A tax form for non-US residents holding US investments

If you are not a resident or citizen of the United States and wish to hold US stocks then you will be required to complete a form that is issued by the Internal Revenue Service (IRS) of the United States. This form is called W-8BEN and is used to calculate ‘Witholding Tax’.

Non-US individuals or foreign companies are subject to US tax at a flat 30% rate on certain kinds of income (such as dividends) that they receive from US sources.

For the purposes of share-dealing, US-sourced income refers to dividends, interest, etc received from businesses registered or incorporated within the US.

This tax is witheld at source by the payer of the income (dividends, interest, etc) – hence the reason why the tax is referred to as ‘Witholding Tax’. This payer is commonly known as a ‘Witholding Agent’ and is responsible for witholding the required tax at source and paying it over to the Internal Revenue Service (IRS).

If the Witholding Agent fails to pay any witholding tax due, then the Agent can be personally liable for the tax. For this reason, the Witholding Agent takes great care to ensure that the person receiving the payment has completed a W-8BEN form.

If you are a non-US person, your broker will demand that you complete and sign a W-8BEN form before you can transact in US securities. They will then hold a copy of this form and submit to the company whose securities you wish to transact in.

The W-8BEN form has to be kept up-to-date and is valid for a period up to 4 years (actually the last day of the year which is 3 years after the form is signed). Most brokers or Witholding agents will contact their clients as this anniversary approaches.

Be warned that if you do not provide an updated form by the renewal date, then the broker may sell your securities automatically.

US citizens do not need to complete a W-8BEN form.
Foreign Corporations actually need to complete a variant of the form known as W-8BEN-E.