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 receive royalty income from a U.S. payor, the U.S. payor may ask you to fill out Form W-8BEN. If the U.S. payor 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 income (“ECI”) (In most cases, royalty income earned by a non-U.S. person from a U.S. person is not ECI.), or
- [If the royalty income was effectively connected with a U.S. business] 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. But you are generally not considered a resident of that country under the treaty 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 applicable treaty should be reviewed relative to your circumstances.
If you qualify for treaty benefits, you should fill out the treaty portion of Form W-8BEN (Part II) and specify the rate of withholding for royalties under the treaty. The treaty rate for royalties varies significantly from treaty to treaty. You need to review your treaty to determine the appropriate rate.