IRS Form W-8BEN-E: Complete Guide for Foreign Businesses and NRIs

IRS Form W-8BEN-E is used by foreign businesses and NRIs to certify their status as a beneficial owner for US tax purposes. It is called a Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities). This form is used by foreign companies that get payment from US companies to claim beneficial tax treaty rates, reductions, or exemptions on income subject to US withholding tax. Considering this, if you are an NRI and your Indian company, business entity, or LLP receives payments from a US platform or client, you need to complete Form W-8BEN-E.

Filling out Form W-8BEN-E correctly is vital for foreign businesses. It helps them avoid unnecessary penalties and taxes. Want to know more about this form? This blog provides an overview of this form, including its purpose and requirements. So read on and gather all the information.

What is IRS Form W-8BEN-E?

Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), is a document issued by the IRS. It serves as proof of a foreign entity as a beneficial owner for US tax purposes. Additionally, the form is used to determine the eligibility of a foreign entity for treaty benefits or exemptions from withholding tax under the Internal Revenue Code (IRC). This form is submitted to the withholding payer or agent, not to the IRS directly.

The Form W-8BEN-E is generally completed by foreign entities, such as partnerships, Indian companies, and other entities that earn income from US sources. The form allows these entities to claim reduced or exempted tax rates according to tax treaties between the USA and their home country. Missing it triggers 30% withholding on gross income.

This was all about IRS Form W-8BEN-E. Moving ahead, let's know who has to fill out this form.

Who Has to Fill Out Form W-8BEN-E?

Any non-US, Indian, or foreign company or entity that conducts business with a US-based company or entity should file a Form W-8BEN-E. The form should be filled out by the withholding agent before the first payment is ever collected or received. The form is not sent to the IRS; it is used by the withholding agent for payment and withholding regulations. Further, for Indian businesses and NRI-owned companies, this includes:

• Indian LLPs offering services to US entities
• Indian private limited companies receiving payments from US clients
• Indian trusts receiving US income
• Indian partnership firms wth US-source income
• Indian holding companies or investment entities receiving dividends from US stocks
• Foreign corporations with US-source passive income. It includes royalties, dividends, interest, etc.
• Indian businesses registered on US platforms such as app stores, Amazon FBA, and advertising networks.

Moreover, if you are working as a sole proprietor or individual freelancer instead of Form W-8BEN-E, you need to fill out Form W-8BEN. Now, moving further, let's know when you need to fill out Form W-8BEN-E in the US.

When is Form W-8BEN-E Required?

Non-resident aliens are liable to pay US tax at a 30% rate on income generated from US sources. Considering this, Form W-8BEN-E is used to claim treaty benefits or exemptions on the following income:

• Interest: Bank accounts, notes, bonds, and other financial instruments.
• Dividends: Distributions from US mutual funds or corporations.
• Royalties: Intellectual property or natural resources located in the US.
• Rents: Income generated from rental properties situated in the US.
• Premiums: Insurance premiums paid by a US individual.
• Annuities: Payments from annuity contract purchases or issued in the US.
• Compensation for Services Performed: This includes wages, salaries, commission, bonuses, and other types of compensation for services provided in the US.
• Gambling Winnings: It includes income generated from gambling activities in the US.
• Other Fixed or Determinable Annual or Periodic (FDAP) Income: Compensation for services rendered in the US.
• Substitute Payments in a Securities Lending Transaction: Payments made to non-resident aliens for the temporary use of securities.

This is when, being a non-resident alien, you need to fill out Form W-8BEN-E to avoid paying 30% withholding taxes. Now, moving forward, let's know when this form is used.

What is Form W-8BEN-E Used For?

IRS Form W-8BEN-E is used for three specific purposes. These are as follows:

• Certifies Foreign Entity Status: The form officially proves to the US IRS that your business is not a US taxpayer. It helps in exempting you from domestic US income tax obligations.
• Claiming Tax Treaty Benefits: If your resident country has a Double Taxation Avoidance Agreement (DTAA) with the US, this form allows you to claim a reduced or zero percent withholding rate on your US-sourced income. For instance, through the India-US DTAA, NRIs can reduce the 30 withholding tax rate to 15%.
• FATCA Compliance: The form is also used to declare Chapter 4 status (Foreign Account Tax Compliance Act. For international reporting, it classifies exactly what type of foreign entity you are.

This is when Form W-8BEN-E is necessary. Moving ahead, let's know how to fill out this form.

How to Fill Out Form W-8BEN-E?

Form W-8BEN-E contains several parts, each requiring different information from the foreign entity. To provide you with an idea, here is a breakdown of each part.

Part I- Identification of Beneficial Owner

This section of the form requires the foreign entity to provide general information about itself. This includes:

• Line 1: Name of Organization
• Mention the complete name of the owner or the legal name of the company operating the business.
• Line 2: Country of Incorporation
• For corporations, mention the county where they are registered. For all other entities, mention the name of the country where the business is governed.
• Line 3: Name of a Disregarded Entity
• You may skip this section. If the entity is a disregarded entity or has a branch in the US, this section should be filled with additional information.
• Line 4: Choose the Chapter 3 Status that Applies to Your Entity
• Options for Chapter 3 status include simple trust, corporation, partnership, and more. From the given options, you can only choose one.
• Line 5: Choose the Chapter 4 Status that Applies to Your Entity
• This section denotes Foreign Account Tax Compliance Act (FATCA) status. The box you choose in Line 5 states which other parts, i.e., IV to XXIX, should be completed to verify the chosen status. Further, Categories for Chapter 4 status include Participating FFI, Active Non-Financial Foreign Entity (Active NFFE), Passive NFFE, Direct Reporting NFFE, and other applicable FATCA classifications. You can only choose one option.
• Line 6: Permanent Residence Location
• Mention the complete address of your company.
• Line 7: Mailing Location
• If the mailing location differs from Line 6, write it in this field.
• Line 8: US Tax Identification Information (TIN) or Employer Identification Number (EIN)
• Leave it blank unless your entity has a US EIN.
• Line 9a and 9b: Foreign Tax Identification Number
• These numbers include the foreign TIN and the Global Intermediary Identifying Number (GIIN).

Part II: Disregarded Entity or Branch Receiving Payment

Part II of the IRS Form W-8BEN-E is only for disregarded entities and branches receiving payments. You only need to fill out this section if the reporting entity is a disregarded entity or branch of an FFI getting withholdable payments.

Part III: Claim of Tax Treaty Benefits

Fill out Part III if your resident country has a DTAA with the US government. It helps you claim tax treaty benefits such as royalties, dividends, or interest from US sources.

• Line 14a: Tick the box stating you are eligible for treaty benefits.
• Line 14b: Check if treaty benefits are claimed as per ownership percentage requirements (relevant for dividend withholding)
• Line 15: Mention the income type, treaty article, and applicable rate.

Part XXV: Active NFFE

If you have chosen Active NFFE in Part I Line 5, check the box stating your entity is an Active NFFE. It means it is a foreign entity with less than 50% passive income and passive assets.

Part XXX: Certification and Signature

The form should be signed by an authorized representative of the foreign entity, i.e., a director, partner, or authorized signatory. The signer states that the information mentioned in the form is accurate under penalty of perjury.

• Print the name of the authorized signatory
• Sign the form
• Mention the signing date in MM-DD-YYYY format
• Mention the signer's designation, such as director, managing partner, authorized signatory, etc.

An undated or unsigned Form W-8BEN-E is invalid. Considering this, most US payers will reject it and revert to a 30% withholding tax until they receive a complete signed form.

Additionally, if your Indian company is simply offering services such as software development, consulting, and the income is from active business services, in the first place, withholding does not apply.

This is how you can fill out Form W-8BEN-E. Now, let's better understand the importance of this form through an example.

Form W-8BEN-E vs Form W-8BEN

The table below showcases the difference between Form W-8BEN and Form W-8BEN-E:

In simple terms, you need to fill out Form W-8BEN if you run a business as a sole proprietor or freelancer and fill out Form W-8BEN-E if you are receiving payment as a registered entity such as an LLP, partnership, or company. Moreover, filling out the wrong W-8 form results in payment delays and resubmissions.

Now, moving forward, let's know how long Form W-8BEN-E is valid for.

How Long is Form W-8BEN-E Valid?

IRS Form W-8BEN-E from the year it was signed generally remains valid for three calendar years. For instance, if you sign the form in 2026, then your form is valid through December 31, 2029. Considering this, you need to fill out the form after three years, i.e., 2030. However, if there are any changes to the information about the foreign entity during that time, the submitted form becomes invalid. Considering this, in the following circumstances, you need to submit a new Form W-8BEN-E before receiving further payments:

• Name, address, or country of incorporation of your entity changes
• Changes in the FATCA status of your company
• For any reason, the foreign entity becomes a US corporation
• Any material change to the information mentioned in the form
• The tax benefit claim in Part III changes or is not applicable

Furthermore, submitting a new form also resets the expiration date. So this was all about the validity of the IRS Form W-8BEN-E. Moving ahead, let's know what happens if you do not submit Form W-8BEN-E.

What Happens If You Don't Submit Form W-8BEN-E?

If you do not provide a valid Form W-8BEN-E, the payer may generally apply the default 30% withholding under the applicable U.S. withholding tax rules (such as IRC Sections 1441 and 1442), unless another rule applies. Additionally, you may also not be able to claim applicable DTAA benefits. In some cases, invalid or missing documentation can also trigger additional withholding requirements and compliance risk for you.

This is what happens when you do not submit Form W-8BEN-E. Moving further, let's know the common mistakes to avoid while filling out this form.

Common Mistakes to Avoid While Filing Out Form W-8BEN-E

Here are some of the common mistakes you should avoid while filling out Form W-8BEN-E:

• Mentioning the incorrect version of the foreign entity's name on line 1.
• Choosing the wrong status on lines 3 and 4, i.e., for withholding and FATCA compliance.
• Entering a missing or incorrect TIN (taxpayer ID number).
• Not claiming tax treaty benefits properly.
• Not updating the form when there are changes in the mentioned information.

So avoid the above-mentioned mistakes and enjoy tax treaty benefits through Form W-8BEN-E.

Final Thoughts

Lastly, Form W-8BEN-E is an essential document for foreign and Indian entities generating income from US sources. By understanding and properly filling out this form, entities can take the benefit of reduced tax rates and stay compliant with US tax laws. Additionally, it is vital to stay informed of any changes in US tax laws and regulations that may impact the status or eligibility of the entity for treaty benefits or exemptions.

Furthermore, if you are looking for professional advice when dealing with US taxes, connect with Savetaxs. We have a team of CPAs who help you manage and organize Form W-8BEN-E from your recipients, offering a streamlined process to claim treaty benefits or tax exemptions on payments made by you to them.