What is a W-8BEN FORM and How do Canadians Use it?

Who Needs to Fill Out a W-8BEN Form in Canada?

If you’re a sole proprietor who receives payment from a U.S. client, you must submit Form W-8BEN to the company that is paying out the income. The form includes a declaration that you’ll include this income on your Canadian tax return.

A completed W-8BEN form confirms that:

• You are not a resident of the U.S.
• You are the owner of the income for which the form relates to.
• You are claiming a reduced withholding tax rate because you’re a resident of a foreign country with which the U.S. has an income tax treaty.

How to Fill Out and Read Form W-8BEN

1. Line 1: Provide your name or your business name.
2. Line 2: Provide your country of citizenship.
3. Line 3: Enter your permanent residence address.
4. Line 5: Enter your U.S. tax identification number.
5. Line 6: Enter your foreign tax identifying number.
6. Line 6: Enter your foreign tax identifying number.
7. Line 7: Provide your Canadian Social Insurance number or your Canadian corporate tax identification number.
8. Lines 9 and 10: Specify the tax treaty rules that apply to you and check the appropriate box if you are operating under a business name.

American companies generally withhold income taxes on income paid to foreign individuals who are doing work for them. This tax rate would generally be a flat 30%.

Form W-8BEN allows people from countries with which the U.S. has particular agreements to claim exemptions or special withholding rates. For Canadian independent contractors, this means they can claim an exemption from withholdings.

Benefits:

You can avoid having your business income taxed twice by both the U.S. and Canada if you meet the residency rules and the fixed place of business rules. Article VII of the tax treaty provides that business profits earned in the United States by Canadian residents are taxed in the U.S. only to the extent that the profits are related to a permanent establishment in the United States.

Who Uses Form W-8BEN? 

Any foreign contractor who receives payment from sources such as interest, dividends, royalties, compensation for services, or other forms of income, must submit Form W-8BEN to the person or entity that provided the income. That person or entity is then required to withhold and file income taxes from those payments unless the contractor can show they are exempt.

Length of effectiveness:

If you sign the form on December 1, 2020, it will remain effective until Dec. 31, 2023, unless something changes in your status to invalidate it sooner.

Where to Get a Form W-8BEN 

You can get a copy of Form W-8BEN on the IRS website or request one from the company or person with whom you’re doing business. Once you have a copy, simply fill it out and return it to them. Do not send it to the IRS.