A Comprehensive Guide to W-8 Form

A W-8 form allows a non-US individual or business to confirm that they are not US taxpayers. It is issued by the US IRS (Internal Revenue Service), and these are of different variations. Each W-8 form variation serves a different purpose. In this blog, we will walk you through all the details regarding the W-8 form. 

What are W-8 Forms? 

 W-8 forms are documents required by the IRS (Internal Revenue Service) for foreign individuals and businesses. They use it to confirm their country of residency for tax purposes. It allows them to qualify for reduced tax withholding rates.

Although the W-8 forms are issued by the IRS, they are submitted directly to payers or withholding agents rather than the IRS itself. Not submitting a W-8 form could lead to a default withholding rate of 30% on applicable income for foreign entities. 

Key Takeaways 

• W-8 forms help foreign individuals or business entities claim exemption from certain tax withholdings.
• There are five different IRS tax forms for foreigners: W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY. 
• The appropriate form to use depends on whether the filer is an individual or a business. Also, on the type of income received, and if the entity qualifies for a particular tax benefit. 
• Each W-8 form remains valid for the year it is signed and for the next three full calendar years. 

Who Can File W-8 Forms? 

These forms are designed for foreign individuals or entities that do not have U.S. citizenship or residency. However, they have earned income or worked in the U.S. It typically includes foreign-based companies and non-resident aliens. 

For instance, a non-resident foreigner receiving dividends or interest from U.S. securities would likely need to file a W-8BEN. However, a foreign nonprofit operating in the U.S. might use Form W-8ECI. 

Similarly, former US residents earning retirement income or freelancing for U.S. clients may also need to submit a W-8. They might need it to lower their tax withholdings. U.S. citizens or resident aliens are exempt from filing W-8 forms. 

Foreign individuals or businesses earning income in the U.S. are generally subjected to a 30% tax on specific types of income. The W-8 form collects relevant information about the individual or business. It includes identity, country of origin, and the types of income earned. 

How to Submit W-8 Forms?

The W-8 series consists of five forms, which are requested by payers or withholding agents and kept in their records. Also, they are not submitted to the IRS. The specific form request depends on whether the filer's status is that of an individual or a business. Also, depends on the kind of income being received. 

These forms are valid for the year of signing and for three additional calendar years afterwards. For example, a W-8BEN signed on the 24th of February, 2025, will be valid until the 31st of December, 2028. 

Completing the W-8 forms can be somewhat complicated. They require basic details such as the individual's name, country of origin, and taxpayer identification number (TIN). However, they also ask for contacts related to the reported income. Many people seek professional assistance to accurately complete these forms. 

**Important Note: W-8 forms are another type of IRS document used for confirming a person's name, address, and TIN. However, they are only for U.S. citizens or resident aliens as well as U.S entities. 

What are the Types of W-8 Forms? 

The five types of W-8 forms cater to different circumstances regarding who should use them:

• Form W-8BEN 

Form W-8BEN, known as the "Certificate of Foreign Status of Beneficial Owner for United States Withholding and Reporting. It must be submitted by foreign persons receiving certain types of income in the U.S. The form is sometimes also known as a "certificate of foreign status". It establishes that the individual is a foreign person and the owner of the income-generating business. 

Generally, foreign individuals are liable to a tax rate of 30% on certain income types and capital gains they get from U.S. payers. It includes:

• Rents
• Interest
• Dividends
• Premiums
• Royalties
• Annuities
• Compensation for services provided. 

 The form helps in claiming a reduction or exemption from U.S. tax withholding for individuals residing in countries that have an income tax treaty with the U.S. This applies if the income you received is subject to that treaty. 

Foreign individuals must also submit Form W-8BEN to the withholding agent or payer. This needs to be done if they are the beneficial owner of income that is subject to the tax withholding. These requirements hold true regardless of whether a reduced withholding is being claimed. 

Individuals are required to submit this form to the payer pr withholding agent before recieveing any income or credits from them. Not submitting Form W-8BEN could lead to being taxed at the full 30% rate or being subject to backup withholding under Section 3406. 

**Quick Fact 

Form W-8BEN is used for foreign individuals who earn nonbusiness income in the U.S., whereas Form W-8BEN is used by foreign entities earning similar types of income.

• Form W-8BEN-E

Form W-8BEN-E is also referred to as "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting". This form is filed by foreign entities, not individuals. 

When foreign persons receive a specific type of income, the payer or the withholding agent in the United States withholds 30% of the funds. However, if there is a tax treaty between the US and the foreign individual's country of residence, they may be able to claim a tax reduction.

Non-U.S. businesses must submit Form W-8BEN-E for similar income sources that require an individual to file a Form W-8BEN. Those foreign entities that fail to provide an accurate W-8BEN-E when needed will have to pay the full 30% tax rate. 

• Form W-8ECI 

Form W-8ECI, also known as "Certificate of Foreign Person's Claim for Exemption that Income is Effectively Connected with the Conduct of a Trade or Business in the United States". It is used by foreign individuals conducting a trade or business in the US and earning U.S.-source income. 

This income is generally categorized as "effectively connected income" (ECI). This is irrespective of whether it directly relates to the business activities conducted in the U.S. in that particular year.

ECI is exempt from the 30% withholding that applies to certain non-business income types. It includes interest, rent, etc. 

Instead, after subtracting applicable deductions, ECI is taxed at the graduated rates applicable to U.S. citizens and resident aliens. If a tax treaty applies to your work, the income may be taxed at the reduced rate specified by that treaty. 

Typically, to qualify income as ECI, foreign individuals must have engaged in trade or business activities in the U.S. within the tax year. For instance, if a foreign individual performed personal services in the U.S. in the tax year. Additionally, if money was earned through a partnership that conducts trade or business in the U.S., it would be treated as ECI. 

However, individuals whose only income comes from trading securities or commodities through a U.S. broker are not deemed to be engaged in a U.S. trade or business. Therefore, they don't qualify for the ECI tax treatment.

• Form W-8EXP 

Form W-8EXP serves as the "Certificate of Foreign Government or Other Foreign Organization for United States Withholding and Reporting". Certain payees use this form to claim a reduction or exemption for tax withholding. 

Eligible entities include foreign governments, foundations, and tax-exempt organizations. Also, governments of U.S. possession or foreign central banks of issue. 

To qualify for a reduction or an exemption, the entity must fall under IRS code 115(2), 501(c), 892, 895, or 1443(b). If none of these exemptions apply, the entity must file a W-8BEN or W-8ECI if it receives "effectively connected income". 

As with other W-8 forms, Form W-8EXP must be submitted to the payer or withholding agent before receiving the income. Failing to do so can attract a tax withholding at the rate of 30%. Additionally, a backup withholding rate, or the ECI tax rate, may apply. 

• Form W-81MY

Form W-81MY is the "Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting". This form certifies that a person or business has received withholdable payments on behalf of a foreigner or as a part of a flow-through entity. 

Form W-81MY is designed for intermediaries and must not be used by beneficial owners of a business. 

Entities that are required to file a W-81MY include the following:

• Foreign persons certifying their status as a qualified intermediary (QI) acting on behalf of another. Also, providing the necessary withholding statement required under IRS chapters three and four. 
• U.S. branches acting as intermediaries that wish to certify their tax treatment as a U.S. person. Or, document receipt of payments for which they must provide a withholding statement. 
• Flow-through entities seeking to claim tax benefits under a treaty or certifying their intent to provide a withholding statement. 

An entire list of persons or entities obligated to file the Form can be found in the IRS instructions for Form W-81MY. Supporting documents, including copies of withholding statements, must be included alongside the form when submitting. 

To Conclude 

IRS W-8 forms are of five types, used by foreign individuals or entities. Each type may differ; however, the main details required may stay the same. It includes the business or individual's name, address, and TIN. Instead of the IRS, the forms are required to be submitted to the payer or withholding agent. You can grab all the information required about a W-8 form, its types, and much more after reading this guide. 

Moreover, if you still face issues with understanding the terms or need assistance with filing. Then, you must contact the experts at Savetaxs right away. We have a team of specialized experts in U.S. taxation who can resolve all your queries related to taxation, form filing, claiming deductions, and others. Don't wait any further, connect with us and get the best-quality service. 

**Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult with either a Chartered Accountant (CA) or a professional Company Secretary (CS) from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.