US Investments
When a non-US investor invests in US stocks and shares they will likely receive income on those holdings. That income will be subject to US taxation at a gross rate of 30%. Many countries, including the UK have negotiated a tax treaty with the IRS, as the investor will likely be subject to additional taxation in their own country.
In order to receive the US income at the treaty rate negotiated by the country where they are residence for tax purposes, the investor will need to have a valid W-8BEN form in place with the organisation that is managing their investment account.
With the W-8BEN form in place they will be eligible to receive their US source income at the prevailing treaty rate. In the UK the treaty rate is 15%, Hence the investor will only pay 15% tax to the IRS on their US source income as opposed to 30%.
Treaty Rates
It should be noted that not all countries have a tax treaty with the IRS and those that do may have differing rates. For example the UK has a treaty rate of 15%.
When does a W-8BEN form expire?
A W-8 form is valid for 3 calendar years, after which the investor will be subject to the full tax of 30% until they have signed a new form.
If the investor has changed address to a different tax jurisdiction, then they will need to sign a new W8 form to receive the treaty rate of their new tax residence. Changing address within the same country will generally be covered by providing their broker/bank with an advice evidencing their change of address, although some organisations may still wish for a new W8 form to be signed.
For a change of name a new W8 from will be required, though for a change of name as a result of marriage the broker/ bank will generally accept a copy of the marriage certificate to cover any intervening period while a new W8 form is being signed.
What is meant by US source Income?
US source income will be dividends paid by US companies and interest paid by US companies on fixed income securities.
Other W-8 forms
W-8BEN forms are for non-us individuals
W-8BENE forms are for non-us entities
W9 forms are for US individuals
Joint Accounts
For joint accounts each holder must complete their own W-8BEN form.