Under United States law, foreign individuals and entities are subject to withholding on US Source Fixed or Determinable Annual or Periodic (FDAP) Income. The University of Washington, as a withholding agent is required to withhold unless a foreign payee can demonstrate that income is not US Source FDAP income or a tax treaty exemption is availalbe for such income. Non-withholding is substantiated through the provision of certain United States Tax Forms.
Claim of Tax Treaty Benefits
Foreign vendors, students, and scholars may be eligible to claim the benefit of a tax treaty if one exists between their country of residence and the United States.
The first step in determining eligibility for the benefits of a tax treaty is to determine whether the US has entered into a tax treaty with the individual or entity's country of residence. The second step is to determine whether the individual or entity meets the requirements of the Article of the treaty under which the benefit is claimed.
A full list of current tax treaties entered into by the US can be found here. This list can be used to determine if there is a tax treaty between the US and the relevant country and if so, whether the individual or entity meets the requirements to claim the benefit of any Article fo the tax treaty. The IRS has also provided several summaries of available tax treaty benefits here. Individuals and entities may also wish to consult Publication 901 (US Tax Treaties) for additional information.
The US Tax Forms used to claim the benefits of a tax treaty are discussed below.
Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act (FATCA) is a broad-reaching United States Federal Law intended to reduce tax non-compliance by US persons. Effective July 1, 2014, the Internal Revenue Service (IRS) issued additional guidelines regarding the implementation of FATCA. FATCA requires payers such as the UW to:
• Have procedures in place to categorize foreign payees and identify any payments that would be subject to withholding.
• Have procedures in place to report and potentially withhold tax from payments that are subject to withholding.
• Receive appropriate documentation (e.g. W-9, 8233, W-8 form) to verify the payee’s FATCA status.
To ensure compliance with FATCA, the University must request a W-8 form from any actual or presumed foreign person or entity. Therefore, the UW must request the appropriate Form before making a payment to a foreign individual or entity (supplier or vendor). International vendors must submit a US withholding certificate (8233 or W-8 series) with an Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN), Social Security Number (SSN), or Foreign Taxpayer Identification Number (Foreign TIN) in order to claim an exemption from or reduction in withholding. With regards to business payments, the EIN, ITIN or SSN can only be used by the vendor for US business tax obligations and cannot be used for US personal tax obligations.
Form 8233 is used to claim a tax treaty-based exemption from tax withholding on personal services income rendered by a nonresident alien individual within the United States.
Form 8233 must be provided before payment is issued by UW if tax treaty benefits are claimed. A separate Form 8233 is required for each payment issued by UW. Note: IRS regulations require UW to wait ten business days to issue payment from the date the Form 8233 is sent to the IRS.
Those completing Form 8233 should pay particular attention to Part I, Box 2, as a US TIN will be required for UW to accept a Form 8233.
The W-8BEN is used to confirm that a vendor is a foreign individual and must be provided even if the individual is not claiming a tax treaty reduction or exemption from withholding. All foreign individuals, other than those whose payments from UW are covered by a Form 8233, who are receiving payment must provide a W-8BEN even if no EIN, ITIN or SSN exists.
A valid W-8BEN must be provided before payment is issued by UW. A Form W-8BEN is valid for the calendar year in which it was signed, as well as the three succeeding calendar years, unless a change in circumstances makes the information provided on the form W-8BEN inaccurate. Thus, a W-8BEN signed during calendar year 2015 would be valid for calendar years 2015, 2016, 2017, and 2018. A new form W-8BEN would be required for any payments to be made after December 31, 2018.
This is a new form that is a direct result of FATCA. The W-8BEN-E is to be completed by foreign entities, not individuals. This form contains 30 parts; however, very few of them are required to be completed to permit vendor payments. Foreign entities must complete Parts I, III (if the benefit of a tax treaty will be claimed), and XXIX. If any required field is not complete, the W-8BEN-E is invalid and will be rejected.
Due to the length and complexity of the Form W-8BEN-E, the University of Washington has highlighted the fields that must be completed in order for the University of Washington to accept a Form W-8BEN-E as valid. The recipient is responsible for determining whether the Form W-8BEN-E or another W-8 series Form is appropriate.
At a minimum, the following lines must be correctly completed for the University of Washington to accept the Form W-8BEN-E:
Part I requires the entity to identify the beneficial owner of the payment, including name, address, entity form, FATCA status, and US or Foreign Taxpayer Identification Number:
- Line 1: Organization name;
- Line 2: Country where the organization was incorporated (corporations) or located (other entities);
- Line 4: Organization status (Chapter 3): select the appropriate status;
- Line 5: Organization status (Chapter 4): select the appropriate status;
- Note: the status chosen on this line will determine the appropriate Part IV-XXVII which must be completed;
- While UW cannot provide tax advice to its vendors, and each entity must accurately determine the appropriate Chapter 4 Status to be reported in Part I, Section 5, the following foreign entity types are most heavily represented in the University of Washington’s vendor base:
- Foreign government, government of a U.S. possession, or foreign central bank of issue. Complete Part XIII.
- International organization. Complete Part XIV.
- 501(c) organization. Complete Part XXI.
- Nonprofit organization. Complete Part XXII.
- Publicly traded NFFE or NFFE affiliate of a publicly traded corporation. Complete Part XXIII.
- Active NFFE. Complete Part XXV.
- Line 6: Physical address of organization
- Note: street address, city, town, state or province, and postal code (if available), and country are required;
- Line 8 and/or 9b US/Foreign TIN
- Line 8 (US TIN) should be completed if the entity has a US TIN;
- Line 9b (Foreign TIN) should be completed if the entity has a Foreign TIN;
- Note: A US or Foreign TIN is required to claim the benefits of a tax treaty
Part III must be completed if the foreign entity will claim tax treaty benefits to reduce withholding on payments by UW.
- Line 14: Claim of Tax Treaty Benefits
- a: Name of country where the organization is a tax resident (if tax treaty exists between US and that country);
- b: The first box (the box immediately after "b." and preceding the text) must be marked for UW to process a claim for tax treaty benefits. If the tax treaty benefit claimed is subject to a limitation of benefits provision, the appropriate box must also be checked;
- Note: The IRS has published a list of limitation of benefits articles under US Tax Treaties here.
- Line 15: To claim a tax treaty benefit, there are three lines that must be completed on Line 15:
- The Article and Paragraph number of the Tax Treaty between the US and the country listed on Line 14a under which the benefit is claimed;
- The reduced rate of withholding under the tax treaty;
- The type of income earned
- Note: if the treaty includes additional conditions which must be met to claim the reduced rate of withholding, the organization must state why it meets such additional conditions in the space provided
Part XXX is a certification, stating that the signatory of the W-8BEN-E is empowered to sign on behalf of the entity.
- SIGN HERE: Requires a physical (non-electronic) signature by a person authorized to sign on behalf of the organization;
- PRINT NAME: Printed name of the person who signed the Form W-8BEN-E;
- DATE: Date of signature; required format is Month/Day/Year
- The box under the signature line must be checked by the person signing on the line marked "SIGN HERE"
Please consult with a tax advisor regarding the proper completion of Form W-8BEN-E. The material contained herein does not constitute tax, legal, or accounting advice.
As with the Form W-8BEN, a Form W-8BEN-E is valid for the calendar year in which it was signed, as well as the three succeeding calendar years, unless a change in circumstances makes the information provided on the form W-8BEN-E inaccurate. Thus, a W-8BEN-E signed during calendar year 2015 would be valid for calendar years 2015, 2016, 2017, 2018. A new form W-8BEN-E would be required for any payments to be made after December 31, 2018.
Forms W-8EXP, W-8ECI, and W-8IMY
Forms W-8EXP, W-8ECI, and W-8IMY are used less often than forms W-8BEN and W-8BEN-E. Form W-8EXP is used for payments to foreign governments, tax-exempt organizations, and other similar entities. Form W-8ECI is used for payments of income that is effectively connected with a trade or business in the US. Form W-8IMY is used for payments to certain financial intermediaries.
Completing a Payment to a Foreign Supplier
For more information on completing a payment to a foreign supplier, see the Procurement Services webpage regarding Foreign Supplier Payments.