Canada Tax 101: What Is a W-8BEN Form?

By using this site, you are agreeing to security monitoring and auditing. When it comes to expanding your global workforce, staying compliant with international labor laws and tax requirements is a top priority. A W-8BEN Form helps you adhere to tax regulations and correctly pay your foreign employees and contractors. You can attempt to prepare the 1040-NR by carefully following the instructions, but you may prefer to find a tax accountant who is experienced with non-resident tax returns.

EORs have expertise in the countries in which they operate and are able to dedicate their full attention to the country where your workers live. Not only that, but they can assist in onboarding workers to take the burden off of your HR department. Learn more about what to look what is a w8 form used for for in an employer of record in our on-page guide. If you have employees and contractors abroad, you need to understand how the W-8 BEN form works. In this article, we’ll break down the basics of the W-8 BEN form to help you and your workers comply with the IRS rules.

From startups to large corporations, US companies of all sizes use Pilot for international payroll, benefits and compliance.

Learn what Forms W-8 BEN and W-8 BEN-E are for and how to request and collect them. Please refer to the links for specific details/instructions about each W-8. The reference to the ability to use other documentation in the instructions is helpful, as electronic signatures often come with an attachment, or link to an attachment, that provides the electronic signature details. Despite being included in the regulations, this option was often overlooked.

W-8 Forms are for non-resident aliens — people who are neither U.S. citizens nor U.S. residents — and foreign entities that work or earn income in the U.S. There are five different types of Form W-8, but for businesses that hire and contract internationally, Form W-8 BEN and Form W-8 BEN-E are the most important ones to understand. Whenever you hire a non-U.S.-based contractor or pay a foreign company for services rendered, you’ll need to request they fill out a W-8 BEN form or W-8 BEN-E form. These forms help collect information necessary for proper tax withholding, saving your business from running into legal trouble later on.

Who Can File W-8 Forms?

Due to the timing of the final versions, withholding agents may continue to receive the prior version of Forms W-8 from clients during early 2022 and can continue relying on unexpired prior-version forms. The Section 1446 updates to Forms W-8IMY and W-8ECI are needed for purposes of the PTP withholding requirements on payments made after 31 December 2022. Part III must be correctly completed if you are claiming a reduced rate of, or exemption from, withholding under an income tax treaty. Canadian sole proprietors with U.S. clients can claim exemption from tax withholdings thanks to the Canada-U.S. Income tax treaty by filling out what’s commonly known as Form W-8BEN. This is usually issued directly to your U.S. client so they can file it with their corporate taxes. Businesses that are foreign entities should file Form W-8BEN-E instead of W-8BEN, which is for individuals only.

However, working with U.S. companies means you need to be aware of applicable tax legislation, including Form W-8BEN. Here are all the answers you need to understand and complete Form W-8BEN. Are you a Canadian sole proprietor who receives payment from U.S. companies? https://www.bookstime.com/ By understanding the use of each tax form, companies can be better prepared to engage and manage contingent workforces in the US and beyond. Form W-8 ECI W-8 BEN and other W-8 forms are essential to help the IRS monitor income directed to non-US citizens.

Who Needs to Fill Out Form W-8BEN?

Based on the timing of the updated Forms W-8 and the October revision date, updated Forms W-8 must be used beginning 1 May 2022, absent guidance to the contrary. Forms obtained before the cutoff date continue to be valid for the usual validity period. The Forms W-8 reflect changes to the Chapter 3 regulations, which were introduced in final regulations issued in December 2019 , following updates of the forms in June and July 2017. The insights and services we provide help to create long-term value for clients, people and society, and to build trust in the capital markets. When you use our service, you can finally rest assured you’ll be 100% tax compliant.

• Part III must be correctly completed if you are claiming a reduced rate of, or exemption from, withholding under an income tax treaty.
• Foreign persons must provide Form W-8BEN to the withholding agent or payer if they are the beneficial owner of the income subject to the tax withholding.
• It declares the applicant’s status as a non-resident alien or foreign national and informs financial companies that they will be taxed differently than a resident.
• It is usually from the United States and what this form does is that it frees you from the requirement to file your U.S. tax return.

It ensures that the individual or company issuing payment knows to withhold taxes from payment, and to subsequently pay those taxes to the IRS. However, the W8-BEN differs from a W9 because it is filled out only by non-US residents who are receiving payments from individuals or companies in the United States. Withholding agents that utilize substitute Forms W-8 will need to make the appropriate updates to the penalty of perjury statements.

Should I file Form 8823 or a W-8BEN?

That the individual is eligible for a reduced rate of tax withholding, or is exempt entirely, due to an income tax treaty between his home country and the United States. The law states that foreign individuals or entities who have worked or earned income in the US must pay a 30% tax on some types of income earned. The US has a number of Income Tax treaties with foreign countries that allow reductions on taxed amounts. By filling out the W-8 form, foreign individuals or entities are declaring who they are, where they are from, and the various types of income they’ve earned in order to determine how they will be taxed.

• Transferor of an interest in a partnership for a connected gain are also required to file Form W-BEN.
• Recruiting internationally means you can cast a wider net in your search for the right candidate, with a talent pool that encompasses the entire globe.
• If the EIN begins with any other numbers, the company must use a W-9 .
• Therefore, all foreign vendors must provide a W-8BEN even if no ITIN or SSN exists, unless another W-8 series form is provided.
• Money received by foreign businesses is also taxed at a 30% rate in the US.
• An Employer Identification Number is a unique number assigned to a business for easy IRS identification for tax reporting purposes.