In prior advisories, we have discussed the new withholding tax law commonly known as "FATCA" (standing for "Foreign Account Tax Compliance Act"). (See "FATCA's July 1 Effective Date Has Arrived; Last-Minute Guidance Has Been Issued" and "Last Substantial Package of FATCA Regulations Released; Deadlines Approaching" .) To help implement FATCA, the Internal Revenue Service (IRS) issued new, updated withholding certificates (i.e. W-9s and W-8s) so that payees of U.S. source income can provide applicable FATCA information to payors/withholding agents. This advisory walks through one of these forms, the Form W-8BEN-E (Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) ), and its instructions .
Background. U.S. federal withholding taxes may apply to U.S. source payments made to foreign payees that consist of items such as interest, dividends, rents, royalties, premiums, annuities, compensation for services, substitute payments in a securities lending transaction, or other fixed or determinable annual or periodical gains, profits, or income.
The Form W-8BEN-E is used by foreign entities to document their status for purposes of the withholding tax laws under chapters 3 and 4 of the Internal Revenue Code (Code). FATCA is under chapter 4 of the Code. Foreign entities and individuals used to be able to use the same Form W-8BEN, but the new W-8BEN (revised as of February 2014) is just for individuals and entities are now supposed to use the W-8BEN-E.
A withholding agent that receives a properly executed Form W-8BEN-E from a payee may rely on the form to avoid having to withhold the 30% FATCA withholding tax.
Knowing Your FATCA Status. Part I, Line 5 of the Form W-8BEN-E asks the payee to check one of 31 boxes to identify its status. The box checked
also determines which parts of the rest of the form the foreign entity needs to fill out. The 15-page instructions to the form explain what some of these choices are, but not all of them. While the actual definitions for these terms, provided in the FATCA regulations (including temporary regulations), are lengthy and complicated, we have provided the 31 choices below with a short description.
Nonparticipating FFI (including a limited FFI or an FFI related to a Reporting IGA FFI other than a registered deemed-compliant FFI or participating FFI). This is an FFI (i.e. a foreign financial institution, which includes certain types of depository institutions, custodial institutions, investment entities, and insurance companies) that is not exempt from FATCA and has not taken the necessary steps to comply with FATCA.
Participating FFI. This is an FFI that has agreed to comply with the terms of an FFI agreement, pursuant to which it agrees to diligence its accounts and disclose certain information about U.S. accountholders and its accounts to the IRS.
Reporting Model 1 FFI. In order to assist FATCA implementation, many jurisdictions have entered into intergovernmental agreements (IGAs) with the U.S. to assist in the exchange of information and applicable reporting. These IGAs have their own diligence and reporting requirements that may differ from those in the U.S. regulations, so foreign entities must check to see if their jurisdiction has an IGA with the U.S. and read their applicable IGA. There are two "models" of an IGA that are used—Model 1 and Model 2. An FFI in a Model 1 IGA jurisdiction that performs account reporting to the jurisdiction's government is a reporting Model 1 FFI. Click here to see the jurisdictions that have entered into a Model 1 IGA.