If you generate income in the USA and are not a US person for tax purposes, you need to use the W-8BEN form to establish your foreign status. The W-8 BEN form allows tax exemptions and categorizes you to be taxed appropriately as a foreigner.
Form W-8BEN is a “Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding and Reporting”. It is for individual use and not for business entities.
Generally, a current W-8BEN form will be in effect till 31st December, three years after the date of signing.
The purpose of the form is to establish:
- the individual is the beneficial owner of the income connected to Form W-8BEN.
- the individual is a foreign person and not a U.S. citizen/ or other U.S. person.
- the individual’s eligibility for withholding reduced tax rates, or exemption entirely, due to an income tax treaty between his home country and the United States.
If you are investing in the US stock market, it is important to remember that there is no capital gains tax on US securities for foreigners. Declaring your tax status through W-8 BEN helps you avoid any withholding tax when you materialize your stock market gains.
Any dividends on US stocks get taxed at a flat 30% for foreigners. Many countries, however, have income tax treaties with the US, and residents of these countries enjoy a lower tax rate on dividend income. Indian residents, for example, pay a flat 25% withholding tax on dividends in the US. W-8 BEN form confirms the individual’s eligibility for this reduced rate.
You must submit the form only when requested by a party and complete the form before receiving any income. You can find the full copy of the W-8BEN Form here.