W-8BEN and W-8BEN-E forms

For dual-listed securities that derive income in the United States of America (US), the US Internal Revenue Service (IRS) requires certain documentation from the ultimate beneficial owner to ensure the appropriate level of tax is withheld in the US. 8BEN form can be completed establishing that the investor is not a US person and that they are the beneficial owner of the income received. Where an investor is a resident for tax purposes of a country with which the US has negotiated a double tax agreement (DTA), in completing this form, the investor may be able to claim a reduced rate of, or exemption from, US withholding tax (US WHT).

Entity investors that are non-residents for US tax purposes are required to complete a W-8BEN-E form – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Please note, ‘entity’ includes companies, trusts, self-managed superannuation funds (SMSF) and deceased estates.

Individual investors who are not US citizens or are non-residents for US tax purposes, are required to complete a W-8BEN form – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.

The above investors are subject to a maximum withholding tax rate of 30 per cent on certain income they derive from US sources. Where the requisite form is completed in full by an investor, a withholding tax of 15 per cent may apply for Australian tax residents who derive certain income sourced in the US, in accordance with the Australia/US Double Taxation Agreement (DTA).

Alternatively, where the relevant form is not completed in full or in part, DTA benefits will not apply, resulting in a higher rate of withholding tax for Australian resident investors.

For the lower withholding rate to apply, a W-8BEN form for individual investors or a W-8BEN-E form for entity investors must be completed in full and submitted before any income is paid or credited.

Only investors in the Wrap Investor Directed Portfolio Services (IDPS) are required to complete a W-8BEN or W-8BEN-E form. The trustee completes the required documentation for superannuation clients.

Generally a form will remain in effect until 31 December, three years after the date of signing. For example, a form signed on 15 March 2016 will remain in effect until 31 December 2019. However, if any details provided on the form change, an investor will need to lodge a new form providing the new details.

For individual investors, only one W-8BEN form is required per individual, regardless of how many dual-listed securities are held. Where there are multiple beneficiaries, such as a joint account, a form must be completed for each beneficiary.

For entity investors, only one W-8BEN-E form is required per entity, regardless of how many dual-listed securities are held.

If the W-8BEN or W-8BEN-E form is not completed in full or in part, DTA benefits will not apply. This will result in a higher rate of withholding tax for Australian resident investors.

For most securities with US sourced income, investors will be able to claim back any US withholding tax charged in the form of a foreign income tax offset (FITO) which reduces the client’s net tax payable. Investors who have not submitted a W-8BEN or W-8BEN-E form and have been charged a higher rate of US withholding tax will therefore generally be able to claim the additional withholding tax back in the form of a larger FITO.

Where the security issuer has indicated that part or all of the US withholding tax cannot be claimed as a FITO however, investors will need to apply to the Internal Revenue Service (IRS) for an “identifying number” and lodge a US income tax return with the IRS together with the required supporting documentation. For further information, refer to Publication 519 US Tax Guide for Aliens on the IRS website.

Please note that US withholding tax should not be included as either non-resident or TFN withholding tax and claimed back from the ATO in your Australian tax return.

We recommend investors seek independent taxation advice to determine any US taxation obligations they may have.

Where US withholding tax is able to be claimed as a FITO, Wrap will include the amount as a ‘Foreign Income Tax Offset’ in the Tax Report – Detailed for that security.

If advised by the product issuer that part of the US withholding tax cannot be claimed as a FITO, Wrap will include a narration in the security name section of the Tax Report – Detailed showing the amount that the client can claim back from the IRS. The narration will appear as follows “<Net cash amount includes $XX.XX US WHT>”.

US resident investors are required to complete a W9 Form (Request for Taxpayer Identification Number and Certification), as US non-resident withholding tax is not applicable for these account holders. We recommend that US investors seek independent taxation advice in relation to the US taxation obligations.

Further information about the requirements of these forms can found on the IRS website.