W-8BEN what's that all about?

Here's a link to the form:

And here are the instructions: The document is called, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding

I'm not familiar with the form, though I am familiar with the tax it goes along with. The instructions give you most if not all the information you will need to know. The term "beneficial ownership" means who is the person who really benfits from the transaction, as opposed to the legal owner, who may not be. For example when there is a trust, the trustee is the legal owner but the beneficiary is the beneficial owner. There are other situations where one person (perhaps a parent or someone on the parent's behalf) takes legal ownership but the person actually intended to benefit (whether there is a formal trust agreement or not) is the beneficial owner.

The term "beneficial owner" is explained in the instructions. It is clear they are talking about the beneficial owner of the taxable income, not the owner of the underlying asset. For clarification of the US based people, in the UK the term "company" generally means "limited company" or, in American, a corporation. These are considered separate tax-paying entities, and the owner of the shares is not generally considered the beneficial owner of the company's income. Stu

Sounds appropriate.

W-8BEN is used to certify that the recipient of a US-sourced payment is a non-US person and to claim the benefit of any reduced rates under the applicable tax treaty.

"Beneficial owner" means the beneficial owner of the payment. The reason they use this term is because of the possbility of agents or intermediaries getting in the way. The form is asking who the payment legally belongs to. This is generally the person that will have to treat the payment as taxable income.

If you don't provide the certificate, US law requires that

30% of the payment amount be withheld and turned over to the Internal Revenue Service. If there is any question about whether the company could be considered a US company and a higher withholding rate would apply to a US person, then the higher withholding rate would apply.

As long as the company is a UK company and pays income taxes in the UK (i.e. it's not a flow-through type of entity), then the company is the proper party to be filling out the form. What happens later when the company distributes the funds to the US shareholder is a different tax question. W-9 can only be used to certify that a taxpayer is a US person. Since the company is based in the UK, it could not legitimately sign a W-9 form. I'd recommend contacting an accountant in the US that has some international tax experience. You will want to see whether you should be claiming any tax treaty benefits on the W-8BEN.

--Chris

Hey, wait. People have correctly pointed out that the point of a W8BEN is to establish that a payee is a resident of a tax treaty country so the payor doesn't have to withhold tax. BUT, unless I completely misread the instructions, the W8BEN and the ITIN tax number that it reports is for individual payees, not businesses. Since you're a business, I presume that the business does what it does, and the owners report their share of the business' profits. Your American owner probably pays UK taxes (if he's a UK resident) and credits that toward his US taxes. If your client is really a UK company with no operations in the US, I don't see any reason that any US taxes apply. Perhaps you might want to advise your client's customer that your client is a company, not an individual, not subject to US taxes, so W8BEN doesn't apply.

You misread the instructions. On page 3 of the instructions is the definition of a foreign person: "A foreign person includes a nonresident alien individual, a foreign corporation . . ." Form W-8BEN does apply to foreign companies. They are considered "persons" for this purpose, as the definition makes clear.

That's right. And the company has to provide the Form W-8BEN to certify that this is the case. Bob Sandler

The section 1441 tax applies to individuals, but there's a very similar tax imposed under section 1442 that applies to corporations. W-8BEN can be used by either individuals or businesses.

Just because the business is a company with no operations in the US doesn't automatically make it exempt from US taxes. Payments from US sources can be taxed by the US government, even if the recipient is a business and even if the recipient has no operations in the US. Those taxes are usually enforced by withholding at the source, since the US government would otherwise be unable to get jurisdiction over the recipient. The company should fill out the W-8BEN, as requested, especially if any of the US-UK tax treaty provisions provide for a reduced (or maybe even zero) withholding rate on the type of income involved.

--Chris