Understanding Form W-8BEN and Form W-9 in the Brave New FATCA World

Form W-8BEN has been used by most foreign (non-US) beneficial owners who receive “US source” income (such as dividends from a US corporation or sales proceeds upon the sale of US stocks) to certify their status as “foreign” and, if applicable, eliminate US withholding tax or claim a reduced treaty rate of withholding by the US payor of the US-source income. This type of withholding is generally referred to as “Chapter 3” withholding, referring to a particular Chapter in the US Internal Revenue Code (Code) for withholding tax required on payments of US source income to foreign persons. You can read more about US-source income tax withholding and Form W-8BEN at my tax blog post here. 

FATCA Provides a New Use for Form W-8BEN: Certifying Non-US Status

Now, a new and revised version of Form W-8BEN is appearing all over the globe with regular frequency because it is being used not only by US financial institutions, but also by foreign financial institutions with their foreign customers. The new and revised Form W-8BEN as well as other new forms in the W-8 series (e.g., Form W-8BEN-E), are designed to address status for both Chapter 3 and so-called Chapter 4 (more below) so that financial institutions, for example, will not have to maintain two separate forms.

As more and more non-US financial institutions are becoming “FATCA-compliant”, we have been receiving questions from non-US individuals living overseas about why their local banks or brokerage firms are asking them to complete Form W-8BEN when these foreign individuals have no US connections whatsoever, are customers of a non-US financial institution and are not receiving any type of “US source” income. 

For the first time in 2014, the Form W-8BEN was split into two forms: W-8BEN and new Form W-8BEN-E, both with a revision date of 2014. The revised Form W-8BEN is now used exclusively by individuals. Entities documenting their foreign status, Chapter 4 status, or making a claim of treaty benefits (if applicable) are to use Form W-8BEN-E.  Another significant change to the Form W8-BEN is the requirement for a foreign tax identification number in certain circumstances. A foreign tax identifying number is generally the tax identifying number (TIN) issued to an individual by his or her jurisdiction of tax residence. In the event that that jurisdiction does not issue such TINs or the individual lacks such a TIN, he is to provide his full date of birth instead on Line 8 of the Form W-8BEN.

For anyone not in the know, “FATCA” is the “Foreign Account Tax Compliance Act”, enacted by the US Congress in 2010.  The FATCA legislation added an entire new chapter to the US Internal Revenue Code – so-called “Chapter 4 of Subtitle A” consisting of Sections 1471 through 1474.  Under Chapter 4, participating foreign financial institutions (FFIs) and certain registered-deemed compliant FFIs are generally required to search their data bases and to identify their US account holders, regardless of whether a payment subject to US withholding is made to the account. The IRS has published regulations that provide due diligence, withholding, and reporting rules for both US withholding agents and FFIs under Chapter 4. Thus, FFIs must undertake a Herculean task in combing through their data bases to find US account holders; onboarding new clients must be undertaken in a way that separates out non-US from US persons.

Most non-US financial institutions are using the Form W-8BEN to identify and document their non-US account holders.  US account holders must fill out Form W-9 certifying that they are US persons and thus indicating their US status to the institution. Generally, once the institution obtains a Form W-8BEN from its customer (along with meeting other due diligence requirements) the institution knows it does not have to report information about that particular customer’s account pursuant to FATCA.  Information about accounts of US persons held at a foreign institution must be turned over to the IRS (whether directly, when the institution is a participating FFI or indirectly, through its own local government agency that has signed a so-called “intergovernmental agreement”, or IGA, with the US under which the foreign government agrees to forward the information on to the IRS).  Read more about how FATCA has developed and grown here.  Generally, FFIs must report account numbers, balances, names, addresses, and US taxpayer identification numbers. When the account holder is a foreign entity, the institution must report the name, address, and US taxpayer identification number of each “substantial” US owner of the entity (an owner with at least 10%).

Consequences of Failing to Fill Out the Form W-8 BEN / W-9

In a nutshell, failing to fill out the form for your financial institution can result in negative consequences. Don’t ignore your financial institution’s request to fill out the required paperwork. Individual account holders (both US and foreign) that do not document their status may be denied opening an account with the institution.  IRS has recently clarified that foreign financial institutions following the mandates of an IGA applying the due diligence procedures in section III, paragraph B, of Annex I of the IGA simply cannot open an account without the required certification of status.  See FAQ 10 

In addition, existing account holders who refuse to fill out the required paperwork may be deemed “recalcitrant”.  Generally, a “recalcitrant” account holder is an account holder who fails to (i) comply with reasonable requests for information pursuant to the IRS mandated verification and due diligence procedures to identify US accounts (i.e., fails to provide the Form W-8BEN or W-9, as appropriate); (ii) provide a name, address and taxpayer identification number or (3) provide a bank secrecy waiver upon request.  “Recalcitrant” account holders may be subject to 30% withholding on certain payments and possible closure of the account. Foreign individuals can avoid being classified as recalcitrant account holders by using Form W-8BEN to document their foreign status. US individuals should not use Form W-8BEN, they are to use Form W-9 to avoid classification as a recalcitrant account holder.

How Long Will a Form W-8BEN Remain Valid?

Generally, a Form W-8BEN will remain in effect for purposes of establishing foreign status for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. For example, a Form W-8BEN signed on September 30, 2015, remains valid through December 31, 2018.  However, under certain conditions a Form W-8BEN will remain in effect indefinitely until a change of circumstances occurs. To determine the period of validity for Form W-8BEN for purposes of Chapter 4, see Treas. Reg. § 1.1471-3(c)(6)(ii).

 Additional Sources of Information

Form W-8BEN   

Instructions Form W-8BEN 

FATCA FAQ’s (See the Section “General Compliance”) 


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