Executive Summary:
A Single Member Wyoming LLC owned by a non-resident foreigner, taxed as a foreign-owned U.S. Disregarded Entity, must provide form W-8Ben if owned by a non-tax resident foreign individual, or W-8Ben-e form if it is owned by a foreign company.
U.S. Payors might request the recipient to certify its U.S. tax status to determine if a payment will or will not be subject to U.S. withholding taxes, so they can comply with their duty as withholding tax agents.
Being asked for a certification of tax status does not mean by default that the payment will be subject to withholding taxes or not, what the does is it tells the Payor the Tax Status of the tax recipient, to classify it as a payment made to a resident or a non-tax resident.
W-8Ben and W-8Ben-e Forms
Since LLCs are pass-through entities, the owner provides the W-8BEN form (if the owner is an individual) or the W-8BEN-E form (if the owner is an entity) as although the entity is formed in the U.S., it is considered tax-transparent, meaning its tax classification follows that of its owner.
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By submitting the W-8BEN or W-8BEN-E form, the payor is instructed to treat the payment as made to a non-resident for tax purposes. Withholding tax will only apply if the payment qualifies as U.S. sourced income. Importantly, the fact that the payor is a U.S. person does not necessarily make the payment U.S. sourced.
Generally, active trading income carried by the company owner outside of the U.S, such as professional fees, membership payments, or salaries is not subject to withholding tax as it is not U.S. Sourced income. However, passive income from U.S. sources or persons, like dividends paid by U.S. corporations, rent from U.S. real estate, or royalties paid by U.S. persons, is subject to withholding tax.
If the payment is U.S. sourced, and the payee resides in a jurisdiction with a Double Tax Avoidance Agreement (DTAA) with the U.S., the forms also notify the payor that the payee may be eligible for a reduced withholding tax rate under the treaty.
Depending on the type of income, the payment may either be subject to withholding taxes or tax exempt. The ways a payment from a U.S. person to a non-U.S. tax resident can be treated for tax as the following:
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Non U.S. Sourced Income.
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U.S. Sourced income that is Fixed, determinable, annual or periodical (FDAP), but that is not effectively connected with a trade or business in the U.S. This basically refers to Passive Income that is U.S. Sourced Income
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U.S. Sourced income that is effectively connected income (ECI) with a trade or business in the U.S.
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Forms W-8ben and W-8Ben-e are used when the non-U.S. tax resident recipient is receiving Non-U.S. Sourced Income, or FDAP income.
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When the type of income is not U.S. Sourced, the income will not be subject to withholding tax. If the type of income is FDAP., it will be subject to a 30% withholding tax or to a reduced tax rate in virtue of a Double Taxation Avoidance Agreement.
For further details on the difference between Non-US Sourced Income, US. Sourced Income, U.S. Sourced income that is effectively connected (ECI) with a trade or business in the U.S., or U.S. Sourced income that is Fixed, determinable, annual or periodical (FDAP), check our guide which can be found by clicking the button below:
W-ECI
When a non-resident has U.S. Sourced income that is Effectively Connected Income (ECI), to correct form to give the Payor is form W-ECI “Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States”
This is used by non-resident individuals who have Effectively Connected Income from U.S. Sources. Those who fill out this form will not be subject to U.S. withholding tax, but they will have to have an ITIN, and file form 1040-NR to report this income and claim deductions.
One benefit of filling out W-8ECI vs having FDAP is that W-8ECI allows the non-resident to claim deductions, while FDAP is subject to 30% withholding tax unless reduced by a tax treaty.
W-9 Form
W-9 form is used by U.S. entities that are classified as U.S. tax residents, including partnerships, corporations, and other entities. These entities are considered U.S. tax residents and are subject to federal taxation, and will not be subject to withholding tax as they are supposed to declare their income on their personal tax return and related schedules.
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Foreign Owned Single Member Wyoming LLC, namely Foreign-Owned U.S. Disregarded entities, cannot and must not provide form W-9.
Payor is asking me for a W-9 form from my Foreign-Owned U.S. Wyoming LLC instead of a W-8ben form. Should I provide that?
No, you must not provide form W-9 as you would be providing incorrect and false information. If your Payor is forcing you to provide a W-9 Form, it is due to a lack of knowledge about these topics.
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