Failure to file Form W-8BEN-E could result in a closed bank account

  • by Jimmy Sexton
  • June 14th, 2016

bank

Imagine this, you are the managing director a small consulting firm in Hong Kong. One day, while going through your mail you come across a letter from your local bank where you maintain your accounts telling you that if you don’t provide them with U.S. tax Form W-8BEN-E within a week, they are going to close your corporate account.

At first you think, this must be a mistake, my company doesn’t have anything to do with the U.S. How could it be required to submit a U.S. tax form? You call your banker to inquire about the matter and are informed that due to FATCA (Foreign Account Tax Compliance Act) that you are required to complete this form and submit it to your bank, or your account will be closed? The audacity!

You go online and pull up Form W-8BEN-E in order to complete it, only to discover that it is 8 pages long and requires that you determine your FATCA classification! You turn to the instructions and discover they are 17 pages long, and, according to the instructions, the IRS estimates that it will require 4 hours and 17 minutes to learn about the forms and 8 hours and 16 minutes to complete it! What to do? How can this be?

This is a real situation being faced by many foreign entities on a daily basis. Due to FATCA, foreign entities are now required to complete this form or their banks will close their accounts. This is often challenging for foreign businesses due to the complexity of the form and lack of guidance. A seasoned professional is usually required to complete the form accurately.

So what is the point of this form?

The U.S. wants to know what kind of foreign company your business is and if it has any substantial U.S. owners. What it really boils down to is that the U.S. wants to know if they can tax your company or its U.S. owners.

Why does your bank care about this Form?

Your bank cares about this form because they want to stay in compliance with FATCA. Why? Because if they don’t, U.S. financial institutions and FATCA compliant foreign financial institutions sending money to your non-FATCA compliant bank will be required to withhold 30% of certain payments. This would, in essence, cripple your bank and cut them off from the U.S. financial system. Chances are your business is not as important to them as staying FATCA compliant, so complete the form properly or risk having to go back to a barter system!

If you are a business with connections to a U.S. company(s), find an international tax expert like Esquire Group to guide you through the maze that is W-8BEN-E before that letter from the bank arrives in your mail.

For more information on this topic, register for our free webinar “Forms W-8 and W-9: What you need to know”.  To register go to:

https://attendee.gotowebinar.com/register/3120590294777959939

 

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