W-8BEN & W-8BENE: Tax Forms You Need When Contracting Foreign Contractors/Entities
Staying compliant as both a company and a contractor is crucial. Although it can be a headache for many, we are breaking down what forms you need to issue to ensure your business is running clean. Of course, all of this is already automated on Deel :)!
Disclaimer: This article is for informational purpose only and should not be considered final. IRS procedures can be subject to change, so before you submit the forms, please check for the newest updates on www.irs.gov.
When working with foreign contractors or entities as a US business, you need to issue the forms called W-8BEN or W8BEN-E.
Their purpose is simple, they help establish that someone is a foreign individual/entity and that the work is not being performed from within the US. This will support the claim a reduced rate of, or exemption from withholding as a resident of a foreign country with which the United States has an income tax treaty.
Those forms are dependent on a few things:
- Type of earnings (Business profits, Royalties)
- Type of legal entity (Individual, Single corporation, etc.)
- Country (Established tax treaties (if existing) between the US and the country)
- Payee and payer information
If you choose to ignore the request to complete Form W-8BEN, the withholding agent is required to withhold 30% of any amount subject to withholding.
This form needs to be generated and issued every time a contractor/entity starts a contract with a company.
This form needs to be filled by a contractor who acts as an individual, not an entity. If you act as an entity, you need to fill out W-8BEN-E form. This form is issued to the withholding agent or payer, not sent to the IRS.
You can find the W-8BEN form here.
This form needs to be filled by a contractor that is acting as an entity, not an individual. This form is issued to the withholding agent or payer, not sent to the IRS.
You can find the W-8BEN-E form here.
Figuring out what treaty applies is non-trivial but doable! You can do it in three steps. For example, say you are working with a contractor based in Portugal to create content for your company.
Step 1: Find Portugal in this list of tax treaty
Step 2: Figure out the withholding rate for the type of scenario (in this case, business profit) which is 0% in this case
Step 3: Fill the W-8BEN form accurately
Of course, rates are not always 0% and in the scenario when they are not, tax withholding must occur. If the country does not have a tax treaty with the US, the withholding is 30%.
Duration of the form:
With a TIN, the form is effective indefinitely or until the facts change, provided that it is used at least annually. Without a TIN, it is valid for three taxable years from the date the form was created.
To conclude, although other things need to be taken into consideration and could significantly affect your company (i.e., Local labor laws), primary tax forms for working with remote contractors or any type of foreign entities in the US are crucial. You can follow the above steps when filling them in, or use Deel which will fill and issue them for you automatically when starting a new contract!