If you own a business that does business overseas you must be in full compliance with FATCA starting January 1, 2015. We have found that many business owners have forgotten to collect, or were not aware they needed to collect the appropriate W-8s from their foreign vendors (and even to some extent their foreign investors and shareholders). During 2014, the IRS has revised Forms W-9, W-8BEN (and made this form applicable for only foreign individuals) and provided a new one, Form W-8BEN-E, for foreign entities.

I’m not a Foreign Financial Institution does this apply to my business?

As of January 1, 2015, companies need to have collected all the appropriate forms from their vendors (and any investors/shareholders) or else be subjected to possible substantial penalties if, upon audit, they cannot produce these documents. Collecting W-8s (and W-9s) is extremely important and even if you are not a foreign financial institution this could still apply to you if you are doing business as either being an active non-financial foreign entity (“NFFE”) or passive NFFEs.

Why Do I need to collect the New Form When I Already Have the W-8BEN?

The new Form W-8BEN-E is substantially longer than the former Form W-8BEN, and if not properly filled out will be considered an invalid document. Therefore, there is a lot of responsibility put on the withholding agent (business owner - that’s you) to make sure that you have all the appropriate documents from your foreign vendors or shareholders, and that all the appropriate sections of the document, once submitted to them had been correctly filled out in order for the withholding agent to withhold at the correct rate, or not withhold, as the case may be. If the withholding agent does not believe the document has been properly filled out then, without a new submission, they are required to withhold on any payment 30%.

The W-8s will only be valid for the period ending December 31, three years from the date of signature (unless the foreign person has a US TIN number). For example, if the foreign person signs the form on November 1, 2014, the document is valid until December 31, 2017.

Due to both the complexity of these forms and the scrutiny with which the IRS will review these documents, it is important to think about the policies you currently have in place when making payments to foreign vendors or investors/shareholders in your company, and if you have all of your W-8s and W-9s collected from these vendors and shareholders during your year-end planning season.

It is critical that you are aware of the appropriate sections that need to be filled out on the W-8s so that they are considered a valid document to rely on when calculating whether or not withholding must be done on any payments or distributions.

If you need help identifying which payments to foreign persons or entities are subject to these forms or the appropriate controls that should be put in place to ensure these forms are properly gathered and kept on file, contact the KLR International Tax Services Group.

Instructions on filling out FATCA forms can be found in our article: “Long-Awaited Instructions for FATCA Form Issued”.