What is a W-8BEN?

If you plan to buy or trade US shares, you will likely need to fill out a W-8BEN form. Let’s take a look at what this form is and why it is needed.

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Buying shares from foreign markets is easier than ever due to the rise of online share dealing platforms. Before you start investing using these platforms, there are a few things you should know.

One key thing to be aware of is that if you’re planning to invest in US shares, you will likely need to fill out a W-8BEN form. If you don’t know what a W-8BEN is, don’t panic! This article will explain what it is, why it’s needed and how it can affect your investment.

What is a W-8BEN form?

A W-8BEN is a form from the US tax collection agency, the Internal Revenue Service (IRS), that proves your country of residence is outside the US for tax purposes. The form allows you to claim a lower tax rate on income earned in the US.

How is the form used?

Under US tax laws, a foreign individual is usually subject to 30% tax on US-sourced income.

This includes income from the following sources:

  • Interest
  • Dividends
  • Rents
  • Royalties
  • Premiums
  • Annuities
  • Compensation for, or in expectation of, services performed
  • Substitute payments in a securities lending transaction
  • Other fixed or determinable annual or periodical gains, profits or income

The tax is generally withheld from the payment made to the foreign individual.

However, a reduced tax rate may apply if there is a tax treaty between the foreign individual’s country of residence and the US. The UK has one of these treaties with the US. This is where a W-8BEN comes in.

If you fill out a W-8BEN form and then buy a US stock that pays dividends, only 15% will be deducted from the dividends paid out instead of the standard 30%. This is clearly a huge saving that can make a big difference to your total returns. Therefore, it is definitely worth your time to complete and submit this form.

The form collects information on the individual or business claiming a reduced tax rate, where they’re from, and the types of income earned.

Who needs to fill out a W-8BEN form?

W-8BEN forms are filled out by foreign individuals or entities that are not US citizens or resident there for tax purposes but are earning income from the US.

While a W-8BEN form is usually needed when you trade US stocks using a share dealing account or a stocks and shares ISA, it is not usually required for US investments held in a self-invested personal pension (SIPP).

The IRS recognises a SIPP as a qualifying pension scheme. Therefore, all qualifying US dividends and interest contained in this savings and investment vehicle are paid in whole and free of any withholding tax.

How do you fill out a W-8BEN form?

The form can be rather complex to complete. Though it requires basic information such as your name, country of origin, and taxpayer identification number (TIN), it also asks for the contact details of the entities from which you are receiving the reported income.

Some people choose to seek help from a professional tax adviser when completing their W-8BEN form to ensure it is completed correctly.

You must submit the form to the payer or withholding agent prior to receiving income or credits from them. Failure to submit a W-8BEN form could result in paying the full 30% rate.

Where can you get a W-8BEN form?

Most brokers will provide a W-8BEN and allow you to complete it online. Some will remind you to complete and submit a W-8BEN during the account creation process. For others, it might be when you first trade a US stock.

If your broker doesn’t prompt you to fill out the form, you may need to ask for it yourself.

How often do you need to complete a W-8BEN?

A W-8BEN is valid for three years. You need to renew your form after this. So, if you completed a form on 1 January 2022, you will need to complete another form on 1 January 2025.

Your broker will usually let you know when it’s time to renew. If your circumstances change, you need to notify your broker and provide an updated form.

If you use more than one broker, you’ll have to fill out a W-8BEN with each of them.

It’s important to remember that if you transfer your US stocks from one broker to another, you cannot transfer your W-8BEN. You’ll need to complete a new one and submit it to your new broker.

If you want to switch brokers but aren’t sure where to start, check out our top-rated share dealing accounts to get started.

Is a digital or electronic signature acceptable on a W-8BEN?

In many cases, digital signatures are not accepted. The IRS requires a regular ‘wet’ (non-digital) signature as a W-8BEN is a legal document.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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