Expanding into the US market often represents a major opportunity for non-US companies looking to grow and succeed globally. It can provide access to one of the world’s largest economies.
For non-US companies venturing into the vast and lucrative US market, it is essential to understand and comply with US tax regulations and legal requirements. Two forms play an essential role in this process: the W-9 and W-8 forms.
Forms W-8 and W-9 are essential for companies and individuals who do business with companies in the United States, particularly from the point of view of tax compliance.
Have you ever been asked to complete a W-9 or W-8 form? We’ll explain what these forms are for.
What is the W-9 form?
Form W-9 is an official document from the Internal Revenue Service (IRS), the US tax authority that collects income tax and various taxes, including employment, corporate and estate taxes. It is required from individuals or companies supplying goods or services. Here is what the W-9 form generally contains:
- The legal name of the company.
- The Tax Identification Number (TIN), which is an identification number allocated to taxpayers by the tax authorities.
What is the purpose of the W-9 form?
The purpose of Form W-9 is to collect the tax information needed to meet U.S. income tax reporting obligations. Its primary purpose is to collect identifying information about a person or entity, such as:
- TIN information: The primary purpose of Form W-9 is to collect the recipient’s TIN. This ensures identification of the person or company and correct reporting to the IRS.
- Information Reporting : U.S. entities use the information provided on Form W-9 to prepare information reports, making it easier to document payments to non-U.S. entities.
Practical tip: If a US company asks you to complete a W-9 form, provide accurate information, including your TIN. Failure to do so may result in a withholding tax, where a percentage of your income will be withheld for tax purposes.
What is form W-8?
Form W-8 is a document used by US non-residents to certify their alien status and establish their eligibility for withholding tax exemptions or reductions on payments they receive from the United States.
The W-8 series includes various forms tailored to different types of foreign entities. Commonly used forms include W-8BEN, W-8BEN-E and W-8ECI, each responding to specific circumstances based on the foreign status of the recipient and the nature of the income. Here are some details of the different forms:
- W-8BEN: Used by non-U.S. individuals to certify their non-resident status in order to avoid double taxation or to benefit from reduced withholding rates under a tax treaty.
- W-8BEN-E: Used by foreign entities to certify their non-resident status in order to avoid double taxation or to benefit from reduced withholding rates under a tax treaty.
- W-8ECI: Used by non-U.S. persons (individuals or entities) to declare that certain income relates to trade or business conducted in the United States and is therefore taxable.
What is the purpose of form W-8?
Form W-8 allows nonresident aliens to certify their tax status and claim tax benefits on income received in the United States, including for :
- Claiming tax treaty benefits: Foreign companies can use W-8 forms to declare their foreign status, allowing them to claim reduced tax rates or exemptions under applicable tax treaties between the U.S. and their home country.
- Avoiding withholding tax: Completing a Form W-8 helps foreign companies avoid withholding tax on their U.S.-source income.
Practical information: To take advantage of the provisions of tax treaties, it is crucial for non-US entities to complete the correct Form W-8 that corresponds to their status and the type of income received from US sources.
What should you do if a US company asks you to complete a W-8 or W-9 form?
If a US company asks you to fill out a W-8 or W-9 form, it means that they need your tax information for reporting and withholding purposes. Here’s what you need to do in each case:
- Analyse the request: Determine whether the request is for a W-9 form or a W-8 form. This distinction is essential if you are to provide the correct information.
- Prepare the information: Make sure you have all the necessary information, such as your TIN for the W-9 or details of your foreign status for the relevant W-8 form.
What are the key points to remember?
When a U.S. company asks you to fill out a W-8 or W-9 form, it’s essential to understand the key information to remember. Here are the key points to keep in mind:
- Entering the US market offers a major opportunity for non-US companies looking to expand globally, thanks to access to one of the world’s largest economies.
- Companies need to understand and comply with a complex set of regulations and legal requirements, including tax requirements, in order to operate in the United States.
- These forms are important for companies and individuals engaged in commercial activities with US entities, particularly for tax compliance.
- Form W-9: Requests information such as legal name and Tax Identification Number (TIN), essential for tax identification and documentation of payments. Provide accurate information quickly, including the TIN, to avoid withholding tax.
- Form W-8 (W-8BEN, W-8BEN-E, W-8ECI): Used by foreign companies to certify their non-resident status, avoid double taxation, and benefit from reduced withholding rates or exemptions under tax treaties. Choose the appropriate form based on status and income to take advantage of tax treaty benefits and avoid withholding tax.
For advice tailored to your specific situation, contact our experts.
ASD Group specialises in comprehensive tax solutions for non-US companies doing business in the US.
We guide your business through the intricacies of US tax compliance, ensuring your success in the competitive US market.
