What is the W-8BEN form for foreigners investing in US stocks?

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:

1. the individual is the beneficial owner of the income connected to Form W-8BEN.
2. the individual is a foreign person and not a U.S. citizen/ or other U.S. person.
3. 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.

Guide To Fill W-8 BEN Form for Investing in US Stocks

If you are filling the W-8 BEN form yourself, here are the step-wise instructions

Step 1: Enter Legal Name

Don’t forget to double-check the spelling.

Step 2: Mention your Current Citizenship

Your current nationality

Step 3: Permanent Address

The address in your address proof

Step 4: Mailing Address

If you want to receive any documents to an address other than the permanent address.

Step 5: U.S. Taxpayer Identification Number

This should be left blank for most non-US persons and foreigners.

Step 6: Foreign Tax Identifying Number

This is more likely to be applicable to you. Your country of residence generally issues an FTIN (Foreign Tax Identification Number). For Indian nationals, this is the PAN. In case you do not have one, you must explain why instead of leaving it blank (e.g., “NA”). Contact your HR department to find your FTIN number.

Step 7: Reference Number

If you’re an individual, you’re eligible to leave this blank. In case you’re a sole proprietorship or a partnership, check further instructions here.

Step 8: Date Of Birth

Self-explanatory.

Step 9: Treaty Claim

Certain countries have an income tax treaty with the U.S.; click here for the list. If you live in one of these countries and would like to claim reduced tax withholding rates, enter the country of residence in this step. Contact your HR department for country status issues.

Step 10: Special Rates And Conditions

In case you seek to request special withholding rates under the specific treaty norms, refer to the following IRS instructions. Contact your HR department if any issues arise.

 Step 11: Certification & Verification

Make sure to put the date in the following format: month first, then the day of the month, then the year (MM-DD-YYYY). Sign the form; if you are not the beneficial owner, then indicate the capacity in which you are acting (parent, legal guardian, etc.).

Conclusion

If you are investing in the US stock market as a foreigner, it is important to fill the W-8 BEN form to declare your tax status to the US tax authorities. The form helps you get taxed appropriately in the US.