Thoughts on Form W-8BEN-E for companies selling software licenses

Your company is selling software and a customer in the U.S. is asking you for form W-8BEN-E? You should supply it or risk having 30% of your payment withheld. Some customers might also not place an order at all before receiving this form.

Disclaimer: This blog post is presented for educational and entertainment purposes only. I originally wrote the instructions below for my own company. They might be incomplete, wrong or not applicable to your situation.

Preliminary considerations

  • What are software licenses (in tax treaty terms)? For this article, I’m assuming they fall under royalties / copyright.
  • Does your country have a tax treaty with the U.S.? How much will you save by filling out from W-8BEN-E? Download table 1 (tax rates…) from this IRS page, find your country and look up the royalties / copyright tax rate:

    Luxembourg US tax treaty: royalties
    Points at Malta: Ha-ha!

Official information

Other links you might find useful

Instructions for filling out form W-8BEN-E

Part I – Identification of Beneficial Owner

Complete line 1 and 2

Check “Corporation” on line 4 (if you’re not working for a corporation, you’re probably reading the wrong blog post).

Skip line 5 (FATCA status) entirely. Software licenses are excluded from the FATCA definition of “withholdable payment” [see: Experis – Finance FATCA Checklist for Multinational Companies (PDF); EY – Information reporting and withholding: the impact of Foreign Account Tax Compliance Act (FATCA) on multinational organizations (PDF)].

Enter address on line 6.

Provide a US taxpayer identification number (TIN) in the form of an employer identification number (EIN) on line 8 or the tax ID assigned in your country on line 9b.

Part III – Claim of Tax Treaty Benefits

Line 14a: Check the box and enter your country.

Line 14b: Check the box at the beginning. Will you have to check another box below? The official instructions say:

If you are a resident of a foreign country that has entered into an income tax treaty with the United States that contains a limitation on benefits (LOB) article, you must complete one of the checkboxes in line 14b. You may only check a box if the limitation on benefits article in that treaty includes a provision that corresponds to the checkbox on which you are relying to claim treaty benefits. A particular treaty might not include every type of test for which a checkbox is provided.

To find out if your country’s tax treaty includes a LOB article (it most probably does), go to the IRS tax treaties tables page and look up your country in table 4 (limitation on benefits). You can find the complete text of the tax treaty through this page and read the articles mentioned in table 4. The official instructions for form W-8BEN-E also contain summarized versions of the LOB tests which might be useful. You should then be able to figure out which box to check.

Line 15: As far as I understood the instructions, this line has to be filled out only “if the treaty contains different withholding rates for different types of royalties.”[see IRS instructions]. Remember table 1 from the very beginning of this blog post? Look at it again. Are all royalties rates the same? If yes, skip line 15, otherwise, fill it in. As “n/a” is not a rate (I hope), I skipped this line (all rates were the same for Luxembourg).

Part XXX – Certification

Sign, fill in print name and date in U.S. format, check the box at the bottom.

Even though I really don’t want to deal with this topic again, I’ll leave the comments open so that you can correct me on all that’s wrong with my instructions. However, please don’t ask me to help you fill out form W-8BEN-E for your company!

How to use a Transferwise borderless account to get paid by FastSpring

We use FastSpring to sell our software, which means that our account balance is in USD. FastSpring can pay out in EUR to a SEPA bank account, but new FinTech companies seem to offer better exchange rates.

Transferwise is one of these companies. Their bordereless account (which is not the same as their regular account) makes it possible to get paid by FastSpring to a US bank in USD (for free), convert the payment into EUR at Transferwise’s advantageous rates and withdraw it to a EUR account.

1. Sign up for a Transferwise borderless account

Click here and apply (this should direct you to the borderless signup page). You can also click on this affiliate link to get a free transfer and to support this blog, but please note that this will send you to the regular Transferwise signup page.

It took quite a while for Transferwise to open our borderless account. If you don’t hear from them within a few business days, I recommend logging in to check if further documents are required.

2. Activate USD as a currency and get your bank details

Transferwise activate currency

After logging in to your borderless account, you’ll be able to activate currencies. Obviously, you’ll need USD to get paid by FastSpring. Activating USD as a currency also gives you your USD bank details.

Transferwise borderless account USD bank details

I strongly recommend clicking on the “How do I use these?” link to learn more about using your USD bank details.

3. Enter your bank details in your FastSpring account

Things get a bit more difficult here. In your FastSpring account, go to “Payment Methods”, set the bank country to “United States” and click on “Enter Direct Deposit (ACH) Information”:

 

FastSpring payment methods
Note that these are the instructions for FastSpring’s “Classic Springboard”, things will look different if you’re using the more recent “contextual” dashboard.

Transferwise gives you all the bank details you’ll need to enter with the exception of the bank’s name. However, you can easily find the name by either entering your wire routing number (a.k.a ABA routing number) on this website or by entering your ACH routing number here. In our case, both numbers returned “Community Federal Savings Bank” as the bank’s name.

To make things more confusing, FastSpring asks for a “Routing / ABA (9 digits)” number. Do not actually enter the wire routing number (a.k.a ABA routing number) here! Instead, enter the ACH routing number (FastSpring customer support has confirmed that this is correct).

Transferwise recommends choosing “checking” and not “savings” as the account type, so I selected “Business checking”.

My completed form (colors match the colors used above):
FastSpring direct deposit ACH information using Transferwise borderless account

4. Add your EUR bank account to Transferwise

Transferwise will notify you when you’ve received a new payment. In order to withdraw it, you first have to add a bank account:

Transferwise add EUR account

5. Convert and withdraw your money in EUR

You can then convert your USD to EUR and send them to your account in one step:

Transferwise send money

Transferwise will show you the exchange rate and the fees (1% for USD to EUR). Soon afterwards (on the next business day in our case), your money will show up in your EUR bank account.

Are there alternatives to Patreon?

Update December 13, 2017: Patreon is sorry and will not roll out the fee changes.

Services provided by Patreon

Patreon is an intermediary between content creators and consumers (“Patrons”). The value-added functions provided by Patreon are:

  1. Payment processing and management (subscription / per creation).
  2. VAT handling.
  3. Low fees for micropayments (through payment aggregation).
  4. Content hosting and access regulation.
  5. Social networking.

Patreon has recently announced changes to their fee structure which will make it significantly more expensive to support a large number of creators with small amounts, effectively eliminating the third point. For further information, read this discussion on Reddit, this blog post or head over to Twitter to witness the shitstorm. There’s also an interesting theory that financial regulations might be the true reason why Patreon suddenly shot themselves in the foot .

Patreon alternatives

The only alternative providing all of the 5 functions listed above appears to be Drip (by Kickstarter). However, Drip is currently “invite-only” and not yet open to all creators.

All other alternatives I found may fulfill some of the functions, but not all of them. Nevertheless, they often charge higher fees than Patreon.

Snowdrift.coop maintains an excellent overview of crowdfunding and fundraising services  (there are several lists on that page, be sure to scroll all the way down). However, many of them won’t solve the micropayment problem (notable exceptions are Flattr and Liberapay).

You could also have a look at marketplaces for digital goods, particularly if your supporters expect to get something in return for their payments. Here are two lists to get you started:
12 Platforms to Sell Digital Downloads
Sell Product Online

The majority of creators I used to support on Patreon offer direct donations through PayPal or via bank transfer. Obviously, this only satisfies the first point on my list, but it might still be an acceptable solution to many small donors who removed their pledges on Patreon in protest against the new fee structure.

Updates: Other articles (chronological order):

Updates: Other possible alternatives to Patreon:

(alphabetical order, last updated on December 12, 2018)