Non-US persons (whether individuals or entities, such as foreign corporations) are subject to U.S. tax at a flat 30% rate on certain kinds of income they receive from US sources. Sometimes an Income Tax Treaty negotiated with the US and another country can be used to reduce this tax rate.
The tax is withheld at source by the payor of the income. This payor, also known as a “withholding agent”, has responsibility for withholding the required tax and paying it over to the US Internal Revenue Service (IRS). In the event withholding is required and the withholding agent fails in its duties, the agent can be held personally liable for the tax. For this reason, payors are usually very careful to ensure they have undertaken all the necessary actions, part of which is to obtain a certification from the payee as to whether the payee is a US person or a foreign person.
The 30% (or lower Treaty rate) withholding tax is required only for payments made to foreign payees, it is not required when the payee is a US person. Foreign persons complete one of the forms in the Form W-8 series (e.g., Form W-8 BEN). US persons do not complete a form in the W-8 series. Instead, they use Form W-9.
When the payor of the income has the W-8BEN on file, the payor will be apprised that the payee is a non-US person and will undertake its withholding duties. If the payee is a US person with a completed Form W-9, the payor will know it does not have to withhold this 30% tax.