What is a ‘W-8 Form’

A W-8 form is an Internal Revenue Service (IRS) form that provides foreigners with an exemption from specified U.S. information return reporting and backup withholding regulations. There are a variety of W-8 forms.

The primary purpose of the W-8 form is to indicate to mutual fund companies and brokers that a foreign investor isn’t subject to standard taxation practices where investment income is not taxed.

BREAKING DOWN ‘W-8 Form’

Non-resident aliens and foreign businesses that earn income from one or more U.S. sources utilize the W-8 form. Its purpose is to provide notification that these businesses and individuals will not be taxed in the traditional way. Resident aliens and American citizens use a W-9 form for certification of tax identification numbers. Although the W-8 form is an IRS form, it is submitted only to financial companies that request it and not to the IRS. Failure to submit the form as requested can result in a 30% tax withholding and, potentially, additional penalties.

The form applies to Nonresident Alien Individuals, foreign entities and exempt foreign persons. The term “nonresident alien individual” is someone who is neither a U.S. citizen nor resident. “Foreign entities” mean nonresident alien individuals or a foreign corporation, partnership estate or trust that is not involved in U.S. trade that gains from deals with brokers or barter exchanges nor has been or plans to reside in the country for more than 183 days. 

W-8 Form Requirements

The W-8 form is fairly complex. Though it requires the basics like name, country of origin and taxpayer identification number, it also asks for the contacts from which it is receiving the income it reports. Often, a professional is consulted to assist in completing the form. 

Variations of the W-8 Form

There are several versions of the W-8 form. The two most common are the W-8BEN and the W-8ECI. The W-8BEN is one of the most commonly used. It certifies foreign status, regarding tax withholding on income. Tax-free income, as specified by this form, includes interest, dividends, rents, royalties and annuities. The form allows foreigners to claim tax treaty benefits. To receive benefits from a tax treaty between the U.S. and the foreigner’s home country, the filer must provide certification of residency in the indicated country as well as a tax identification number. It is typical for foreigners to be taxed at a rate of 30% on income that is received from a U.S. source.

The W-8ECI provides certification that a foreign individual’s income is somehow linked to work done in the United States. (The ECI attached to this form stands for “effectively connected income.”) The certification allows the foreign individual to be exempt from the 30% tax rate on the income he earns.

Variations of the W-8 Form

There are five variations of the W-8 form. In addition to the W-8ECI and the W-8BEN, there is also the W-8BEN-E form, which is used by beneficiary owners (businesses only) that claim to be tax residents outside of the United States. The W-8IMY form is for foreign individuals who act as intermediaries rather than acting as beneficiary owners. The W-8EXP form is for any international organization, foreign government, foreign tax-exempt organization, foreign central bank of issue, foreign private foundation or government of a U.S. possession that is simply claiming exemption from the Foreign Account Tax Compliance Act (FATCA).

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