I’m an Australian based design freelancers paying all my taxes in Australia too.
One of my clients from the US asked me to fill out a form called*W-8BEN (see here:*http://drp.ly/1Kk26B)
As this is the first time any of my US clients asked me to do that, I’m a bit hesitant. My search online suggests that I have to fill it out of the ‘employer’ requests it, but it’s not entirely clear. This page from the ATO didn’t clarify it for me eitherhttp://www.ato.gov.au/corporate/content.asp?doc=/content/55549.htm
Do you guys know anything about the situation on tax withholding on income from the US? Do I have to fill out this form?
Thanks for your help, as always.
That is the form that says that you are resident in and pay tax in Australia and that therefore the client is not required to deduct tax in the USA when they pay you.
If you don’t sign the form then presumably they’d deduct US tax from what they pay you. I don’t know that for sure though as I have always filled out that form when dealing with US based companies (have a signed copy stored on my computer I can email to them when they ask for it (since they all do prior to paying).
You can sign the form as you should be subject to the tax treaty and not have any withholding whatsoever. However, this really only applies if you are operating as an individual - if you are incorporated into any non-person entity you should refuse to sign it.
I am on the other side of this one all the time. Not much risk to the vendor. Make SURE that the client doesn’t think that they have to withhold ANYTHING AT ALL or REPORT ANYTHING TO ANYONE about your transaction.
Once you tango with the IRS, you are dance partners for life. I just made that up, thank you very much
Why is that? The form actually has a question on it as to what type of entity it is that is signing the form.
I have had a lot of US organisations eg New York Times, Google, BlueHost, InfoLinks etc. ask for a signed form from my proprietary limited company and I have always filled the form out providing the company details and signing as company director. As I also do accounting work I have also had to fill out such forms for others including both companies and also a superannuation fund that is investing in US shares. Requests to fill it out for non-individuals are far more common than for individuals in my experience.
If what you say is true about only individuals needing to fill out the form then why are companies and super funds being asked to fill out the form and how does the US entity requesting the form be filled out know that the entity isn’t an individual if they don’t tick the appropriate non-individual box on the form (and for that matter why are all those non-individual checkboxes on the form if it is only meant to be filled out by individuals).
Thanks guys, so you suggest I should sign it then.
The weird thing is just that this is one of my smaller clients and none of the other, bigger ones (that have entire accounting departments) have ever asked me to fill this out.
So I can still expect to pay 0% tax, right? Or do I pay tax and get a refund in Australia?
I signed the same form as a UK citizen when I wrote my book (with a major US Publisher). Signing the form essentially states that you don’t pay tax within the USA (aka have it withheld at the US tax rate) because you live elsewhere and thereby state that you will hold responsibility for declaring it on your tax records and pay anything that’s necessary wherever you are. My advice is sign the form (ensure you keep a photocopy!) in the capacity you are working in - and just be sure to factor in whatever money you are making when you come to pay tax as the tax won’t automatically be taken (when you sign the form). At least that’s what my experience has lead me to understand - from chatting with UK tax people regarding the form and what I was required to enter, it is quite a scary form though isn’t it!
The US company doesn’t withhold tax but you still have to declare the income in Australia and so will have to pay tax on it here (as you would need to even if they didn’t ask you to fill out that form). The only difference if you get tax deducted in the US is that you can claim that as a deduction against the tax that you would have to pay on the income in Australia (provided that it doesn’t come to more than the Australian tax on the income would be).
Filling out a US form doesn’t affect your liability to pay tax on all your income in Australia.
I totally understand that I have to pay tax on this in Australia. The question is however, if I HAVE TO fill out the form?
The best case situation if you don’t fill out the form is that the company in the US will deduct tax from what they pay you (possibly at a higher tax rate than you’d pay on it in Australia). You then claim it back when you lodge your tax return.
What usually happens is that they don’t make any payments to you at all until they receive the form so as to ensure that they don’t create potential issues for themselves regarding US tax. I once had a company forget to ask me for the form until after I started chasing them regarding their not having paid me (I’d forgotten it was a US company and so needed that form).
Basically you have two options… (1) Don’t fill in the form (they may not want to work with or pay you if you don’t), have them withhold money from you at the US tax rate (which is probably higher than AU) and attempt to claim the money back when you fill out your tax records. Or… (2) Fill in the form, get all your money and pay your AU taxes as normal (based on your income). So no you don’t HAVE to fill in the form, but it makes sense (for simplicities sake) to do so.