What Is Form W-8BEN, And Why Is It So Important?

What Is Form W-8BEN, And Why Is It So Important?

Form W-8BEN is a tax document used to certify that the country of residence for tax purposes is not the United States. It is required because Canada and the United States have entered into an intergovernmental agreement under which Canadian financial institutions must provide this information.

The completed W-8BEN form confirms:
1) That you are not a resident of the United States;
2) That you own the income to which the form relates;
3) It is also used to take advantage of  a reduced rate of withholding tax by virtue of being a resident of a country which has a tax treaty with the United States.

Why do I have to complete the W-8BEN form?

Due to agreements between the Canadian and US governments, account holders are required to file Form W-8BEN even if they do not hold any investments in the United States. Additionally, the U.S. Internal Revenue Service (IRS) requires U.S. securities brokers to obtain a W-8BEN form from all holders of a Tax Free Savings Account (TFSA) or TFSA. a Registered Education Savings Plan (RESP) who wish to trade in US securities.

Note: If you are a citizen or resident of the United States (or if you opened your account in the name of a United States partnership, corporation, estate or trust), you would file Form W-9 instead of Form W-8-BEN.

What benefits can I get from it?

If you certify that you are a resident of Canada, Form W-8BEN allows you to claim treaty benefits through which the rate of withholding tax on U.S. source income (dividends from U.S. corporations or interest from U.S. sources). U.S. Fixed Income Investments) that you may receive in your Account will be reduced.

This is a significant advantage, as the withholding tax rate is normally 30%. By filing an updated Form W-8BEN, you could benefit from a reduced tax rate of either 15% on dividends or 0% on interest.

What happens if my W-8BEN form expires?

If your Form W-8BEN expires and you do not file another, any U.S. source income you receive will be subject to withholding tax of 30%. In addition, your account may be subject to restrictions.

Have a question? Contact Olivier Wagner. 1040 Abroad

Olivier Wagner

Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner preaches the philosophy of being a worldly American. He uses his expertise to show you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS. Before obtaining my U.S. citizenship and traveling all over the world, he was born and raised in France. His experience learning the intricacies of the U.S. immigration process combined with his desire to travel freely lead me to specialize in taxes for Americans living and working abroad. He helps Americans Abroad file their taxes and devise strategies that make sense for their lifestyle. These strategies encompass all aspects of registering an offshore business, opening a bank account abroad, and planning out new residencies and citizenships. He is operating the accounting firm 1040 Abroad. 1040 Abroad exists to help you make sense of an incredibly large world of possibilities. Find out more by visiting www.1040abroad.com

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3 comments on “What Is Form W-8BEN, And Why Is It So Important?

  • If I pay an employee (non-US person) that lives and works for my company in Panama.
    What is my responsibility if any as far as my company reporting those payments.

    • If they are foreigner working outside the US, you should get a W-8-BEN to document the fact that they are indeed not a US person.
      You can issue a form 1042-S but you don’t have any obligation to do so, it will also be exempt from withholdings (exemption 03).
      Feel free to contact me if you have additional questions.
      Olivier Wagner

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