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Tax Reform impact for non-US citizen property investors – W-8BEN, W-9 which forms to file?

Situational analysis

Non-US citizen (Thai Citizen) owns rental properties in the US. These rental properties generate income, which is then deposited into US banks. The US bank has now begun taking backup withholding. What is happening, and what forms does the taxpayer need to complete to reduce withholding?

Summary

  1. Bank starts taking 30% backup withholding from interest earned by deposit accounts.
  2. The Taxpayer wishes to avoid backup withholding.
  3. The bank requests to provide form W-8BEN or W-9 in order to stop or reduce backup withholding.
  4. The form W-9 does not apply because the taxpayer is not a US person. The Taxpayer is under the impression that form W-8BEN also does not apply because the rental income they receive from US sources is considered effectively connected income (EIC). Bank informs taxpayers that they should be filing W-8ECI. Is this correct? What should the taxpayer file?

What is the bank withholding tax on? Interest, not rental income.

Albeit the bank deposits, which generate income, come from rental income, the bank is only taking backup withholding from the interests the deposits generate.

Therefore, form W-8ECI is not relevant. The taxpayer should file form W-8BEN and resubmit it annually only changing the date of signing.

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