26 C.F.R. §1.1441-1: Withholding of tax on nonresident aliens and
foreign corporations and Tax Free Covenant Bonds
Title 26: Internal
PART 1—INCOME TAXES
Withholding of Tax on Nonresident Aliens and Foreign Corporations and
Tax-Free Covenant Bonds
(i) General rule.
This paragraph (c)(6) defines the term beneficial owner for payments
of income other than a payment for which a reduced rate of withholding
is claimed under an income tax treaty.
The term beneficial owner means
the person who is the owner of the income
for tax purposes and who beneficially owns
A person shall be treated as the owner of the
income to the
extent that it is required under U.S. tax principles to include the
amount paid in gross income under section 61 (determined without regard
to an exclusion or exemption from gross
income under the Internal Revenue Code).
Beneficial ownership of income is determined under the provisions of
section 7701(l) and the regulations under that section and any other
applicable general U.S. tax principles, including principles governing
the determination of whether a transaction is a conduit transaction.
Thus, a person receiving income in a capacity as a nominee, agent, or
custodian for another person is not the beneficial owner of the
income. In the case of a scholarship,
the student receiving the scholarship is the beneficial owner of that
scholarship. In the case of a payment of an amount that is not income,
the beneficial owner determination shall be made under this paragraph
(c)(6) as if the amount were income.
(ii) Special rules—(A)
General rule. The beneficial owners of income
paid to an entity described in this paragraph (c)(6)(ii) are those persons
described in paragraphs (c)(6)(ii)(B) through (D) of this section.
IRS Website: Beneficial Owners and Documentation
Beneficial Owners and Documentation
Generally, you (the Withholding Agent) must withhold 30 percent from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following.
- The payee is a U.S. person
- The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding.
Generally, you must obtain the documentation before you make the payment. The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. See Standards of Knowledge .
If you cannot reliably associate a payment with valid documentation, you must use the presumption rules. For example, if you do not have documentation or you cannot determine the portion of a payment that is allocable to specific documentation, you must use the presumption rules.
If you (the Withholding Agent) makes a payment to joint owners, you need to get documentation from each owner.
Generally, you can treat the payee as a U.S. person if the payee gives you a Form W-9. The Form W-9 can only be used by a U.S. person and must contain the payee's Taxpayer Identification Number (TIN). If there is more than one owner, you may treat the total amount as paid to a U.S. person if any one of the owners gives you a Form W-9. U.S. persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding.
Generally, a foreign person that is a beneficial owner of the income should give you (the Withholding Agent) a Form W-8.
There are various forms in the W-8 series. The form to use depends on the type of certification being made. As used in this discussion, the term Form W-8 refers to the appropriate document. See Forms for Foreign Beneficial Owners for more details.
The following describe the specific types of documentation.
- Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, and related Instructions
- Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), and related Instructions
- Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States, and related Instructions
- Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding, and related Instructions
- Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, and related Instructions
If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8.
Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. The nonresident alien individual may have to give you a Form W-4, Employee's Withholding Allowance Certificate or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. These forms are discussed in Pay for Personal Services Performed.
Special rules apply to Forms for Foreign Beneficial Owners.
Refer to Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for more information on these forms and documentary evidence.
Page Last Reviewed or Updated: 24-Nov-2015
[IRS Website: Beneficial Owners and Documentation; SOURCE https://www.irs.gov/individuals/international-taxpayers/beneficial-owners