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IRS updates form for payments to foreign service providers

June 24, 2016

The IRS has released a revised version of Form W-8BEN-E, which changes treaty benefits, rules regarding disregarded entities and more.

If you do business with foreign entities, you’re probably familiar with IRS Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities). In April 2016, the IRS released a revised version of the form, which includes several significant changes that you should be aware of.

To Tax or Not To Tax?

Under the Foreign Account Tax Compliance Act (FATCA), foreign entities that receive certain income from U.S. sources must complete Form W-8BEN-E to report their U.S. tax status. Several types of income may be subject to withholding, including:

  • Interest,
  • Dividends,
  • Rents,
  • Royalties,
  • Premiums,
  • Annuities, and
  • Compensation for services performed.

U.S. taxpayers (also known as “withholding agents”) that make certain payments to foreign entities must receive a completed Form W-8BEN-E to determine whether payments to an entity are subject to 30% withholding and, if so, whether the entity is eligible for reduced withholding under an applicable tax treaty.

What’s New?

The IRS has made three notable changes to the revised form.

Treaty benefits. The revised form requires entities claiming treaty benefits to certify that they meet the requirements of a limitation of benefits provision (LOB) in the applicable treaty. It offers checkboxes that list several types of LOBs. The form also includes a checkbox to indicate whether the entity received favorable discretionary determination by the U.S. competent authority and provides space to identify an LOB other than those listed.

Disregarded entities. The revised form clarifies completion of the form by so-called “disregarded entities.” These are entities that aren’t recognized as separate from their owners for tax purposes. Disregarded entities don’t need to complete Form W-8BEN-E unless they receive withholdable payments and either: 1) have a Global Intermediary Identification Number (GIIN), or 2) are branches of a Foreign Financial Institution (FFI) in a country other than the FFI’s country of residence. Other than these situations, the disregarded entity’s owner would complete Form W-8BEN.

Sponsored entities. To avoid the 30% withholding tax, FFIs must register with the IRS, obtain a GIIN and report any U.S. account holders. Under a previous transitional rule, certain FFIs could act as a sponsor for other FFIs, all of which used the “sponsoring entity’s” GIIN. Beginning on January 1, 2017, sponsored FFIs must register with the IRS and obtain their own GIINs. To accommodate sponsored FFIs that receive a GIIN before that date, the revised form provides spaces to report the sponsoring entity’s GIIN as well as their own.

Who Can Help?

These are just a few of the many changes in revised Form W-8BEN-E. Withholding agents may accept the previous version of the form through the end of October 2016. To find out how the new form might affect your business, consult our team of global tax specialists.

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