New to banking. Do tax withholding rates vary according to country and are we only concerned with the rate if the NRA is subject to backup withholding?

Thanks

Bump

Bank deposit interest is subject to backup withholding at the rate of 28%. Other types of payments may be subject to a "treaty rate" that varies with the customer's country of origin.

No need to bump a post unless a couple days have passed...

Thanks

Does BU WHH apply whether or not Non US Person has a TIN or not?

Can someone direct me to the tax treaty rates for the individual foreign countries? Pub 515 is confusing.

Why would you care? Are you making payments other than interest to NRAs?

Help me understand rlcarey,

Sorry, I guess I didn't ask the question correctly. I am admittedly not the expert. I am trying to find out what the back up withholding rates for interest payments are for residents of foreign countries.

I thought tax treaty rates covered the BU WHH rates for interest payments as well as royalties, dividends...

http://www.irs.gov/taxtopics/tc307.html

and

http://www.irs.gov/publications/p515/ar02.html#en_US_2013_publink1000224904


Interest on deposits (Income Code 29). Foreign persons are not subject to withholding on interest that is not connected with a U.S. trade or business if it is from:

•Deposits with persons carrying on the banking business,


•Deposits or withdrawable accounts with savings institutions chartered and supervised under federal or state law as savings and loan or similar associations, such as credit unions, if the interest is or would be deductible by the institutions, or


•Amounts left with an insurance company under an agreement to pay interest on them.

Deposits include certificates of deposit, open account time deposits, Eurodollar certificates of deposit, and other deposit arrangements.

You may have to file Form 1042-S to report certain payments of interest on deposits. See Deposit interest paid to certain nonresident alien individuals under Returns Required, later.

If you need the tax treaty amounts. the tables are in the latter publication.

Back-up withholding is always 28%. Back-up withholding is required when a NRA does not provide you with a properly completed W-8BEN. Only required withholding on taxable payments would fall under the tax treaty amounts.

The easiest thing to do is for those NRA accounts in which you are unable to secure a properly completed W-8BEN is to transfer them to a non-interest bearing account or close them.

Thank you,

This was very helpful.

Ken,

Different anon here:

In regard to interest payments on interest bearing accounts, are you saying that the BU WHH rate for NRA is always 28% in the absence of a W8?

What does it mean on the W8 in the section that refers to treaty rate? Is this referring to a different BU WHH rate if the country is a treaty partner? I am confused. Thanks in advance for clarifying.

Not Ken, however I think if you read the references that I gave, it will answer your questions. Of course, I also answered that question directly in the second to last paragraph of my previous post.

We have two foreign individuals that do not have a TIN number listed on their W-8BEN. They are interest bearing accounts and would require a 1042S if they exceed $10.00 in deposit interest. Are they required to give us a TIN to file? Should we be withholding at 28% since we don't have this information? Or we could just switch them to a non interest bearing account.

I would offer that option...

Thank you

Are they required to give us a TIN to avoid backup withholding?
I know they are required to provide one to claim tax treaty benefits but deposit interest doesn't apply to tax treaty benefits.

If you have a properly executed W8-BEN on file for each owner, it is not necessary to backup withhold on bank deposit interest. It does not make a difference whether the W8-BEN carries a U.S. TIN.