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!