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Substitute Form W-8BEN - Charles Schwab Corporation

hello YouTube Jim Bakker here from Montebourg of tax consultants I had to prepare w8 bene for a client and realize that there's nothing good on YouTube about this form so here I am making this video today explaining the purpose and how to complete the form so if you take a step back generally background the w8 bene you see is certificate of status of beneficial owner of united state tax withholding and reporting so this form is going to be necessary when you have a u.s. entity who is making reportable payments to a foreign or non-us entity so reportable payments are and if we go to the instructions here we're talking dividends rents royalties premiums annuities compensation like a salary or substitute payments for was si and securities lending or other fixed determinable annual or periodic payments so if you are if you have a foreign entity that's receiving any kind of these payments from a u.s. entity the US entity is by default required to withhold 30 percent of that payment and remit that payment to the to the IRS let's go back here put me back on the screen so this form the purpose of this form is to show the US company that you are not subject to the full 30 percent withholding and to certify that you're it's just to certify your status the benefit the status of the beneficial owner so I'm gonna go through how like very basic way to complete this form and because there's a lot of options here but most most companies the majority of company is gonna complete it the same way so let's say that you have a nineties Columbus use a treaty so Columbia is in that treaty country but let's go to the de Mexico so let's say you have a a foreign company mexic Mexico company in Mexico and it's receiving foreign payment just Maxon corporation receiving royalties from a US company for software licensing out suicidal Mexico chapter three status just an entity type it's pretty simple it's going to be a corporation or if it's a pass-through a discarded entity or partnership but most are going to be corporations and in this example it's a Mexican corporation fine and then the chapter four status is a little more complicated it goes through all these different options so FFI is a foreign financial institution so this is all about doing stuff with banks and then so down here this box active non-financial non foreign non-financial foreign entities so it's yes I'm going to double check non-financial foreign entities so just a regular active non-bank foreign corporation this is gonna be most of these companies if you have a bank or a non-profit or something wacky you should you should find an account that can help you out with this so you don't have to have your payments if you're getting a million dollars you don't want to receive 700,000 instead of a million when you do a million and then have 30 percent you sent to the US government you don't want that so make sure is this filled out right okay so you're active non-financial foreign entities you put your address on here I'm almost certain you are required to put a US tax ID to complete this form the instructions are here we can check through the instructions they're pretty interesting but it's really long who must provide and um let's go to that line item and check it out with you so they go over almost every line item here specific instructions line one all the way down to you know pretty long form line 13 14 so in any case that's that's where it is oh one other thing I wanted to mention that this form isn't actually sent to the IRS this form is with held by the US and the US company is required to keep this and in their records but it's not actually sent to the IRS but in any case um the foreign entity should have a u.s. tax ID and you can get that by completing SS for I have another video for that at the time of recording this video the US government shutdown so it's very very taking forever to get that done okay okay so once you have this basic information set out um you can go down and look at here it says you just have to do active non-financial point any you just have to complete home part 25 xx be however Mexico has a treaty with the US and if you're getting royalties from Mexico you want to claim the treaty benefits so that they withhold less so that's the whole point so benefit the beneficial owners resident of Mexico and within the meaning of the income tax treaty then if the shona drives the item of income and meets your requirements the provision dealing with limitation of benefits sure sure sure okay okay this is where we're gonna put the portion of the treaty we're claiming so I actually didn't do this ahead of time so I'm going to just pull it out now us-mexico tax treaty so you can do this with any country working with again if it's big numbers are busy to get you know a second opinion no tax convention so here we go so the treaty goes through everything we can go through royalties article twelve article twelve says royalties may be taxed so ever okay the tax charge and I see ten percent so instead of thirty percent as a 10 percent tax so that's what we're saying for this treaty so let's go back here and um article was 12 paragraph three ten percent rated was holding in type of income royalties and then you can take that paragraph out if you want and just cut a copy and paste it if you want see that works fine I mean you can fill it out all the way explained the conditions that the owner of me spell okay for the holdings the owner is receiving royalties sure and always be better but that's the main most important part because now you're telling the u.s. entity again this isn't going to the or at the IRS but you're telling us entity that you're a Mexican company and per this provision they should only withhold ten percent and this is saving 20% of taxes everything else is for different kinds of foreign financial institution bangs little cows and these are all like owner documented FFI you're not going to complete these unless your banks or financial institutions and again it's going to tell you in this section which which one you have to complete retirement plan is eternal deed compliance sponsor school sale investment vehicle so it's and crazy stuff but all you likely have to go here is 225 so we're going to X X to X V and it's really check a box I certify that the entity identified in part one is a foreign entity that's not a foreign financial institution less than fifty percent of the income is passive income and less than 50% are passive or passive so you have to certify this not a passive a business and it's an active business if it's faster than yeah certified as passive in check the other box and that's if you have like the company of receiving the royalties again um has passive income I'm oversimplifying this form a little bit it's a complicated form but that's I'm trying to oversimplify it for people that it applies to just so you can get an idea of how to fill it out and that's it really you sign it printed dated certify it and then you send it to the US entity that's paying you and they should withhold the correct amount that you're telling them and really the most common use of this form like I said is going to be here in part three to claim the treaty benefits that's gonna be the most common thing you're using this for okay and if you're a US company requesting this from a foreign entity I would I would require the US tax ID and also yeah double check everything make sure it's alright because if you're US entity that's supposed to be doing the withholding you will be on the hook if you under withhold and you're wrong you're on the hook for the difference of the withholding so that could be a big deal okay so I hope this video was helpful we went through the completing of the W event II let me know in the comments if you have any questions I don't know where my where my picture went but let me know in the comments if you have any questions and I'll try and answer all of those and if the video is wrong or missing I'll upload another one let me know if you have any other forms you're curious about or have questions about and I'll be happy to put up some explanations how to complete them don't forget to subscribe and follow I need to hit a hundred subscribers so that I can get a custom URL appreciate it thanks everyone