What is an IRS Form, W8BEN?

What is a W8BEN?

The W8BEN, or Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) is a form which, when completed, is provided to the US income provider (Not the IRS!) in order to prevent 30% of your earnings being withheld and remitted to the IRS.

The W8BEN claims the treaty rate between Canada and the US which means you cannot be taxed by both countries on the same income, and by completing this form, you are certifying the following information to the IRS;

  • I am the individual that is the beneficial owner (or am authorized to sign for the individual that is the beneficial owner) of all the income to which this form relates or am using this form to document myself as an individual that is an owner or account holder of a foreign financial institution,
  • The person named on line 1 of this form is not a U.S. person
  • The income to which this form relates is:
    • (a) not effectively connected with the conduct of a trade or business in the United States,
    • (b) effectively connected but is not subject to tax under an applicable income tax treaty, or
    • (c) the partner’s share of a partnership’s effectively connected income,
  • The person named on line 1 of this form is a resident of the treaty country (in this case, Canada) listed on line 9 of the form (if any) within the meaning of the income tax treaty between the United States and that country, and
  • For broker transactions or barter exchanges, the beneficial owner is an exempt foreign person as defined in the instructions. Furthermore, I authorize this form to be provided to any withholding agent that has control, receipt, or custody of the income of which I am the beneficial owner or any withholding agent that can disburse or make payments of the income of which I am the beneficial owner.
  • I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect (changes).

In a nutshell, you’re telling the IRS, you are NOT a US person, that you do not work in the US and that you will report your income to the CRA.

Otherwise, they keep 30% of it.

 

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Withholding rates for debt instrument – Canada / US

As a follow up to a question I was aksed a few weeks ago about Corporation X’s proposed issuance of about $100 million of debt to be packaged and marketed by a foreign institution, I am providing the general withholding tax rules and one of the exceptions that would be applicable to Corporation X’s proposed debt issuance.

Generally, interest paid from US sources to foreign corporations is subject to US withholding at a rate of 30% or the lower rate under an applicable tax treaty.

Interest would be considered US-source if paid by a US citizen or resident or by a domestic corporation. However, no withholding tax is applied to US-source interest payments in the case of
interest on “portfolio debt obligations” of US issuers, defined as corporate and partnership debt issued in registered form and held by persons who own less than 10% of the equity of the issuing corporation (or less than 10% of the capital or profits if the issuing entity is a partnership).

Bearer instruments may also qualify if applicable guidelines are met.
The portfolio exemption does not apply to contingent interest, i.e. interest calculated by reference to the receipts, sales, income, profits, assets, or dividends of the debtor or a related party.