What is the W-8BEN-E Form? A Guide to Compliance and Purpose
What is W-8BEN-E form? This important tax document is used by foreign entities to certify their status for U.S. tax withholding tax and FATCA purposes. Issued by the Internal Revenue Service (IRS), the form helps determine whether an entity qualifies for reduced withholding tax rates under an applicable tax treaty. The W-8BEN-E is also used to certify an entity’s correct classification for FATCA purposes.
Understanding the Purpose of W-8BEN-E
To begin with, the W-8BEN-E form is required for non-U.S. businesses that receive income from U.S. sources, such as royalties, dividends, interest, or service payments. By filing this form, foreign entities certify their status as non-U.S. and, at the same time, claim any tax treaty benefits they are eligible for. Without this form, payments made to the foreign entity may be subject to a 30% withholding tax, which can significantly impact revenue.
As relevant for FATCA, though, W-8BEN-Es serve a different purpose. They certify to Financial Institutions what their account holders’ correct classifications are for FATCA purposes. This is essential so that Financial Institutions can know whether to (i) file any required FATCA reports for U.S. entities that are account holders (ii) rely on their account holders that are themselves Financial Institutions to file any required FATCA reports, or (iii) look through any account holders that are “Passive Non-Financial Foreign Entities” (Passive NFFEs) and then report any U.S. “Controlling Persons” or “Substantial U.S. Owners” of those Passive NFFEs for FATCA purposes.
Who Needs to File W-8BEN-E?
It is crucial to understand who must submit this form:
- Foreign Entities – Any non-U.S. organization receiving U.S.-sourced income must complete W-8BEN-E to ensure proper tax treatment.
- Financial Institutions – They are required to obtain this form from entity account holders to determine those entities’ FATCA classification.
- Last but not least, any non-U.S. entity that has an account at a Financial Institution to establish the entity’s FATCA classification and, if the entity is a Passive NFFE, to disclose the entity’s U.S. “Controlling Persons” or “Substantial U.S. Owners”, if any.
W-8BEN-E and FATCA Compliance
In addition to tax benefits, filing the W-8BEN-E form is essential for FATCA compliance. Foreign entities must classify themselves correctly under FATCA to avoid errors in tax and FATCA reporting. Otherwise, incorrect classification or failure to submit the form could lead to penalties, unnecessary tax withholdings, and incorrect FATCA filings.
Final Thoughts
Ultimately, completing the W-8BEN-E form correctly ensures compliance with U.S. tax laws and FATCA. However, understanding FATCA classifications can be complex. AEOIclassification.com enables entities to classify themselves accurately and with confidence for FATCA (and CRS) purposes.