Anyone who has US business partners will already have come across it: Form W-8BEN-E. But what is it for and what is the best way to handle it?

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Withholding tax and FDAP income

In the USA, companies that make certain payments to business partners abroad are required to document these payments. The background to this is that so-called FDAP income (fixed or determinable annual or periodic income) is subject to a withholding tax of 30 percent. This applies, for example, to interest, rent or dividends that are not directly related to a US business activity or are not of a commercial nature. The payer, in this case the U.S. company, is responsible for ensuring that the withholding tax is paid. But a tightening of the laws means that German business partners must also take action.

Foreign companies now also affected

The reason for this is the new Forein Account Tax Compliance Act (FATCA), which extends tax obligations to foreign financial institutions and companies. German commercial enterprises are therefore also affected and have since been subject to a reporting obligation. This reporting obligation is fulfilled by the W-8BEN-E form. In this form, the German-based company confirms to its business partner in the USA that it complies with all taxation regulations.

Form usually not necessary

Since most of the income earned by German companies from U.S. business is not FDAP income, the form is usually not necessary. However, many U.S. business partners do not want to take any risks and still require the completed form.

Source: GTAI (german)