U.S. Withholding Tax and Form W-8BEN-E: What Foreign Suppliers — Especially Swiss Companies — Need to Know
The 30% U.S. withholding tax applies to payments made to foreign entities for certain passive or deemed-passive income (dividends, interest, royalties, and services performed on U.S. soil). In contrast, payments for the purchase of goods alone are not subject to this withholding.
Form W-8BEN-E allows a foreign company to certify its tax status and, where applicable, claim a reduced withholding rate under a tax treaty (e.g., U.S.–Switzerland). While not mandatory for the simple sale of goods, the form is often requested as a precaution — and becomes essential when services are included.
Legal Basis and Form W-8BEN-E: Chapter 3 of the U.S. Internal Revenue Code (IRC)
Chapter 3 of the U.S. Internal Revenue Code (IRC) imposes a 30% withholding tax on certain U.S.-source payments made to non-resident entities or individuals.
This withholding generally applies to FDAP income (Fixed, Determinable, Annual, or Periodic income), including:
- Dividends
- Interest
- Royalties
- Rents
- Commissions
- Fees
- Certain technical services
Payments Subject to Withholding
|
Type of Payment |
30% Withholding? |
Explanation |
|
Dividends from a U.S. corporation |
✅ Yes |
U.S.-source passive income |
|
Interest paid by a U.S. bank |
✅ Yes |
Except certain “portfolio interest” exemptions |
|
Royalties for software or trademarks |
✅ Yes |
U.S.-source; withholding applies |
|
Remote consulting fees |
⚠️ Depends |
If the service is performed in the U.S., may be taxed |
|
Sale of goods |
❌ No |
Not classified as FDAP income |
|
Equipment installation on U.S. soil |
⚠️ Partial |
The service component may be taxable |
Form W-8BEN-E and U.S.-Based Services: Source of Income Matters
If services are rendered physically or economically within the U.S. — such as equipment installation, on-site training, or remote consulting directly linked to a U.S. business — they may be treated as U.S.-source income.
In such cases, the 30% withholding tax applies, unless the foreign provider submits a W-8BEN-E form demonstrating exemption or a reduced rate under a tax treaty.
Sale of Goods: A Clear Exception
In principle, no U.S. withholding tax applies to:
- The sale of tangible goods,
- Delivered to or within the U.S.,
- Without related service components performed in the U.S.
Why?
Because sales revenue is not considered FDAP income under U.S. tax law — it’s not passive, fixed, or recurring in nature.
As such, no W-8BEN-E is strictly required for these transactions.
Why Do U.S. Companies Still Ask for W-8BEN-E?
In practice, many U.S. companies systematically require a W-8BEN-E form, even when it may not technically apply. Common reasons include:
- Standardized internal compliance policies
- FATCA reporting requirements
- Uncertainty regarding the nature of payments (goods vs. services)
- Risk mitigation in case of IRS audit
As a result, it is often easier and safer to submit the form preemptively to avoid payment delays.
Purpose and Scope of Form W-8BEN-E
Form W-8BEN-E is intended for foreign (non-U.S.) entities. It is used to:
- Certify non-U.S. tax status
- Claim a reduced or exempt withholding rate under a tax treaty (e.g., Switzerland–U.S.)
- Declare FATCA status (Active NFFE, Passive NFFE, Financial Institution, etc.)
- Avoid default 30% withholding by providing valid tax documentation in time
Note: This form is not submitted to the IRS but must be provided to the U.S. client or payer.
Risks of Not Providing a W-8BEN-E
If the U.S. client does not receive a valid W-8BEN-E form:
- They arelegally required to withhold 30%
- They mayrefuse to process the invoice
- They riskIRS penalties for non-compliance
Practical Recommendations
|
Situation |
Recommended Action |
|
Sale of goods only |
W-8BEN-E not required, but may simplify processing |
|
Sale with associated services (installation) |
Provide W-8BEN-E and check tax treaty eligibility |
|
Recurring payments (e.g., license, royalties) |
W-8BEN-E mandatory with treaty reference |
|
Swiss company receiving U.S. dividends |
W-8BEN-E absolutely required |
Sample Clause to Provide to a U.S. Client
“The invoice pertains exclusively to the sale of tangible goods, with no associated services. Therefore, the payment is not considered FDAP income under U.S. tax law (IRC §1441) and is not subject to U.S. withholding tax.
However, for your administrative convenience and compliance procedures, we are enclosing a duly completed Form W-8BEN-E.”
The 30% U.S. withholding tax primarily targets passive or deemed-passive income, not commercial payments for the sale of goods.
However, in today’s compliance-driven environment, many U.S. companies request Form W-8BEN-E as a default measure, regardless of whether it’s strictly needed.
For Swiss suppliers, it’s best to anticipate such requests and respond with proper documentation to avoid delays or unnecessary tax withholding.
Support from My Swiss Company SA
At My Swiss Company SA, a fiduciary firm based in Geneva, Lucerne, and Zug, we provide full support to our clients for their tax and administrative obligations, including their relationships with U.S. clients and partners.
We handle the preparation of W-8BEN-E forms, assess withholding tax exposure, and ensure FATCA compliance for internationally active Swiss companies.
Thanks to our expertise, we facilitate smooth communication with U.S. counterparties and help our clients avoid unnecessary withholding or payment delays.