Wow, the IRS has been busy - or the folks in the United States are doing a little early spring cleaning. Either way, a client of mine was requested to fill out a W8-BEN.
A W8-BEN form is a certificate of foreign status of beneficial owner for United States tax withholding.
Uhm, what?!?! If you are a Canadian company, and you have customers in the United States, odds are those customers are going to request you fill out the W8-BEN form. Why? Because “foreign persons” (this is individuals or companies) are subject to a 30% withholding tax on income they receive from US sources. However, there are exemptions so you need to fill out the W8-BEN form to atleast:
- establish you are not a US person;
- claim you are the ‘beneficial owner’ of the foreign income;
- confirm you are a non-resident claiming exemption from the 30% (if you are eligible)
There are other reasons to fill out the W8-BEN but for most of you it is to make sure they don’t hold back 30% of your payment which, for a small company, is a big deal.
OK, I don’t want to have 30% deducted from my payment so how do I fill out the form?
The instructions and details to fill out the W8-BEN IRS form can be found here. It is pretty straight forward but the one item that is going to throw you is Line 6: “US taxpayer identification number”. Many of you are not going to have a US taxpayer ID number because you don’t have a physical presence in the US, are not filing taxes, etc. In the ‘old days’ (sorry to get a little retro-grouchy here …) Canadian companies simply provided their Canadian federal business number (the ‘BN’ number) on Line 7 (Foreign tax identifying number) and put “not applicable” on Line 6. However, US companies are taking the IRS guidance, you should have a taxpayer ID number, as meaning mandatory. To be honest, anytime the IRS says “should” just do it because it will make your life that much easier.
How do I get one of these EIN US taxpayer identification numbers?
EIN stands for Employer Identification Number and is your permanent number and can be used for most of your business needs (e.g. applying for business licenses, filing taxes when applicable, etc). You can apply by filling out the Form SS-4 but the easier, preferred way is online.
Once you get your EIN then you can fill out the W8-BEN for your customer and then get full payment. When cash is king this is the best option. Yeah!
22 comments ↓
Thanks this has been a thorn for the last 5 yrs of business, normally I just ignore the EIN line but now I have a customer who won’t accept that.
You know, I asked Export Development Canada a few years ago for help on this and they didn’t even know what a W8 was? They did try at least to find out….
Thing that’s getting me though, is the application for EIN (SS4) seems to imply that I will be filling in a tax return(!?)
Hey Jim! Yup, I think because the EIN is used for so many things they assume you will be filing taxes. Don’t worry, unless you have a physical presence in the United States, you don’t have to file taxes just because you got an EIN number. Cheers!
It’s important to note that “Foreign” persons cannot apply for the EIN online. We have tried calling every number listed by the IRS and can’t get any information. Canada Revenue knows nothing about this.
In reading the instructions for the W8 BEN it still seems unclear as to whether we as a wholly owned Canadian company doing business in Canada need to fill this out. We do have US customers (lots of them) that we provide Internet services.
Does anyone have additional info they have found out or suggestions?
Foreign persons and businesses cannot apply for an EIN online.
You must call a specialized (local) number and have your completed SS-4 form in front of you.
The number is (215) 516 6999 .
Also note that they will ask your ‘business start date’ - meaning your first time dealing with a US client. If this is too far off from the current date, this may cause problems with your request. (since they will wonder why you didn’t need an EIN before..)
okay I have a Cdn Customer, I do the work here in Canada but they have a third party that pays there bills in the states. They want a W-8 Ben form filled out why? how do I get around that? They have since stopped paying us.
Where providing simple medical services were not selling products.
According to the “Instructions for Form W-8BEN”,
“the beneficial owner of income is generally the person who is required under U.S. tax principles to include the income in gross income on a tax return.” Does that mean that we, a Canadian company who does not pay tax to the US government, do not need to provide the W-8 form?
For a Canadian company without any establishment in US, is there any tax liability on receiving payment from a US company, i.e. filing for incoming tax and sales tax? With that many services going offshore from US, there should be a clear cut definition. I have no problem to file the SS-4 form with IRS if there is a textbook answer. Without one, any information reveal to IRS can possibly come back against you some time in the future.
I just completed the SS-4 and W8BEN. Here’s what I learned for anyone faced with the same thing.
If you are physically doing work in the US and will be paid for it, you need an EIN (complete the SS-4). Easiest thing to do was call the IRS - the number I used is specific to companies not based in, or calling from, the US (215-516-6999). I completed the form first, then just walked through it with the IRS guy. He put me on hold for about 30 seconds and came back with our EIN. In 2 weeks, I should receive original in the mail from the IRS.
The W8BEN form allows us (Canadian corporation) to invoice US customers and no tax is withheld. Basically the W8BEN form allows us to access the US/Cda tax treaty. Hopefully (fingers crossed), there won’t be any tax filing requirements in the US for us. On the W8BEN, you need to include your EIN.
For the EIN, it stays current as long as you have 1 invoice to your US customer per year. If it becomes inactive, call the IRS back (number above) and request to have your EIN re-activated.
Sue
Asiak, thanks for the IRS number to do the SS-4 EIN application over the phone.
The IRS was surprisingly efficient: I called them at 6:45 pm eastern time (not expecting anyone to pick up) and got through to an agent within a couple of minutes. The agent walked me through the form and activated an EIN number and provided it to me over the phone right away.
While in general both US and Canadian tax law is ridiculously complicated, this particular interaction with the IRS went much better than I had expected.
I uderstand that the are 3 situations in the Us where a Canadian doing busines US with a stock broker in the US, interest from a US bank account and winnings from the large 6′high slot machines. Fills out a W8 and does not have to pay US tax
Thank You for this informative post.
I have a godaddy parking account which is earning over 400$ per day and I didnt have a clue what i needed to do to get the money. Now I do.
I will try and get the EIN and complete the w8en form.
Thanks Again
Can this also works for Individual Consultant sitting in India or is it only applicable for Canada.
Hi, I am located in Canada (Cnd corporation) and I receive affiliate commissions from USA. The Affiliate network asked me to fill out a W-8BEN form to be able to receive my commissions ($). I did it but without entering a EIN. They say it was optional. To be legit with the IRS, do I also have to get a EIN (SS-4) or can I just leave it like that ?
Thank you!
Steve
NB: CHAD (#11), What is your secret for getting 400$/day with Godaddy.com parking services ?
Thanks for this very informative post and the equally informative comments besides! I was starting to sweat this one when I found you all. I’m a Canadian Sole Proprietor and a Service Provider and found (through these posts) that the US Tax Law Department is incredibly, massively, helpful and *gasp* even friendly to deal with. You can reach them at 267-941-1000 (hit option 2 and option 3 at time of this writing)
Rev Can… please take a page from their book!
Incidentally the number above for the SS4 application has been changed to 1-267-941-1099 and for me, the EIN was not needed to file the w8 because my work , though for a US client, was completed in Canada and thus is exempt for tax withholding. Therefor parts II and III did not apply to my work.
I just filled out the W8 parts I and IV and sent it off to my client.
Thank you all again for your generosity.
Sharon
Hello,
I live and work in the United States but i am not a citizen. What type of form should I fill out for my taxes? can I fill out a W8 form? Thanks for you help!
I forgot to say that I dont own any bussiness, I am just an employee. Thanks.
Friend this is very good, now i’m learning
Great stuff ! Also may thanks to Sharon above -that solved quite a few items.
Guys should talk to accountant. The above comments are not correct 100%. First, people involved in the situation not paying tax has nothing to do with Canadian nationality.
First only “US source income” earned by aliens are taxable by IRS. The taxablility depends on a number of factors. For service, the location of the service determines if the income is taxable. If you perform service in the US, you are required to pay tax.
After determining that you are required to pay US tax, you fill W8 forms to exempt you from tax withholding. Some types of income are taxable regardless where you live, such as dividend and interest. You file non-residence tax return afterwards.
Guys, please can you help.
I am a Brit with a UK tax identifying number, but currently resident in Dubai, UAE. For UK nationals this is a tax free jurisdiction, so I have no local Dubai tax ID. Do I need to get a US tax payer identification number? or will the UK one on its own be OK?, if so which address do I use as I live in Dubai but tax ID is from UK? I worked for 4 days only in Aug 2011 and may not have any more work in US for years.
We are a Canadian corporation selling goods and limited US based contractor services in the US. We have completed the W8-BEN to avoid the 30% US withholding tax without problems in the past. We did this by checking boxes 9a and 9c. Now we are being asked to complete line 10 and provide information on applicable articles of the Canada-US tax treaty, the applicable tax rate, the type of income and why we meet the terms of the treaty article. Where is this information available and is it really required??
I am a Canadian & want to open a US account in Canada & do futures trading with a US futures broker . What forms should I have to fill because I pay taxes to Revenue Canada? Or must I pay taxes in the US & Canada? Please help.
Leave a Comment