How to Complete the IRS W-8BEN-E Tax Form for Non-U.S. Entities

US 30% withholding tax & IRS Form W-8BEN-E for UK and foreign companies

Is it vital to understand the US 30% withholding tax & IRS Form W-8BEN-E for UK and foreign companies to reduce your tax bill?

This article will highlight how to make tax savings and the financial dangers of taking no action.

If you wish to know how much income tax you will pay to the Internal Revenue Service (IRS), please use our free US income tax estimator online calculator.

What are the basics of US 30% withholding tax?

As an expat tax advisor who owns real estate property investments, I know that the US 30% withholding tax is complex.

It can be difficult to navigate, and mistakes can be costly.

Form W-8BEN-E is an IRS-mandated document to collect Nonresident Alien (NRA) taxpayer information for entities for reporting purposes.

It is also to document their status for tax reporting purposes.

The form for individuals is the W-8BEN.

The W-8BEN-E is required when making non-US source income payments to an NRA.

These are payments when an NRA outside the US performs the services.

Nonresident Aliens are subject to US tax at a 30% rate on income they receive from US sources that consist of:

• Interest
• Dividends
• Rents
• Royalties
• Premiums
• Annuities
• Compensation for services performed
• Substitute payments in a securities lending transaction
• Other fixed annual or periodical gains, profits or income

This tax is imposed on the gross amount paid and is usually collected by withholding.

A withholding agent or payer of the income may rely on a properly completed W-8BEN-E to treat a payment associated with the W-8BEN-E as a payment to a foreign person who beneficially owns the amounts paid.

If applicable, the withholding agent may rely on the W-8BEN-E to apply a reduced rate of (or exemption from) withholding at the source.

This is also known as a tax treaty benefit.

Why you are paying more US tax than most taxpayers?

I know that you are allowing the IRS to take more money from you in the form of US withholding tax than necessary.

I know from experience that IRS would take more tax if I allowed them to.

However, I am fortunate enough to have a bunch of tax advisors that support me in making the right financial & tax decision when dealing with my business and investment income streams in the US.

Under US tax regulations, a mandatory 30% must be withheld by any company paying a foreign entity conducting business within the US.

This happens when a foreign country has an income tax treaty with the United States.

Under these treaties, residents (but not necessarily citizens) of these countries may be eligible for tax at a reduced rate or exempt from US income taxes on certain items of income received.

If the foreign entity comes from a country within a US tax treaty, such as the UK, they can fill out and submit a W-8BEN-E form.

This will exempt them from the US’s 30% withholding tax law.

Form W-8BEN-E is also called a Certificate of Foreign Status of Beneficial Owner for US Tax Withholding.

A foreign person uses W-8BEN-E to establish beneficial ownership and foreign status.

It enables a UK business outside the US to claim tax exemption on US-sourced income.

It is also used to claim income tax treaty benefits regarding income.

Any foreign (non-US) company that receives payment from an American business must fill out a W-8BNE-E form and send it to the IRS.

How to avoid US 30% withholding tax for UK and other foreign companies

If you were unaware of the W-8BEN form, $30,000 out of every $100,000 income would likely be taken off you by the tax.

Please note that the $30,000 or 30% US withholding tax is not based on profit but on gross income.

This tax charge is more significant than in the UK and most European countries. You could lose a lot of money because of the US tax system.

My tax advisors were able to help many of our UK limited company clients to solve this tax nightmare of the IRS.

The W-8BEN form applies to foreign individuals and sole proprietors who earn money or income from US sources.

These individuals must provide a completed W-8BEN form to their US clients to avoid paying taxes to the IRS.

You can only avoid paying tax if:

• Your business doesn’t have an office or branch in the US
• Your country of origin has a tax treaty with the US

The US tax treaty with the UK allows individuals to make these tax savings.

What you should do next to reduce your US tax bill

Should you allow IRS to take more money than they do most of our UK limited company clients?

I know from first-hand experience that getting the right tax advice is essential so that you can use the tax-saved money on more critical aspects of your life.

The W-8BEN form confirms to the IRS that you are not a US resident, the individual or owner of the sole proprietorship receiving income from a US source and that you qualify for a tax treaty that exempts you from paying tax to the IRS, or reduces the tax withholding rate.

If you don’t qualify for an exemption, you must pay the IRS 30% of your earnings.

In short, the W-8BEN form determines your status as a foreign individual.

Based on your country of origin, the W-8BEN determines how much (if any) tax you owe to the IRS.

You can find out more here on how to request the relevant W-8BEN forms from the IRS.

Download Form-W8BEN-E here today.

I also recommend that you read this article I have written for additional information on how to reduce your US tax bill.

The danger is that you read this article and take no decisive and immediate action to save time and money on your US tax affairs.

Do yourself a favour and book time with one of my tax advisors, as I should have done many years ago.

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