If you are an individual who is not a U.S. person (i.e., not a U.S. tax resident or a U.S. citizen) and you perform services from outside the U.S. for a U.S. customer, the U.S. customer that is paying you may ask you to fill out Form W-8BEN. If the U.S. customer does not receive the W-8BEN from you, they may be required to withhold a 30% U.S. tax on the gross payments to you.
At the bottom of Form W-8BEN, just above your signature, there are certain things that you are certifying. By signing the Form W-8BEN you are certifying, under penalties of perjury, that:
- You have examined the information on the form and to the best of your knowledge and belief the information is true, correct, and complete;
- You are the person who earned the income (i.e., you are the “beneficial owner” of the income);
- You are not a U.S. person;
- Regarding the income earned by you:
- The income was not effectively connected with the conduct of a trade or business in the U.S. (Income from services is not effectively connected with a U.S. trade or business if the services were entirely performed outside the U.S. For this purpose, it does not matter where the payor is located, where the contract was made, or where the payment is made.), or
- [If the income was from services performed in the U.S. and therefore would be taxable in the U.S.] The income was exempt from U.S. tax under a treaty; and
- If claiming treaty benefits, you are certifying that you are a “resident” of the treaty country listed on line 9. The term “resident” is defined in the applicable treaty, and generally means that you are liable to tax (i.e., subject to tax) in that country by reason of your domicile, residence, citizenship, etc. However, you are generally not considered a resident of that country if you are liable to tax in that country only on income from sources in that country. Each treaty has its own definition of “resident.” Therefore, the relevant treaty should be reviewed for the definition of resident.
As mentioned above, if the U.S. customer does not receive the W-8BEN from you, they may be required to withhold U.S. tax on the payments to you. This is because if you were a U.S. person or if you performed the services in the U.S., you would be subject to U.S. tax on the income. If you are not willing to certify these items on Form W-8BEN, U.S. tax rules may require the U.S. customer to withhold U.S. tax on the payments.
Note that under 4.a. above, if the services are performed outside the U.S., you don’t need to rely on a treaty to avoid U.S. tax. However, these rules can get complicated and the U.S. customer may be unsure if they need to withhold on the payments to you. Therefore, even if you don’t need to rely on the treaty to avoid U.S. tax, if you qualify for treaty benefits it makes sense to fill out the treaty portion of Form W-8BEN (Part II) (a sort of belt and suspenders approach).