Page 12 - Withholding Taxes for Foreign Entities

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
reporting Model 1 FFI. To establish a Chapter 4 the rate of withholding. For example, if you do Other documentation. Other documentation
status, you generally must obtain a valid with- not have documentation or you cannot deter- may be required to claim an exemption from, or
holding certificate or documentary evidence mine the part of a payment that is allocable to a reduced rate of, Chapter 3 withholding on pay
that you can reliably associate with the pay- specific documentation, you must use the pre- for personal services. The nonresident alien in-
ment. If you make a payment to a passive sumption rules of section 1441. dividual may have to give you a Form W-4 or a
NFFE, you must obtain either a certification that Form 8233. These forms are discussed in Pay
the NFFE does not have any substantial U.S. The specific types of documentation are dis- for Personal Services Performed under With-
owners, or the name, address, and TIN of each cussed in this section. However, see Withhold- holding on Specific Income, later.
substantial U.S. owner of the NFFE (or, under ing on Specific Income, later, as well as the in-
withholding agent, you also may want to see the Beneficial Owners
an applicable IGA, each controlling person that structions to the particular forms. As the
is a specified U.S. person). Instructions for the Requester of Forms
You can reliably associate a payment with a W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and If all the appropriate requirements have been
Form W-8 for purposes of establishing a W-8IMY. established on a Form W-8BEN, W-8BEN-E,
payee’s Chapter 4 status in most cases if, prior W-8ECI, W-8EXP, or, if applicable, on docu-
to the payment, you obtain a valid form that Section 1446 withholding. Under section mentary evidence, you can treat the payee as a
contains the information required for Chapter 4 1446 of the Code, a partnership must withhold foreign beneficial owner.
purposes, you can reliably determine how much tax on its effectively connected income alloca-
of the payment relates to the form, and you ble to a foreign partner. In most cases, a part- Claiming treaty benefits for purposes of
have no actual knowledge or reason to know nership determines if a partner is a foreign part- Chapter 3. You may apply a reduced rate of
that any of the information, certifications, or ner and the partner's tax classification based on Chapter 3 withholding to a foreign person that
statements in, or associated with, the form is the withholding certificate provided by the part- provides a Form W-8 claiming a reduced rate of
unreliable or incorrect for Chapter 4 purposes. ner. This is the same documentation that is filed withholding under an income tax treaty only if
See Standards of Knowledge for Purposes of for Chapter 3 withholding, but may require addi- the person provides a U.S. or foreign TIN and
Chapter 4, later, for the reason to know stand- tional information as discussed under each of certifies that:
ards that apply for Chapter 4 purposes. the forms in this section. • It is a resident of a treaty country;
For the requirements for documenting spe- Documentation rule for joint payees. If you • It is the beneficial owner of the income;
• If it is an entity, it derives the income within
cific Chapter 4 statuses of persons receiving make a payment to joint payees (such as hold- the meaning of section 894 of the Internal
withholdable payments, see Regulations sec- ers of a joint account), you need to get docu- Revenue Code (it is not fiscally transpar-
tion 1.1471-3(d). For rules related to when a mentation from each payee. If you make a pay- ent); and
withholding agent may rely on an otherwise ment to joint payees and cannot reliably • It meets any limitation on benefits provision
valid withholding certificate received electroni- associate the payment with documentation from contained in the treaty, if applicable, and
cally from a third-party repository, see Regula- all of the payees, you generally must presume specifies the category of the limitation on
tions section 1.1441-1(e)(4)(iv)(E). Also see the payment is made to an unidentified U.S. benefits provision.
Regulations section 1.1471-3(d) for the extent person. If the payment is a withholdable pay-
to which a withholding agent may rely on docu- ment and any of the payees do not appear, by If the payment you make is a withholdable
mentary evidence (other than a Form W-8) to name or other information in the account file, to payment to an entity, a requirement to withhold
establish the Chapter 4 status of an entity be an individual, you must treat the entire under Chapter 4 may apply based on the Chap-
payee, including the forms of documentary evi- amount as a payment made to an undocumen- ter 4 status of the payee regardless of whether
dence permitted for each specific Chapter 4 ted foreign person. However, if one of the joint a claim of treaty benefits may apply to such
status. For the requirements for documentary payees has provided you with a Form W-9, you payee or other person receiving the income.
evidence, see Regulations section 1.1471-3(c) must treat the payment as made to that payee. An entity derives income for which it is
(5). If you make a withholdable payment to an claiming treaty benefits only if the entity is not
entity payee and cannot reliably associate the Form W-9. In most cases, you can treat the treated as fiscally transparent for that income.
payment with a valid withholding certificate or payee as a U.S. person if the payee gives you a See Fiscally transparent entities claiming treaty
valid documentary evidence, you must apply Form W-9. The Form W-9 can be used only by benefits, discussed earlier under Flow-Through
the Chapter 4 presumption rules described in a U.S. person and must contain the payee's Entities.
Presumption Rules for Chapter 4, later. TIN. U.S. persons are not subject to Chapter 3 Limitations on benefits provisions in income
You may rely on the same documentation withholding, but may be subject to: tax treaties generally prevent third country resi-
dents (unless the treaty contains a derivative
for purposes of both Chapters 3 and 4 provided • Form 1099 reporting and backup withhold- benefits rule) and others that do not have a sub-
the documentation is sufficient to meet the re- ing under section 3406, stantial nexus to the treaty country from obtain-
quirements of each chapter. For example, you • Reporting as a U.S. account holder of a ing treaty benefits. For example, a foreign cor-
may use a W-8BEN-E to obtain both the Chap- participating FFI or registered poration may not be entitled to a reduced rate of
ter 3 and Chapter 4 statuses of an entity provid- deemed-compliant FFI, and withholding unless a minimum percentage of its
ing the form. • Classification as a recalcitrant account
holder of a participating FFI or registered owners are citizens or residents of the United
States or the treaty country. Foreign entities that
Additional Documentation deemed-compliant FFI for Chapter 4 pur- are residents of a country whose income tax
poses (including Chapter 4 withholding)
Rules Applicable to when the FFI is unable to report the infor- treaty with the United States contains a limita-
Chapters 3 and 4 mation required with respect to the ac- tion on benefits article are eligible for treaty
count holder. benefits only if they satisfy one of the objective
In most cases, you must reliably associate the tests under the limitation on benefits article or
obtain a favorable discretionary determination
payment with valid documentation to apply re- Forms W-8. In most cases, a foreign payee of from the U.S. competent authority.
duced withholding and must get the documen- the income should give you a form in the Form
The exemptions from, or reduced rates of,
tation before you make the payment. The docu- W-8 series. U.S. tax vary under each treaty. You must
mentation is not valid if you know, or have If certain requirements are met, the foreign
reason to know, that it is unreliable or incorrect. person can give you documentary evidence, check the provisions of the tax treaty that apply.
See Tax Treaties, later, for information on how
See Standards of Knowledge for Purposes of rather than a Form W-8. You can rely on docu-
Chapter 3 and Standards of Knowledge for Pur- mentary evidence in lieu of a Form W-8 for an to access tax treaties.
If you know, or have reason to know, that an
poses of Chapter 4, later. amount paid outside the United States with re- owner of income is not eligible for treaty bene-
spect to an offshore obligation. Refer to Off-
If you cannot reliably associate a payment shore obligations, later, to determine whether a fits claimed or if the United States does not
with valid documentation, you must use the payment qualifies as such a payment. have an income tax treaty in force with that
presumption rules discussed later to determine country, you may not reduce the rate of
Page 10 Publication 515 (2020)