Form W-8BEN for Tax Withholding for Foreign Businesses with U.S. Income

If you have a trade or business outside the United States and you gain a contract or agreement from a U.S. firm, you would generally be required to file a U.S. tax form for U.S. income tax withholding purposes. Taxes would generally be withheld at 30%, and after the end of the year you would file a non-resident U.S. income tax return to claim any refund if your actual tax obligation is less than the amount withheld.

The payer of the income in the United States would ask you to complete a tax withholding form. This is normally Form W-9 in the United States. But you would use Form W-8BEN if you are not a U.S. citizen or resident and are located outside the U.S. You use Form W-8BEN if your income from the U.S. is not effectively connected with the conduct of a trade or business in the U.S. This would generally be the case if you perform services outside the U.S. and do not have any physical presence in the U.S.

You send Form W-8BEN to the person or company in the U.S. who is paying you, and not to the IRS.

Depending on the country, you may qualify for a reduced withholding rate or may be exempt from U.S. tax withholding if there is a tax treaty in effect. You can find more information under Tax Treaties on the IRS website. For example, if the income from the U.S. is subject to income tax in your home country and there is a tax treaty in effect, you may be exempt from tax in the U.S. If you qualify for tax treaty benefits, you would indicate that on Form W-8BEN.

The company in the U.S. that pays you should issue a Form 1042-S reporting the total income paid to you during the year and the federal income tax withheld. This form must be sent to you by March 15 of the following year, and a copy is also sent to the IRS.

After the end of the year you would file a U.S. federal income tax return to report your income from the U.S. and to calculate the actual tax. On your annual income tax return you take credit for the tax withheld, according to Form 1042-S, to determine the refund you have coming, or any additional tax you owe.

If you are a foreign individual, you would file your annual income tax return using Form 1040NR, or the simpler Form 1040NR-EZ, if you qualify. The deadline for filing is generally April 15 if your tax year is a calendar year. Form 1040NR or 1040NR-EZ cannot be e-filed and must be mailed. If you are a foreign corporation, you would use Form 1120-F. The deadline is the 15^th day of the third month after the close of your tax year. Form 1120-F can be filed electronically using IRS e-file.

Sources:

Form 1040NR, U.S. Nonresident Alien Income Tax Return

Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding

Form 1120-F, U.S. Income Tax Return of a Foreign Corporation

Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding

Instructions for Form W-8BEN, IRS

Tax Treaties, IRS

Reference:

• Publication 519, U.S. Tax Guide for Aliens: www.irs.gov/pub/irs-pdf/p519.pdf
• U.S. Income Tax Source Rules for Income of Nonresident Aliens: voices.yahoo.com/us-income-tax-source-rules-income-nonresident-24385.html?cat=3
• When Does the 30% U.S. Income Tax Apply on Nonresidents’ Income? voices.yahoo.com/when-does-30-us-income-tax-apply-nonresidents-13390.html?cat=3