What is the Form W-8ECI?
Non-US individuals or entities use IRS Form W-8ECI to claim that their US source income is effectively connected income (ECI) with a US trade or business (USTOB). For a video tutorial on Form W-8ECI, see our YouTube video at the end of this post.
Why is the W-8ECI important? Not all US source income is ECI with a USTOB. Most of the time, nonresidents receive US source income characterized as FDAP income. FDAP income is generally subject to a 30% withholding tax on the gross amounts.
On the other hand, if the nonresident generates income in the ordinary course of a USTOB, the nonresident is subject to income taxes on a net basis rather than gross. The nonresident must file a tax return to report the gross income and claim all allowable tax deductions. The nonresident pays US federal income taxes on the net taxable income rather than gross income.
To complete the Form W-8ECI, the beneficial owner must have a valid US tax identification number, either an SSN, ITIN, or EIN. Without a valid US ID number, the Form W-8ECI is invalid, and the withholding agent who receives your Form W-8ECI will NOT accept the form.
Part I – Identification of Beneficial Owner
Enter the name of the foreign individual or organization that is the beneficial owner of the income. If this form is for a business entity, enter the country of incorporation or organization on Line 2.
Enter the type of entity on Line 4, and provide a permanent address (foreign or US) and a business address in the US (if applicable). NOTE: It is possible to be engaged in a USTOB without having a US business address.
Enter the US taxpayer identification number (TIN) on Line 7. Form W-8ECI is invalid if the beneficial owner does not provide a valid US TIN.
Provide a foreign taxpayer identification number (FTIN), or check the box indicating that FTIN is not required. The FTIN is necessary unless the organization preparing Form W-8ECI is a foreign government or central bank or you are a resident of a foreign country that does not issue FTINs. Individuals should provide their date of birth (DOB) on line 10.
Part II – Certification of the Beneficial Owner
The individual signing Form W-8ECI must certify the bullet points provided in Part II and certify they have the capacity to sign on behalf of the individual or named organization listed in Part 1 Line 1 of the Form W-8ECI.
It’s important to remember that by not accurately completing the Form W-8ECI, the beneficial owner of the income will likely be subjected to a withholding tax of 30% on the gross income.
The Form W-8ECI is generally valid for three years. After the three-year period expires, the beneficial owner must prepare and sign a new Form W-8ECI.