Hiring and paying internationally has never been easier or more attractive for U.S.-based companies. Recruiting internationally means you can cast a wider net in your search for the right candidate, with a talent pool that encompasses the entire globe. But when you find that perfect international new hire, you need to make sure your paperwork is in order first — which means you need to know about the W-8 BEN form.
W-8 Forms are for non-resident aliens — people who are neither U.S. citizens nor U.S. residents — and foreign entities that work or earn income in the U.S. There are five different types of Form W-8, but for businesses that hire and contract internationally, Form W-8 BEN and Form W-8 BEN-E are the most important ones to understand.
Whenever you hire a non-U.S.-based contractor or pay a foreign company for services rendered, you’ll need to request they fill out a W-8 BEN form or W-8 BEN-E form. These forms help collect information necessary for proper tax withholding, saving your business from running into legal trouble later on.
What are Form W-8 BEN and Form W-8 BEN-E?
Form W-8 BEN and W-8 BEN-E are used for collecting information necessary for tax purposes from a foreign party contracted or paid by a U.S.-based company. This data helps the employer know how much tax they need to withhold from any paychecks. Also known as the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting,” Form W-8 BEN and W-8 BEN-E both serve the same purpose: identifying foreign parties who receive U.S.-based income and determining how much tax to withhold from payments made.
To put it another way, the Form W-9 is for collecting info from U.S.-based contractors, while the Form W-8 BEN is its equivalent for foreign individuals and non-resident aliens. Form W-8 BEN is for people who don’t live in the U.S., aren’t U.S. citizens and don’t have a green card, but benefit from certain types of income earned from U.S.-based sources. Form W-8 BEN-E does the same thing as W-8 BEN, but for foreign entities like businesses, companies, and organizations.
These forms are critical in getting businesses the information they need in order to accurately calculate tax withholding obligations — that’s why businesses that hire or work with foreign workers or companies need to request those parties fill out a Form W-8 BEN or Form W-8 BEN-E before paying them.
According to the IRS, foreign individuals and entities owe 30% tax on certain types of U.S.-sourced income — known as FDAP (Fixed, Determinable, Annual, Periodical) income. FDAP income includes:
- Compensation for personal services rendered (the most common situation for those filing Form W-8 BEN or W-8 BEN-E)
- Pensions and annuities
- Scholarships, prizes, and grants
However, a foreign individual who lives in a country that has an income tax treaty with the U.S. can claim a reduction or exemption from tax withholding. Form W-8 BEN tells the employer or business partner the identity of the party they’re going to pay and how much in taxes to withhold from that check based on their country of residence. You, as the U.S. withholding agent and responsible party, use the information provided to withhold the proper amount of taxes and submit them to the IRS accordingly.
How to Request and Collect Form W-8 BEN
You, as the U.S.-based employer, are responsible for sending Form W-8 BEN or Form W-8 BEN-E — whichever is applicable — to non-resident contractors and companies you’re going to pay. You must request the foreign individual or entity fill out the form and return it to you.
How often should you request one? Once every three years from the date signed, unless changes occur, such as a change in residence or tax situation. In those circumstances, the party who originally signed the Form W-8 BEN must fill out and submit a new one within 30 days of the change.
The person filling out the form should submit it to you, the employer or company requesting it, not the IRS. You then use the form and its information to determine the amount of taxes to withhold for remittance to the IRS when you pay them.
Here are some best practices for requesting Form W-8 BEN:
- Request Form W-8 BEN or Form W-8 BEN-E at the start of your professional relationship before any work is done or paid for.
- Collect all tax forms digitally (vs. manually or by mail) to enable speed, efficiency, and organization.
- Consult experts in international payroll or taxation (like Pilot) to make sure you’re covered legally in terms of compliance.
Consequences for Not Filling Out Form W-8 BEN
If you don’t request your international workers or partners fill out a Form W-8 BEN or Form W-8 BEN-E, you could run into issues with improper compensation and tax compliance.
Tax law says you have to withhold 30% federal tax from the foreign individual or company unless they’re eligible for lower taxation rates. You could experience issues with compliance if you don’t withhold the right amounts based on where your foreign workers and partners live, accidentally overtaxing them. Without a Form W-8 BEN to tell you otherwise, you risk withholding too much from workers covered by international tax treaties, which leads to your workers and clients not receiving proper compensation.
Leave Tax Compliance to the Pros
International tax compliance can be a nightmare, especially when hiring and paying internationally at scale. Making sure to request and keep on file a Form W-8 BEN or Form W-8 BEN-E from every foreign person or entity you work with can make that nightmare even worse. When you enlist our services at Pilot, you earn the peace of mind that we’ve got you covered when it comes to tax withholding and legal compliance. We request and collect Form W-8 BEN and Form W-8 BEN-E from international contractors on our clients’ behalf, helping them stay organized during tax season.
Let’s talk about your international tax concerns — and solutions. Try Pilot out today!
⚖️ Legal Disclaimer: The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Cover photo courtesy of Christopher Gower on Unsplash