If you own a Canadian company providing services to US Companies, you may have been asked to fill out a W-8 BEN-E form. What is the W-8 BEN-E form and why do you need to complete it?
In this article, we’ll answer these questions and show you how an active business and Canadian corporation in Canada offering consulting services to a US company would complete this form. This is only relevant for non-financial entities such as management consultants.
What is the W-8 BEN-E Form?
The W-8 BEN-E form is provided by the Internal Revenue Service (IRS), a federal tax agency similar to the Canada Revenue Agency. It is used by foreign entities to document their status for purposes of treaty eligibility consideration on withholding tax.
Proving treaty status with the US means your company won’t be subject to US withholding tax.
Do I need to complete the W-8 BEN-E?
If you do not complete this document your US client will have to take a 30% withholding tax on any amounts you receive. If the money is for services rendered as an active Canadian business, then you likely are providing services that are exempt from this withholding tax under the Active Non-Financial Foreign Entity (NFFE) clause.
You must ensure you complete the correct form for this. As a Canadian Controlled Private Corporation (CCPS) complete Form W-8 BEN-E. The W-8 BEN (without the E) is for individuals. If you get the form for individuals for your corporation, you will need to ask them for the company form.
How To Complete the W-8 BEN-E Form
This will vary depending on your specific business transactions, but for most Canadian companies offering only consulting services, this is generally how you would complete it. Please ensure you read the details to confirm you fit into these categories. Consult your accountant if you are unsure.
Part I
You will complete the form using your corporation’s name and business address. Some portions will be N/A but you will have to choose what type of entity you are. As a Canadian Corporation, be sure to include your business number (9 digits followed by RC0001) in Part I 9b (Foreign TIN). If you are an active small business incorporated in Canada offering services to a US company then you likely will complete the form as an “Active-NFFE.” This means you are an active non-financial foreign entity. Then complete Part XXV.
Part II
Typically not applicable if you fall into the above category.
Part III
Indicate the beneficial owner is a resident of Canada and check “Company with an item of income that meets active trade or business test.”
Part IV-Part XXIX
These parts are generally N/A, but read the form to check if your situation falls into one of these categories. These areas generally require professional advice if they apply to you.
Part XXV
Check
Sign and Send to Client
Confirm the above agrees with your situation. If you have concerns, consult a professional. This is a legal document and you do not want to misrepresent your company. However, the above is the most common situation in our experience. If this agrees with your situation, then you can sign the form and return it to your client for their records.
Once they have proof of your company’s status, they will then pay you the full amount for your services without deducting the holding tax.
The above was prepared using a revised October 2021 W-8 BEN-E form and is only applicable to the parts of that specific form. If you are receiving other than active business income amounts for services rendered, the above is not relevant to you. Special circumstances may apply to your situation. Consult the form instructions and/or seek professional advice.
Find a copy of the W-8 BEN-E form here: https://www.irs.gov/pub/irs-pdf/fw8bene.pdf
If you have questions regarding the form or need help filling it out, please get in touch. You can drop us an email via our contact us page.
Virtual Heights Accounting is a CPA firm that operates in the virtual world. We provide virtual accounting and tax services to for-profit and not-for-profit corporations in Canada. Contact us at www.vhaccounting.ca/contactus or follow our blog on your chosen social media source.
