Foreign Persons Withholding

Withholding on Payments of U.S. Source Income to Foreign Persons Under IRC 1441 to 1443 (Form 1042)

Generally, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if an Internal Revenue Code Section provides for a lower rate, or there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld (NRA withholding) from the payment made to the foreign person.

The term NRA withholding is used in this area descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Generally, NRA withholding describes the withholding regime that requires 30% withholding on a payment of U.S. source income and the filing of Form 1042 and related Form 1042-S. Payments to all foreign persons, including nonresident alien individuals, foreign entities and governments, may be subject to NRA withholding

In referring to NRA withholding in this area, it does not include withholding done under section 1445 of the Internal Revenue Code, dealing with Withholding of Tax on Dispositions of U.S. Real Property Interests (FIRPTA), or under section 1446 of the Internal Revenue Code, dealing with Withholding Tax on Foreign Partners’ Share of Effectively Connected Income (Partnership Withholding) or withholding under section 1446(f) on disposition of certain partnership interests.

Forms to Be Used

The form used by the foreign person to document itself depends on the type of certification being made. As used in this discussion of NRA withholding, the term "Form W-8" refers to the appropriate document. Refer to Beneficial Owners and Documentation for more information.

• Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding

• Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)

• Form W-8ECI, Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States

• Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding

• Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding

• Instructions for the Requester of Forms W-8BEN, W–8BEN–E, W–8ECI, W–8EXP, and W–8IMY

Source : irs.gov