UK Limited company completing a W-8BEN-E
What is a W-8BEN-E?
The W-8BEN-E form is used by payers of US income. All US payers are required to determine whether the recipient is a US entity or a foreign entity. The form is a record in case they are audited by the IRS and ensures the correct amount of US tax withholding is made. Because of tax treaties with the US, most entities with no effectively connected income or a permanent establishment (PE) in the US, will pay zero or a lower withholding than the standard 30% tax withholding required for non US entities (and persons).
Why am I being asked to complete form W-8BEN-E?
If you have a US based client, they need to establish if you are resident for tax purposes in the US. The IRS requires all payers of US source income to establish this. If they get it wrong, the IRS will pass the liability of tax owed to the US payor. Form W-8BEN-E allows the payer of the US source income the ability to determine the correct status BEFORE payment is made, therefore limiting their liability.
Do I need an EIN for Form W-8BEN-E?
The simple answer is, it depends on the payer! Just Breve complete many W-8BEN-E forms for UK Limited companies and every situation is different. Most do not require you to obtain an EIN. But some payers are more strict and wish to be complete in their dealings with the IRS. An EIN is an employer identification number that identifies the entity being paid.
Under US tax laws, all payments made by a US payor have to be reported to the IRS. The number facilitates that process.
Does having an EIN mean that the entity has to file US tax returns?
No not necessarily. Only where a foreign corporation is engaged in a trade or business in the US that generates effectively connected income (ECI) with the conduct of that trade or business. They would file Form 1120-F if they had a trade or business at any time during the taxable year. ECI is taxed at graduated income tax rates and credits and deductions are available for timely filed tax returns (this is 18 months from the due date). Where you are unsure if ECI exists, it can be beneficial to file a protective return. This allows all credits and deductions to be allowed, else they are lost and tax is due on gross income with no deductions.
ECI is generally created by having a permanent establishment in the US (this can also be created by having just a sales agent in the country). Where ECI exists, Form W-8BEN-E would not be completed. Instead you would complete Form W-8ECI.
Where income is fixed, determinable annual and periodic (FDAP), it is taxed on a gross basis. The normal withholding rate is 30% for non residents of the US, this includes companies. This can be modified (and reduced, by using an applicable income tax treaty).
US real property - this is automatically classed as effectively connected income and therefore annual tax filings are required.
State tax returns are different - and you may find, depending on the state being sold into, that the state requires state or sales tax return filings.
Personal services are also treated differently. As tax is imposed based on where the services are performed. - however, this can also be modified by tax treaties.
Where no ECI exists - some/most payors will allow a Form W-8BEN-E with no EIN. Again, this is the choice of the payor.
I need help filling in the W-8BEN-E. Who can help?
We can! Just Breve is a US tax form specialist based in West London, United Kingdom. We assist businesses regularly with W-8BEN-E form completion.
Get in touch today and we will happily assist and answer your questions: