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!
8 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
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