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7 Revolutionary Steps to Obtain a Withholding Tax Exemption: The Comprehensive Guide to W-8BEN and W-8BEN-E Forms in 2025
Withholding tax exemption using W-8BEN and W-8BEN-E forms is one of the most critical issues for Israelis investing in the United States or receiving income from American sources. In 2025, with increased government oversight and the growth of international investments, understanding the process and submitting the forms correctly becomes more essential than ever.
This comprehensive guide will lead you through 7 revolutionary steps to obtain a withholding tax exemption, providing a detailed explanation of every aspect of the W-8BEN and W-8BEN-E forms. You’ll learn exactly when each form is required, how to fill it out correctly, and what common mistakes can cost you dearly.
Withholding tax is a mechanism by which the United States collects tax directly from income paid to foreign residents. The standard withholding rate is 30% of the gross income, but the double taxation agreement between Israel and the United States allows for a significant reduction or even a full exemption in certain cases.
Step One: Identifying the Need for W-8BEN or W-8BEN-E Form
The first and most critical decision is to determine which form applies to your specific case. The W-8BEN form is intended for individuals who are foreign residents of the United States, while the W-8BEN-E form is designed for legal entities such as corporations, partnerships, and investment funds.
If you are an Israeli citizen or resident investing in the United States through a personal investment account, you will likely need the W-8BEN form. This applies to investments in the U.S. capital markets, receiving dividends from U.S. companies, or interest income from U.S. banks.
On the other hand, if you own a business registered as a corporation in Israel and receive income from the United States, or if you manage an investment fund or trust, you will need the W-8BEN-E form. This form is more complex and requires extensive information about the organizational structure of the entity.
It is important to remember that even if you are an American citizen living in Israel, you are not eligible to fill out these forms, as they are exclusively for foreign residents. In such a case, you must handle your U.S. tax obligations as a citizen, even if you reside in Israel.
Step Two: Understanding the Israel-U.S. Double Taxation Agreement
The double taxation agreement between Israel and the United States is the legal foundation enabling the tax relief accessible through the W-8BEN forms. This agreement, signed in 1975 and updated multiple times, precisely defines which types of income qualify for preferential treatment and at what tax rates.
For dividends, the withholding tax rate is reduced from 30% to between 12.5% and 25%, depending on the percentage of ownership in the company paying the dividend. If the investor holds less than 10% of the company, the rate is 25%. If ownership is 10% or more, the rate decreases to 12.5%.
For interest income, the situation is even better. In most cases, interest income from U.S. banks or U.S. government bonds qualifies for a full exemption from withholding tax. This is one of the most significant advantages of the double tax treaty.
Income from U.S. real estate rentals is subject to more complex rules. In many cases, it will be subject to a 30% withholding tax, but there are certain ways to reduce the rate or claim a tax refund later.
Step Three: Gathering Required Documents and Information
Before filling out the form, it is essential to collect all necessary information and documents. For the W-8BEN form, you will need basic personal details: full name, full address in Israel, date of birth, and identification number or passport number.
An additional critical piece of information is the foreign tax identification number (Foreign TIN), which for Israelis is the ID number. It is very important to ensure the information matches exactly the data held by the paying party (bank or brokerage firm).
For the W-8BEN-E form, the list of documents is much more complex. You will need to prepare the certificate of incorporation, company bylaws, business license, and tax status certificates from Israel. Also, detailed information about the entity’s stakeholders, managers, and ownership structure is required.
Essential tip: It is advisable to prepare all documents in both Hebrew and English, with certified translations by a notary or certified translator. This saves time and prevents delays in processing the form.
Step Four: Filling Out the W-8BEN Form – A Detailed Guide
Filling out the W-8BEN form seems simple, but there are several critical points where many fail. The first field requires your full name exactly as it appears on your identification documents. Even a slight variation may cause the form to be rejected.
In the address field, it is important to write your residence address in Israel, not a mailing address or business address. This is where your tax residency is established and determines your eligibility for double tax treaty benefits.
The most complicated field is field 9 – the American taxpayer identification number. If you do not have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN), leave this field blank. Entering an incorrect number will result in form rejection.
In field 10, you must indicate the country of social security coverage, which for Israelis is Israel. This is a mandatory field often forgotten, causing the form to be considered incomplete.
In the special section for treaty claims, specify the country (Israel) and type of income (Dividends, Interest, etc.). It’s crucial to indicate the exact reduced tax rate under the treaty, as described in Step Two.
Step Five: Filling Out the W-8BEN-E Form – The Advanced Guide
The W-8BEN-E form is a real challenge even for experienced professionals. The form is divided into several parts, each requiring specific information about the entity and its legal status.
The first part requires basic identification details of the entity: company name, official address, country of incorporation, and Israeli tax identification number. It is very important to ensure all information exactly matches the details in the company’s registration documents.
The most complex part is determining the legal status of the entity for U.S. tax purposes. An Israeli entity can be considered a Corporation, Partnership, or Disregarded Entity, depending on its structure and tax elections made.
Most normal Israeli companies will be treated as a Corporation for U.S. tax purposes. However, Israeli partnerships might be considered Partnerships, requiring the completion of additional parts of the form.
Another section focuses on identifying “U.S. persons with interests” in the entity. If any owners or managers are U.S. citizens or residents, this must be reported with detailed information about them.
Step Six: Submission and Maintenance of the Forms
W-8BEN and W-8BEN-E forms are not submitted directly to the Internal Revenue Service (IRS). Instead, they are forwarded to the withholding agent – the bank, brokerage firm, or other entities paying the income. This agent keeps the form and applies the requested benefits.
It is important to remember that W-8BEN forms are valid for three years from the date of signing, or until a change in circumstances affects the accuracy of the information on the form. In other words, if you filled out a form in 2025, it will be valid until 2028.
However, some changes require immediate submission of an updated form. Changes of address, residency status, or entity structure (for W-8BEN-E) require filing a new form.
It is advisable to set up a reminder system to alert you before the form expires. Many investors discover their form expired only when receiving a 30% withholding tax deduction, which is already too late.
Step Seven: Monitoring and Applying the Benefits
After submitting the form, it is important to monitor and ensure the benefits are indeed applied. Check monthly or quarterly tax reports you receive from the paying agent to verify that withholding is performed at the reduced rate and not the standard 30%.
If you discover the benefits were not applied, contact the paying agent immediately for clarification. Sometimes the problem is simple – the form was not forwarded to the correct department or there is a small error preventing processing.
In cases where withholding tax was deducted at the higher rate despite submitting the form, you can claim a refund from the IRS by filing a U.S. tax return (Form 1040NR). This process is more complex and time-consuming, so prevention is preferable.
Another important point is meticulous documentation of the entire process. Keep copies of the completed forms, correspondence with paying agents, and acknowledgments of receipt. This information can be critical in the event of an audit or future issues.
Most Common Mistakes in 2025
Based on experience in 2025, we identified several common recurring mistakes. The most critical error is submitting inaccurate or outdated information. Every small detail matters and any discrepancy between the form data and the records of the paying agent can cause rejection.
Another common mistake is misunderstanding the correct legal status of the entity. Many lawyers and accountants in Israel are not sufficiently familiar with U.S. legal categories, leading to misclassification and loss of tax benefits.
In the investment funds sector, a frequent mistake involves misunderstanding the PFIC (Passive Foreign Investment Company) rules. Some Israeli investment funds may be considered PFICs for U.S. tax purposes, creating additional tax liabilities that these forms cannot resolve.
Economic Benefits of Proper Completion
The financial impact of correctly completing W-8BEN and W-8BEN-E forms can be huge. For an investor with a $1 million portfolio yielding 3% dividends annually, the difference between a 30% and 25% withholding tax amounts to $1,500 per year.
For interest income, where a full exemption is possible, the savings can be even more significant. An investor holding $500,000 in U.S. bonds with a 4% yield will save $6,000 per year by filling out the form correctly.
Over a 20-30 year horizon, typical for long-term investments, the cumulative savings can reach tens of thousands, or even hundreds of thousands of dollars for large investors.
Dealing with Complex Situations
Not all situations are simple or fit the general guide. Investors active in multiple countries, dual citizens, or managers of complex business structures may face special challenges.
For dual Israeli-American citizens, the situation is particularly complex. They cannot use W-8 forms but may be considered “U.S. persons” by paying agents, leading to withholding at the higher rate.
Investors operating through local Israeli structures, like trusts or holding companies, must carefully examine U.S. tax implications. Sometimes the Israeli structure is not recognized for U.S. tax purposes, requiring additional U.S. tax treatment.
Important Updates for 2025
In 2025, several important changes occurred in forms and tax benefits. The IRS tightened oversight on these forms and demands stricter compliance with filing instructions.
A significant update affects W-8BEN-E forms for investment funds and investment companies. Additional requirements were added for proving “qualified intermediary” status and identifying ultimate beneficial owners of the company.
Also, requirements for documentation in the real estate investment sector increased. Israeli investors in U.S. real estate should be aware of new rules and ensure their forms meet updated demands.
FAQ – Frequently Asked Questions
Do I need to renew the W-8BEN form every year?
No, the W-8BEN form is valid for three years from the date of signing. However, if your personal circumstances change (such as address or residency status), you must submit a new form immediately.
What happens if the name on the form is different from the bank account name?
This is a common problem that may cause the form to be rejected. The name on the form must exactly match the name on the records of the paying agent. In case of discrepancy, contact the paying agent to update the records before submitting the form.
Is it possible to get a full exemption from withholding tax on dividends?
No, the Israel-U.S. double tax agreement does not provide a full exemption on dividends. The reduced rate is 25% for holdings under 10%, and 12.5% for holdings of 10% or more.
What is the practical difference between W-8BEN and W-8BEN-E?
W-8BEN is intended for individuals, while W-8BEN-E is for legal entities such as corporations and partnerships. The W-8BEN-E form is much more complex and requires detailed information about the organizational structure of the entity.
Can I fill out the forms in Hebrew?
No, the forms must be completed in English only. If you need help translating supporting documents, it is recommended to use a certified translator.
What happens if I submitted an incorrect form?
You can submit a corrected form at any time. Contact the paying agent, explain the error, and submit a new form with the correct information. It is important to do this quickly to avoid incorrect tax withholding.
Do I need to file the form with the Israeli tax authority as well?
No, W-8BEN and W-8BEN-E forms are not submitted to tax authorities. They are intended only for U.S. paying agents. However, it is important to report the income to Israeli tax authorities in your annual tax return.