W-8s have gotten more complex under FATCA. Each situation is unique, but in review of a W-8BEN, here are a few critical points regarding validity of the W-8s:
- Line 2 requires inclusion of the country in which the entity is incorporated or organized. If this is not present, the IRS considers the form invalid. And it should be fully spelled out, not abbreviated; if it’s abbreviated, you’ll need other documentation to support the country of organization.
- Line 3 is used only for FATCA-withholdable income. (Note that the IRS allows you to create/use a substitute W-8 form for non-FATCA vendors, i.e. chapter 3 only, removing the FATCA-related elements and extra pages; that makes completing the form easier for your vendors and easier for your review.)
- Line 4 requires a check to indicate type of chapter 3 status; there must be a check here for chapter 3 vendors or the form is invalid. Here’s additional caution from a white paper by tax experts at Cokala about line 4: “Caution is warranted if the box for partnership or disregarded entity is checked and there is no treaty claim included in Part III, because a W-8BEN-E may not be the correct form for a foreign partnership unless it is a hybrid entity taxed at the entity level in its resident country. Hybrids may claim treaty benefits at the entity level. But … small private partnerships or limited liability companies will be fiscally transparent and may not claim treaty benefits at the entity level so they must submit the W-8IMY instead of a W-8BEN-E. … Usually the owner of a disregarded entity, and not the entity itself, is required to submit a W-8 if foreign, or possibly a W-9 if [the owner is] a U.S. person. AP should know to set up the disregarded entity’s owner as the tax payee for withholding and reporting purposes.”
- Make sure the “capacity to sign” box is checked.
An excellent resource now available on the Network is the 2016 Master Guide to Form 1042-S Compliance.