax refunds across multiple investments.
Using a W-8BEN-E form for withholding tax relief at source can be tricky if not submitted on time and correctly. Consequently, for those firms in developing countries, help is often required. Should you require assistance with retrospective withholding tax refunds, WTax can help. We specialise in the recovery of withholding tax payments in the US and 36 other jurisdictions. We will explore refund opportunities within double taxation treaties, domestic exemptions and ECJ claims.
Are you unsure of how to complete your W-8BEN-E form? We can help. Get in touch today.