In the article before you, we will discuss the main idea of Form W-9 and Form W-8, their actual meaning, and address the question of their relevance to your bank and the American citizenship that you have (or might not have). So, if you are reading this article, you probably recently received a request from your bank to come to sign a number of forms relating to your American citizenship or permanent residency status. If you are currently debating the meaning of the forms and whether or not there you should sign them, you are not alone.
In wake of the financial exchange agreements that were signed between Israel and the United States, the banks in Israel began collecting information about accounts held in Israel, and for which there is an indication that the account is held by an American citizen, the account holder’s partner is an American citizen, or the authorized signatories is an American citizen. Thus, given an indication, the banks request the account holder’s declaration regarding his U.S. citizenship. These statements are provided using W-9 and W-8 forms.
The FATCA Law
In 2013, the Foreign Account Tax Compliance Act (FATCA) came into force. The law imposes an additional income reporting obligation to the obligation of U.S. citizens to report annual income – an obligation to report the possession of foreign accounts worth more than $10,000 at any point in time. Possession, in this case, is ownership, partnership, and even a signing authority in the account. In this way, the law seeks to monitor the financial activities of American citizens outside the borders of the United States.
Under this law, and in order to ensure its enforcement, the United States signed a financial exchange agreement with a large number of countries around the world. Thus, the countries of the world provide the United States with information about the financial activity of its citizens in their territory, while the United States provides them with similar information regarding their citizens. Israel also signed a similar agreement with the United States.
In fact, the implication of this agreement is that financial entities in Israel are monitor accounts for which there is an indication of the activity of American citizens, whether by the account holders or by partners of the account holders or as authorized signatories. This information is transferred to the Israeli Tax Authority, which transfers the information to the American Tax Authority (IRS).
Once they receive the information, the U.S. Tax Authority can cross-reference the information it has and locate American citizens who do not meet their obligation to report financial activity outside the United States. Opening such an investigation could result in heavy sanctions for U.S. citizens who did not meet the reporting obligation or only partially meet it.
When Israeli financial institutions give an account for which there is an indication of the activity of American citizens, they are asked by the account holder to make a statement regarding his citizenship and his compliance with U.S. tax reporting obligations. These statements are known as Form W-9 and Form W-8.
Form W-9
As we saw, an Israeli financial institution that identifies that the customer has a U.S. affiliation asks the customer to declare that he is indeed an American citizen and fill out a W-9 form – Request for Taxes Payer Identification Number and Certification.
When are we going to be asked to fill out the form?
As noted, we will be asked to fill out the form where there will be an indication of American affinity for the account. An address in the United States or receipts from a party located in the United States will rise to such an affinity, which will result in a request by the bank to sign the form.
What are the details required in the form?
This is a very basic form in which the following details are required:
- Full name (including business name if any).
- Address.
- Type of entity (private individual, partnership, company, etc.).
- Tax identification number (TIN, EIN, SSN)
What are the statements included in the form?
When the form is signed, the signatory declares that he is an American citizen (or, alternatively, incorporation according to the American law) who is not obligated to with a 30% with a tax credit and that the tax identification number given by him is the correct identification number. This information will be used by the U.S. Tax Authority to examine that the signatory actually fulfilled his tax liabilities. The apparent implication of signing the forms means that you are going to report the proceeds transferred to the aforementioned account as part of the annual tax report to the American tax authorities.
In addition, some institutions will seek to sign another declaration stating that they meet all reporting obligations applicable to them (both the obligation to report annual tax and the obligation to report foreign accounts to the US Treasury). If you do not meet these obligations, we recommend consulting with a qualified tax advisor and examining the possibility of retrospective reporting before signing this declaration.
What are the sanctions for not signing the form?
Failure to sign a form may result in the account being closed or a tax deduction at a rate of 30%.
Form W-8
When are we going to be asked to fill out the form?
A client whose Israeli financial institution found that there was an indication of American affinity, i.e., receiving receipts from an American source, but is not an American citizen, would fill out an alternative form, to Form W-9. This is Form W-8. In fact, this is a series of forms that are the same – a non-American entity that receives receipts from an American source, and they differ according to the type of entity (individual, company, partnership, etc.).
What are the details required in the form?
This is also a basic form that requires filling out general identification information. Here, too, an identification number is required for U.S. tax purposes, and to the extent that it does not exist, it is necessary to issue it. If you have not yet issued a tax identification number, begin proceedings and indicate on the W-8 form that you are in issuance proceedings.
What do you declare in the form?
As part of the form, you will declare that you are not An American citizen, and you will indicate whether the tax was deducted at source (documents that prove this must be attached), whether you are exempt from the deduction (here too, documents that prove this must be attached), or if you wish to deduct tax in accordance with the tax code signed by Israel and the United States (tax at a rate less than 30%).
What are the sanctions for not signing the form?
Failure to sign a form may result in the account being closed or a tax deduction at a rate of 30%.
Need help filling out the forms? Need to issue a tax identification number? Failed to file reports of previous tax years? MasAmerica’s team is at your service.
