The Foreign Account Tax Compliance Act (“FATCA”) is a 2010 US law requiring foreign financial institutions (FFIs) to review data for their account holders and identify all their US account holders or be subject to withholding on certain payments.
These foreign financial institutions would request W-8 series forms to identify and document their non-US account holders, which is why they request the form to non-US persons to complete. Generally, once these institutions obtain a Form W-8 from a non-US person, the institution knows it does not have to report information about that particular customer’s account pursuant to FATCA.
A nonresident alien (non US person individual) would generally use the W-8 BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)) form applies to non-US persons only. The form is usually requested by most foreign financial institutions to foreign (non-US) individuals who receive “US source” income (e.g. interest from US banks, dividends from a US corporation, sales proceeds from selling US stocks, rents from US property, royalties, annuities, compensation for services performed in the US). The point of the form is to establish that the non-US person is subject a 30% withholding tax on such US source income. It is also applicable to the extent that the foreign person may seek to eliminate US withholding tax or claim a reduced treaty rate of withholding by the US payor of the US-source income.
Generally, the foreign financial institutions will report account numbers, balances, names, addresses, and US TIN numbers. In the event the account holder is a foreign entity, the financial institution will report the name, address, and US taxpayer identification number of each “substantial” US owner of the entity (i.e. all US person who owns at least 10%).
To complete the W-8, the IRS requires for a tax identification number (TIN) in certain circumstances. For example, if you want to claim a withholding exemption, or claim certain tax treaty benefits, you need a TIN. If you do not have a US TIN, you can apply for one by filing the Form SS-4, Application for Employer Identification Number. Note that Hong Kong does not have a tax treaty with the USA.
US persons are not required to complete the W-8 series form, but instead Form W-9 Request for Taxpayer Identification Number and Certification. The FFI will use this form to obtain the Taxpayer Identification Number (TIN), or Social Security #, from all US persons with accounts with them. The form also provides other personally identifying information like your name and address.
Where is the Form sent to?
Both the W-8 and W-9 forms are sent to the withholding agents and/or payer of US source income. In many cases, the forms are sent back to the FFI that sent you the form to begin with. These forms are NOT sent directly to the IRS.
Given the importance of these forms and the personal information required of these forms, there are unfortunately instances of fraud involved with these forms. There have been cases in which individuals have been receiving scam emails or letters from fraudsters pretending to be representatives of the IRS or foreign financial institutions. The potential victims would be sent altered copies of W-8 or W-9 forms, in which they are requested to provide the name of their bank, account numbers, social security numbers, and/or passport information. The IRS DOES NOT send emails or letters to individuals asking for W-8 or W-9 forms. The IRS will never ask for a W-8/W-9 form, since generally the FFI will be requesting such information. Any correspondence from anyone other than your financial institution should be met with suspicion.
The above information is for general reading and informational purposes only and is definitely not tax advice. We recommend you consult with your tax professional first before responding to any request for W-8 and W-9s to insure the protection of your personal information.
Contact us today if you would like to discuss further.
- W-8 Forms: W-8BEN, W-8IMY, W-8ECI, W-8EXP, W-8BEN-E
- “Foreign financial institutions” (FFIs) include:
- Depository institutions (for example, banks)
- Custodial institutions (for example, mutual funds)
- Investment entities (for example, hedge funds or private equity funds)
- Certain types of insurance companies that have cash value products or annuities
- FDAP is an abbreviation for Fixed, Determinable, Annual or Periodic income. FDAP income applies to foreign persons earning income in the US; such persons will be subject to 30% withholding tax or a lower rate if there is a tax treaty between the United States and the country of residency.
- Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States connected with the conduct of that trade or business is considered to be Effectively Connected Income (ECI).
- IRC Section 7701 defines who is a US person or non US person.