Generally, you (the Withholding Agent) must withhold 30 percent from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes all the following:
- The payee is a U.S. person,
- The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding,
- Any intermediaries and the beneficial owner are FATCA compliant.
Generally, you must obtain the documentation before you make the payment. The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. See Standards of Knowledge.
If you cannot reliably associate a payment with valid documentation, you must use the presumption rules. For example, if you do not have documentation or you cannot determine the portion of a payment that is allocable to specific documentation, you must use the presumption rules.
If you (the Withholding Agent) makes a payment to joint owners, you need to get documentation from each owner.
Generally, you can treat the payee as a U.S. person if the payee gives you a Form W-9. The Form W-9 can only be used by a U.S. person and must contain the payee's Taxpayer Identification Number (TIN). If there is more than one owner, you may treat the total amount as paid to a U.S. person if any one of the owners gives you a Form W-9. U.S. persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding.
Generally, a foreign person that is a beneficial owner of the income should give you (the Withholding Agent) a Form W-8.
There are various forms in the W-8 series. The form to use depends on the type of certification being made. As used in this discussion, the term Form W-8 refers to the appropriate document. See Forms for Foreign Beneficial Owners for more details.
The following describe the specific types of documentation.
- Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, and related Instructions
- Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), and related Instructions
- Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States, and related Instructions
- Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding, and related Instructions
- Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, and related Instructions
If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8.
Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. The nonresident alien individual may have to give you a Form W-4, Employee's Withholding Allowance Certificate or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. These forms are discussed in Pay for Personal Services Performed.
Special rules apply to Forms for Foreign Beneficial Owners.
Refer to Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for more information on these forms and documentary evidence.