Form 1042-S – Foreign Person’s US Source Income Subject to Withholding
This form is used to report the amount of income received on your behalf by your booking agent or management company. It is prepared by them or a withholding agent, submitted to the IRS and copied to the rental property homeowner. You should receive your copy of Form 1042-S by March 15th every year and include it with your annual compilation of information to your accountant.
Form 1099 – Issued by US corporations, small businesses and other employers to record the income earned by employees and independent contractors
Several versions of the 1099 are used to report income such as interest, dividends, real estate sale proceeds and debt cancellation. The form reports income to the Internal Revenue Service so that it can track and tax the income. However, if you are an individual who is NOT a US citizen or US resident alien, foreign partnership or foreign corporation you should be issued with Form 1042-S.
Form W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
Generally, a foreign person is subject to US tax on its US source income. Most types of US source income received by a foreign person are subject to US tax of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person’s country of residence and the United States. The tax is generally withheld from the payment made to the foreign person. If you receive certain types of income, such as interest, dividends, royalties, rents that are NOT effectively connected with a US trade or business then you may receive Form W-8BEN from your withholding agent (eg bank or lender). Please follow the instructions below for completing Form W-8BEN and submit directly to your withholding agent.
The IRS has issued revised Forms W-8ECI, W-8BEN and introduced new form W-8BEN-E.W8-ECI
Foreign persons and entities are subject to US tax at a 30% rate on income they receive from dividends, royalties, annuities, rent etc. and may use these forms to seek a reduction in the withholding applied by their withholding agent, management company, booking agent etc. The various types of W-8 forms are set out below:
Form W-8ECI – Certificate of Foreign Person’s Claim that Income is effectively connected with the Conducts of a Trade or Business in the United States.
By completing this form the individual obtains a reduction in the 30% withholding and agrees to file an annual US income tax return to report income such as rental income. When filing the income tax return, applicable expenses may be claimed and deducted generally resulting in a zero tax liability for many rental property owners.
Form W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (individuals).
The form is for use by individuals to claim treaty benefits on income that is NOT effectively connected with the conduct of a trade or business in the US such as income from dividends, royalties etc. The form varies little from its previous version, except that it now requires the foreign individual to provide their foreign taxpayer identification number. The form also requires the applicable tax treaty article to be stated.
Form W-8BEN-E – Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entitles).
The form includes over 20 new FATCA (Foreign Account Tax Compliance Act) entity classification types and requires the entities foreign taxpayer identification number. Full instructions are still to be issued.
Form W-7 – Application for Individual Taxpayer Identification Number (ITIN)
Additional information coming soon…
Form W-9 – to request a US Person taxpayer identification number
Foreign investors are sometimes asked to complete and return Form W-9 to their managing agent, booking agent, US bank etc. The Form W-9 is used to request a US Person’s individual’s taxpayer identification number. For federal tax purposes you are considered a US person if you are a US citizen or US resident alien, a partnership, corporation, company or association created or organized in the United States or under the laws of the United States. However, if you are an individual who is NOT a US citizen or US resident alien, foreign partnership or foreign corporation you should complete the appropriate W-8 form. Please exercise caution when providing the information, which includes your name, address and taxpayer identification number – make sure you know the person or business requesting the information and how your tax information will be used.
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