Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Are You Making Rental Payments to Nonresidents?

We all are aware of providing form W-9 and form 1099 when paying for items such as services or rental income.

As some of you may have found, some of the payees may not be US taxpayers and are ineligible from filing form W-9.

Below is a summary of the forms that are required in such instances:

W-8BEN- This form must be completed by all non US persons you remit funds to. They must complete, sign and return to you for your records only. You do not submit this to the IRS.

W-8ECI-Generally speaking, payments made to non US residents for items such as rents and services require 30% withholding tax. Income tax treaties will often reduce this rate. For example, under the income tax treaty with Canada, rental payments to Canadian tax residents would require a 10% withholding.

If your clients would like to be exempt from the withholding tax, they need to file an annual US non-resident return and make an election to treat the rental payments as effectively connected income. If they accept these terms, they can complete Form W-8ECI and return to you. This form does not need to be filed with the IRS; however, an ITIN is required in order for the form to be valid. (ITINs can be obtained when the first nonresident income tax return is filed. A form W-7 is attached to this nonresident return, and the form requests an ITIN be assigned to the nonresident taxpayer)

The W-8ECI forms are valid for three years (unless their circumstances change) and should be kept on file.

To enforce the system of withholding, the Internal Revenue Code defines a “withholding agent” to be any person in whatever capacity (including lessees and managers of U.S. real property) having the control, receipt, custody, disposal or payment of income that is subject to withholding. Thus, a real property manager who collects rent on behalf of a foreign owner of real property is clearly considered a withholding agent. A withholding agent is personally and primarily liable for any tax that must be withheld. The liability of the withholding agent includes amounts that should have been paid plus interest, penalties and, where applicable, criminal sanctions.

More detailed information along with these forms can be found on the IRS’s website,

By Debra Callicutt, CPA


  1. DudleyB says:

    You state “For example, under the income tax treaty with Canada, rental payments to Canadian tax residents would require a 10% withholding.”
    Can you point me to where I can find this in the treaties? I have been scouring them and cannot find anything referring to this.

    I have called the International Tax department at the IRS, and they state that Rental Income, specifically, does not have any reduction in withholding rates in the international treaty and that we are required to withhold 30%.

    I have read about this 10% on other CPA sites, too, so it seems like it could be right, but I can’t find it in any IRS or Canada/US treaty documentation or with their phone support.

    Thank you for any assistance you could give me in pointing me to the right stuff.

    • admin says:

      Thank you for your email inquiry. Always great to learn that our blogs are being read!

      Annual Tax Return Filing: Nonresident U.S. Rental:
      We do need to thank you as the 10% reference in this example is incorrect. The 30% does apply; however, did you make the proper tax election to allow for expenses to offset the rental revenue and file on a net basis?

      The 10% does apply to rental income but not when the rental income applies to real property.

      Election to treat rental income on net basis:

      The election by a resident of Canada to treat rentals of real property from U.S. sources on a net basis, as if it was income from a trade or business is an annual election. Rev. Rul. 77-174, 1977-1 CB 414.

      Please let us know if we can be of any assistance.

      Regards, Debra Callicutt, CPA