Follow this step-by-step guide to fill out the W-8BEN form correctly

What is the W-8BEN form and why should I sign it?

The W-8BEN form is important for anyone who generates income in the USA but is not a U.S. taxpayer. The form helps establish foreign status and helps you be taxed appropriately as a foreigner. 

If you are investing in U.S. stock, thoroughly go through this form. You can ask about the form from your online broker. Scroll down to know everything about the W-8BEN form.

Purpose of W-8BEN form

What is the W-8BEN form for foreigners investing in US stocks? Source: winvesta.in
What is the W-8BEN form for foreigners investing in US stocks?

Any non-US citizen willing to enter the U.S. stock market should know they don’t have capital gains tax on U.S. securities. 

That’s why foreign traders must fill out the W-8BEN form to declare their tax status. It also helps them avoid any withholding tax while materializing their stock gains. 

Non-US traders on the U.S. stock market can easily get taxed for 30%. For this reason, many countries have signed tax treaties with the U.S. so its residents can enjoy lower tax rates on their profitability. 

For instance, Indian traders only need to pay a tax of 25% on their profits through the U.S. stock market. What the W-8BEN form does is that it confirms a trader’s eligibility for the reduced rate. 

Traders need to submit this form only when requested by a party. Also, the form should be properly filled out and submitted before receiving any income. 

The purpose of the W-8BEN form is to establish the following:

  • The individual is a foreign citizen
  • The individual is the owner of the income
  • The individual’s eligibility for an entire tax exemption or reduced tax rate

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Step-By-Step tips to fill out the W-8BEN form

Follow this step-by-step guide to fill out the W-8BEN form correctly
Follow this step-by-step guide to fill out the W-8BEN form correctly

If you are filling out the W-8BEN form yourself, follow this step-by-step guide:

  • Step 1: First, enter your legal name. Double-check the spelling to avoid errors
  • Step 2: Tell about your current nationality
  • Step 3: Enter your permanent address and include valid address proof
  • Step 4: You can provide a mailing address to receive the documents, an address other than your permanent address
  • Step 5: Do not include anything under the U.S. Taxpayer Identification Number 
  • Step 6: Under the Foreign Tax Identification Number (FTIN), enter the valid number that your country has issued. For instance, Indian nationals’ FTIN is their PAN card. If you don’t have an FTIN number, explain why instead of leaving it blank
  • Step 7: Individuals can leave this section blank, but if you are a sole proprietor or a partnership, you need to add a reference number
  • Step 8: Enter your date of birth
  • Step 9: If you live in one of those countries that have a tax treaty with the U.S., enter the country of residence. It can help you reduce tax withholding rates
  • Step 10: Check the IRS instructions if you want to request special withholding under specific treaty norms
  • Step 11: Follow the correct format while entering the date, i.e., MM-DD-YYYY. Sign the form

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Why does IRS require form W-8BEN?

Non-US residents need to fill W-8BEN form with withholding agents, payers, and FFIs. While the usual tax rate for non-US residents is 30%, they can get a total tax exemption or a reduced tax rate under certain situations. 

The IRS (Internal Revenue Service) needs a W-8BEN form so foreign traders can qualify for a reduced rate of tax reduction. The form helps in establishing this eligibility.

How long is the W-8BEN form valid?

All the additional information about W-8BEN form you can find on IRS official website
All the additional information about the W-8BEN form you can find on IRS official website

The W-8BEN form is valid for three years. Once the form expires, you must renew it to avoid paying penalties. If you want to change your name on the W-8BEN form before it expires, you need to fill out a new form in 30 days.

Your W-8BEN form can be invalid if you move overseas, add a U.S. phone number or U.S. tax identifier. Also, if you select No to claim a reduced withholding rate, your W-8BEN form can be rejected. 

If you don’t renew your form after it becomes invalid, the trading broker can sell any U.S. shares you have and deposit the cash into your trading account.

Which Countries Have Tax Treaties with the U.S.?

A list of countries has signed tax treaties with the U.S., including Canada, Finland, Japan, Israel, Philippines, Venezuela, Switzerland, Mexico, and more. 

Residents of these countries are eligible for reduced tax on their U.S. income. But the citizens need to correctly fill and submit the W-8BEN form to claim the benefits.

Conclusion about the W-8BEN form

As a foreigner, if you wish to invest in the U.S. stock market, you should fill out and submit a W-8BEN form. It helps you to declare your tax status to the U.S. tax authorities. In basic terms, the W-8BEN form helps you get taxed properly.

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Last Updated on May 30, 2023 by Yuriy Kunets