Demystifying Form W-8BEN-E - What’s it used for and why do I need one?

We are frequently contacted by UK (and other non-US) companies who have been sent a Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), by a bank or a US customer. The manager whose desk the form has landed on is often bewildered by the form and the pages and pages of acronyms. The form and instructions can be intimidating and often the form is requested in a complete vacuum without any explanation of why exactly it’s needed. Often the requestor is from the customer’s accounts payable department and they may not even understand why the form is required!

Rest assured that the form is usually not as complicated as it first appears, and we are on hand to cut through the jargon and help companies accurately complete and sign the form (under penalties of perjury!) whilst feeling confident understanding which box is ticked and why.

What exactly is a Form W-8BEN-E?

Form W-8BEN-E is a US tax form, but unlike a lot of tax forms, is kept on file with the requester and is usually only sent to the IRS upon request. The form is most commonly requested by banks, but increasingly is being requested by accounts payable departments any time there is an overseas payment.

Banks (and other financial institutions) are obligated under certain information sharing rules to obtain account holder information to confirm the account holder’s US tax status, including the account holder’s Chapter 4 Foreign Account Tax Compliance Act (FATCA) status. Broadly, FATCA was enacted to require financial institutions to share information regarding US account holders in an effort to identify US account holders with overseas accounts.

The form is also used to claim a reduced rate of US withholding on certain US withholdable payments (e.g., dividends, interest, royalties/license fees). If a non-US company receives a withholdable payment from a US payor, such payments are subject to a 30% rate of US tax levied by way of withholding. For example, if a US company paid a UK company 100 of interest, the US company should withhold 30 of US tax on the interest payment; the 70 of net interest paid to the UK company and the 30 of US tax remitted to the IRS. Many US double tax treaties provide for a reduced rate of US tax on these amounts if the income recipient is eligible for those treaty benefits.

Under the US/UK double tax treaty, the following rates could apply under the treaty (assuming the claimant is eligible for those benefits):

Part III of Form W-8BEN-E is used to claim a reduced treaty rate and requires the claimant to specify how the claimant meets any requirements.

Increasingly, we are seeing Form W-8BEN-E requests from US customers even if there is no withholdable payment (e.g., purchase of tangible goods or services). Although the form may not technically be required, we usually recommend providing a completed form to the US payor as the risk is the US payor will withhold on the payment in which case the recipient could be forced to file a US tax return to claim back the over-withheld tax.

As US payors are treated as withholding agents, the IRS imposes joint and several liability. In the event a payment is made to an overseas recipient and tax is not properly withheld, the IRS is permitted to assess the tax on the US payor and hold the US payor liable for the under-withheld tax. Understandably accounts payable departments tend to err on the side of collecting a Form W-8BEN-E even on non-withholdable payments just in case the IRS were to request the information – e.g., as part of a tax audit.

How do I complete Form W-8BEN-E?

The form and its instructions can appear daunting with a quagmire of acronyms and legal jargon, but for companies that are not financial institutions (e.g., banks, funds, entities that hold funds on account of others, etc.), it may be simpler than it seems.

Assuming the company completing the form is NOT a financial institution, the first question to ask is – who is asking for the form and why? If it’s a bank, typically the bank will only require Part I (and the relevant FATCA classification section) to be completed.

The next question to ask is – whether the payment is a US source withholdable payment. These typically include interest or dividends received from a US payor, but also include license/royalty fees paid by a US payor. For tech companies, including SaaS companies, it may be unclear whether some element of the payment could be treated as a license fee. If there is a US source withholdable payment, the payor may require Part III to be completed to reduce US withholding; absent this the payor may withhold 30% of the gross payment.

Unfortunately, there isn’t a one-size-fits-all solution to completing Form W-8BEN-E as it’s fact-specific and there are various exceptions, exclusions, etc. that may apply.

What happens if I don’t complete the form?

The downside to not completing the form can range from bank accounts being closed to 30% gross withholding on customer payments. In the case of withholding, the company would then be required to file a US tax return to claim back the overwithheld tax – leading to both additional costs and potential liquidity issues.

How can we help?

Rather than tying yourself in knots to figure out if you’re an FFI or an NFFE, reach out to see how we can help. Based on our extensive experience, the simplest way to complete the form is usually over the phone. This gives us a chance to ask you the right questions to make sure the form is properly completed and also to make sure you understand what the boxes you tick mean and why we tick each box.

Our fees to complete the form start at £1,500 (+VAT), though fees may be higher for complex cases. Feel free to contact us and see how we can help today.