Income Entitled to Tax Treaty Benefits

If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, withholding for certain items of income, you should notify the payor of the income (the withholding agent) of your foreign status to claim the benefits of the treaty. Generally, you do this by filing Form W-8BEN with the withholding agent.

Beginning January 1, 2001, the payor of dividends will no longer rely on your address of record as the basis for allowing you the benefit of the treaty. Give Form W-8BEN to the withholding agent to claim a reduced rate of withholding.

The rules that apply to compensation for personal services are discussed next.

Independent contractors. If you perform personal services as an independent contractor (rather than an employee) and you can claim an exemption from withholding on that personal service income because of a tax treaty, submit Form 8233 to each withholding agent from whom amounts will be received.

Students, teachers, and researchers. Alien students, teachers, and researchers who perform dependent personal services (as employees) can also use Form 8233 to claim exemption from withholding of tax on compensation for services that is exempt from U.S. tax under a U.S. tax treaty.

Students, teachers, and researchers must attach the appropriate statement shown in Appendix A (for students) or Appendix B (for teachers and researchers) at the end of this publication to the Form 8233 and give it to the withholding agent. For treaties not listed in the appendices, attach a statement in a format similar to those for other treaties.

Employees. If you are not a student, teacher, or researcher, but you perform services as an employee and your pay is exempt from U.S. income tax under a tax treaty, you can avoid having tax withheld from your wages. Give your employer a Form W-8BEN for the tax year. You must complete Part I of the form, including line 6 (U.S. taxpayer identification number). You must also complete lines 9(a), 9(b), and 10 of the form. On line 10 indicate the provision of the treaty under which you are claiming an exemption and include a statement showing that you meet the requirements of the applicable provision. The requirements can be found in the applicable tax treaty article. You must also sign and date Part IV of Form W-8BEN.

Special events and promotions. Withholding at the full 30% rate is required for payments made to a nonresident alien or foreign corporation for gate receipts (or television or other receipts) from rock music festivals, boxing promotions, and other entertainment or sporting events, unless the withholding agent has been specifically advised otherwise by letter from the IRS. This is true even if the income may be exempt from taxation by provisions of a tax treaty. One reason for this is that the partial or complete exemption is usually based on factors that cannot be determined until after the close of the tax year.

A request for a central withholding agreement should be sent to the following address at least 90 days before the agreement is to take effect. Internal Revenue Service Compliance Area Director, Area 15 950 L'Enfant Plaza South, S.W. S:C:15 Washington, DC 20024

Entertainers and athletes can also apply for reduced withholding on the basis of their net income after expenses. See Central withholding agreements under Withholding From Compensation, earlier.

You will be required to pay U.S. tax, at the time of your departure from the United States, on any income for which you incorrectly claimed a treaty exemption. For more details on treaty provisions that apply to compensation, see Publication 901.

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