Form W-8BEN

Halloran Securities is opening a brokerage account for Anneke Vos, a Dutch citizen residing in Amsterdam who is not a U.S. taxpayer. She intends to hold dividend-paying U.S. common stocks. Which form should the firm obtain from her, and what does it accomplish?

1. A.Form W-8BEN, which certifies her foreign status and lets her claim any reduced treaty rate of U.S. withholding on her dividends.Correct. The W-8BEN establishes non-U.S. status and supports a treaty claim for a reduced withholding rate.
2. B.Form W-8BEN, which exempts her entirely from U.S. withholding tax on dividends paid by U.S. issuers.Right form, wrong effect. A treaty claim generally REDUCES the withholding rate on dividends; it does not eliminate withholding.
3. C.No form is required, because a nonresident alien falls outside U.S. withholding rules altogether.Wrong. U.S.-source dividends paid to nonresident aliens are subject to withholding, which is precisely why the certification matters.
4. D.Form W-9, which certifies her taxpayer identification number and exempts her from backup withholding.Wrong. Form W-9 is for U.S. persons. A nonresident alien certifies status on a W-8 series form.

Why: A nonresident alien beneficial owner certifies her foreign status on Form W-8BEN. The form does two things: it establishes that she is not a U.S. person, so U.S. backup withholding and Form 1099 reporting do not apply, and it lets her claim any reduced rate of withholding available under the income tax treaty between the United States and her country of residence. It does not eliminate withholding. Absent a treaty claim, U.S.-source dividends paid to a nonresident alien are subject to a statutory withholding rate, and a valid treaty claim typically reduces rather than removes it.

Anselmo, a citizen and resident of Portugal with no United States status, signed a Form W-8BEN when he opened his mutual fund account in March two years ago. His representative asks the operations desk how long that form remains good. The accurate answer is that:

1. A.It is valid indefinitely, since his citizenship will not changeThe form expires on a set schedule regardless of citizenship, and a fresh certification is then required.
2. B.It must be renewed every calendar year before the first distribution is paidAnnual renewal is not required; the period runs to the end of the third succeeding calendar year.
3. C.It is required only if he claims a reduced rate of withholding under a tax treatyThe form establishes foreign status in the first place. A treaty claim is an additional element on it.
4. D.It remains valid, absent a change in circumstances, until the last day of the third calendar year after the year it was signed, and he must report any change of circumstances within 30 daysCorrect. The certification has a defined life and a duty to update it promptly if his status changes.

Why: A Form W-8BEN certifies the account holder foreign status and, where claimed, entitlement to a reduced treaty rate of withholding. Absent a change in circumstances it generally remains valid from the date it is signed until the last day of the third succeeding calendar year, after which a fresh form is needed. If the holder circumstances change - for example he becomes a United States resident - he must notify the withholding agent within 30 days.

Anselmo, a citizen and resident of Portugal with no United States residence or immigration status, opens a mutual fund account with a US broker-dealer. He will hold an equity income fund. Regarding the certification he provides and the tax withheld on his fund dividends, the firm should explain that:

1. A.no certification is possible without a Social Security number, so the account cannot be opened.A foreign investor without a US number may still be identified and documented; the account is not barred.
2. B.he certifies foreign status on Form W-8BEN, and his ordinary dividends are withheld at 30% unless a treaty provides a lower rate.Correct. W-8BEN establishes foreign status and supports a treaty claim against the 30% statutory rate.
3. C.he files Form W-9, and his dividends are exempt from United States withholding entirely.Form W-9 is for US persons, and foreign investors are not exempt from dividend withholding.
4. D.he certifies foreign status on Form W-8BEN, which exempts all fund distributions from any United States withholding.The form is the right one, but it establishes status rather than granting exemption.

Why: A nonresident alien beneficial owner certifies foreign status on Form W-8BEN, which the firm keeps on file. Absent that certification the firm applies backup withholding. With it, ordinary income dividends from a US fund are US-source income subject to withholding at the statutory 30% rate, reduced if an income tax treaty between the United States and the beneficial owner country of residence provides a lower rate and the form claims it. The certification is what allows the treaty rate to be applied at source.