The W-8BEN-E form, issued by the U.S. Internal Revenue Service (IRS), is essential for foreign entities receiving income from U.S. sources. Specifically, for Canadian corporations holding passive U.S. investments, this form facilitates the application of reduced withholding tax rates as outlined in the Canada-U.S. Tax Treaty.

To simplify the process, we’ve provided a step-by-step guide below, complete with references to relevant sections of the treaty.

However, if you’ve been asked to complete the W-8BEN-E form and you operate an active business in Canada providing consulting or other services to a U.S. company, then please refer instead to the following article (this guide specifically covers passive investments): https://vhaccounting.ca/2022/11/09/do-you-need-to-fill-out-a-w-8-ben-e-form/

Step-by-Step Instructions
Part I: Identification of Beneficial Owner
  1. Line 1: Name of Organization
    – Enter the full legal name of your Canadian corporation as registered.
  2. Line 2: Country of Incorporation
    – Enter “Canada.”
  3. Line 3: Name of a Disregarded Entity (if applicable)
    – If your corporation owns a disregarded entity, such as a single-member LLC—which is disregarded for federal tax purposes and treated as a flow-through entity to the individual—then enter its name. Otherwise, leave this field blank.
  4. Line 4: Chapter 3 Status
    – Check the appropriate box for your corporation. For most Canadian corporations with passive investments, select “Corporation.”
  5. Line 5: Chapter 4 Status (FATCA Status)
    – Choose the appropriate FATCA status, typically either “Passive NFFE” (Non-Financial Foreign Entity) or “Active NFFE,” depending on your corporation’s activities. Specifically, the classification depends on gross revenues: if more than 50% of your gross revenue comes from active business operations, such as providing services to clients, your corporation is considered “Active NFFE.” However, if passive investment income constitutes over 50% of your annual revenue—due to increased passive portfolio income or decreased active business activities—then select “Passive NFFE.”
  6. Lines 6 to 8: Address
    – Provide your corporation’s permanent residence address in Canada, ensuring no P.O. boxes are used. Additionally, if the mailing address differs from the permanent address, include it as well.
  7. Line 9a: Taxpayer Identification Number (TIN)
    – Enter your Canadian Business Number (BN). If applicable, also provide a U.S. Employer Identification Number (EIN).
  8. Line 9b: GIIN (if applicable)
    – Enter your Canadian Business Number (BN). If applicable, also provide a U.S. Employer Identification Number (EIN).
Part II: Disregarded Entity or Branch Receiving Payment
  • Complete this section only if applicable (e.g., a disregarded entity is receiving the payment). For most Canadian corporations, this section can be skipped.
Part III: Claim of Tax Treaty Benefits
  1. Line 14a: Resident of a Treaty Country
    – Check the box to certify that the corporation is a resident of Canada for tax purposes under the Canada-U.S. Tax Treaty.
  2. Line 14b: Special Rates and Conditions
    – Specify the type of income and the treaty article that applies. For example:
    • Dividends: Article X of the Canada-U.S. Tax Treaty reduces withholding tax on qualifying dividends to 15% (or 5% for significant shareholders meeting specific requirements). A significant shareholder owns over 10% of the voting stock of the foreign company.
    • Interest: Article XI provides a 0% withholding rate on most arm’s-length interest payments.
    • Royalties: Article XII reduces withholding to 10%.
    • Write a brief description of the income (e.g., “dividends from U.S. sources”) and cite the treaty article. Indicate the reduced withholding rate (as shown above).
  3. Line 15: Limitation on Benefits (LOB)
    – Provide details demonstrating eligibility under the LOB provision. For most Canadian corporations, state that the entity qualifies as a “Qualifying Person” under Article XXIX A of the treaty due to being a resident of Canada.
Part IV: Certification
  1. Signature and Date
    – The W-8BEN-E form must be signed by an authorized officer of the corporation. Include the signer’s name, title, and the date of signature.
  2. Capacity in Which Acting
    – Specify the role of the signer (e.g., President, CFO, or authorized representative).
Additional Considerations
  • Withholding Tax Rates
    – Confirm the applicable withholding tax rate based on the type of income and treaty provisions. These were created as per rates January 24, 2025.
  • Supporting Documentation
    – Keep documentation supporting the claim of treaty benefits (e.g., corporate residency certificate from the Canada Revenue Agency).
  • Renewal
    – The W-8BEN-E form must be updated and submitted every three years or upon a significant change in circumstances.
References to the Canada-U.S. Tax Treaty
  • Article X: Dividends
    – Reduces withholding on qualifying dividends to 15% (or 5% for eligible shareholders).
  • Article XI: Interest
    – Exempts arm’s-length interest payments from withholding tax.
  • Article XII: Royalties
    – Limits withholding tax on royalties to 10%.
  • Article XXIX A: Limitation on Benefits
    – Ensures treaty benefits are only available to entities meeting specific criteria.
Conclusion
Correctly filling out the W-8BEN-E form ensures your Canadian corporation can take advantage of reduced withholding tax rates under the Canada-U.S. Tax Treaty. Additionally, consulting a tax professional experienced in cross-border taxation can help prevent errors, which might otherwise delay or diminish your income from U.S. sources.