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1040x free Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. 1040x free S. 1040x free Taxpayer Identification NumbersUnexpected payment. 1040x free Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. 1040x free Electronic reporting. 1040x free Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. 1040x free S. 1040x free Real Property InterestForeign corporations. 1040x free Domestic corporations. 1040x free U. 1040x free S. 1040x free real property holding corporations. 1040x free Partnerships. 1040x free Trusts and estates. 1040x free Domestically controlled QIE. 1040x free Late filing of certifications or notices. 1040x free Certifications. 1040x free Liability of agent or qualified substitute. 1040x free Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 1040x free Withholding of Tax In most cases, a foreign person is subject to U. 1040x free S. 1040x free tax on its U. 1040x free S. 1040x free source income. 1040x free Most types of U. 1040x free S. 1040x free source income received by a foreign person are subject to U. 1040x free S. 1040x free tax of 30%. 1040x free A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. 1040x free The tax is generally withheld (NRA withholding) from the payment made to the foreign person. 1040x free The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. 1040x free In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. 1040x free S. 1040x free source income. 1040x free Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. 1040x free NRA withholding does not include withholding under section 1445 of the Code (see U. 1040x free S. 1040x free Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). 1040x free A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. 1040x free However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. 1040x free S. 1040x free person is not required to withhold. 1040x free In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. 1040x free Withholding Agent You are a withholding agent if you are a U. 1040x free S. 1040x free or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. 1040x free A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. 1040x free S. 1040x free branch of certain foreign banks and insurance companies. 1040x free You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. 1040x free Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. 1040x free In most cases, the U. 1040x free S. 1040x free person who pays an amount subject to NRA withholding is the person responsible for withholding. 1040x free However, other persons may be required to withhold. 1040x free For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. 1040x free In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. 1040x free Liability for tax. 1040x free   As a withholding agent, you are personally liable for any tax required to be withheld. 1040x free This liability is independent of the tax liability of the foreign person to whom the payment is made. 1040x free If you fail to withhold and the foreign payee fails to satisfy its U. 1040x free S. 1040x free tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. 1040x free   The applicable tax will be collected only once. 1040x free If the foreign person satisfies its U. 1040x free S. 1040x free tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. 1040x free Determination of amount to withhold. 1040x free   You must withhold on the gross amount subject to NRA withholding. 1040x free You cannot reduce the gross amount by any deductions. 1040x free However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. 1040x free   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. 1040x free In no case, however, should you withhold more than 30% of the total amount paid. 1040x free Or, you may make a reasonable estimate of the amount from U. 1040x free S. 1040x free sources and put a corresponding part of the amount due in escrow until the amount from U. 1040x free S. 1040x free sources can be determined, at which time withholding becomes due. 1040x free When to withhold. 1040x free   Withholding is required at the time you make a payment of an amount subject to withholding. 1040x free A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. 1040x free A payment is considered made to a person if it is paid for that person's benefit. 1040x free For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. 1040x free A payment also is considered made to a person if it is made to that person's agent. 1040x free   A U. 1040x free S. 1040x free partnership should withhold when any distributions that include amounts subject to withholding are made. 1040x free However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. 1040x free S. 1040x free partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. 1040x free If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. 1040x free A U. 1040x free S. 1040x free trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. 1040x free To the extent a U. 1040x free S. 1040x free trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. 1040x free Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. 1040x free (See Returns Required , later. 1040x free ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. 1040x free Form 1099 reporting and backup withholding. 1040x free    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. 1040x free S. 1040x free person. 1040x free You must withhold 28% (backup withholding rate) from a reportable payment made to a U. 1040x free S. 1040x free person that is subject to Form 1099 reporting if any of the following apply. 1040x free The U. 1040x free S. 1040x free person has not provided its taxpayer identification number (TIN) in the manner required. 1040x free The IRS notifies you that the TIN furnished by the payee is incorrect. 1040x free There has been a notified payee underreporting. 1040x free There has been a payee certification failure. 1040x free In most cases, a TIN must be provided by a U. 1040x free S. 1040x free non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. 1040x free A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. 1040x free You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. 1040x free S. 1040x free person. 1040x free For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. 1040x free S. 1040x free person subject to Form 1099 reporting. 1040x free See Identifying the Payee , later, for more information. 1040x free Also see Section S. 1040x free Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. 1040x free Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. 1040x free Wages paid to employees. 1040x free   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. 1040x free See Pay for Personal Services Performed , later. 1040x free Effectively connected income by partnerships. 1040x free   A withholding agent that is a partnership (whether U. 1040x free S. 1040x free or foreign) is also responsible for withholding on its income effectively connected with a U. 1040x free S. 1040x free trade or business that is allocable to foreign partners. 1040x free See Partnership Withholding on Effectively Connected Income , later, for more information. 1040x free U. 1040x free S. 1040x free real property interest. 1040x free   A withholding agent also may be responsible for withholding if a foreign person transfers a U. 1040x free S. 1040x free real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. 1040x free S. 1040x free real property interest to a shareholder, partner, or beneficiary that is a foreign person. 1040x free See U. 1040x free S. 1040x free Real Property Interest , later. 1040x free Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. 1040x free It does not apply to payments made to U. 1040x free S. 1040x free persons. 1040x free Usually, you determine the payee's status as a U. 1040x free S. 1040x free or foreign person based on the documentation that person provides. 1040x free See Documentation , later. 1040x free However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. 1040x free Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. 1040x free However, there are situations in which the payee is a person other than the one to whom you actually make a payment. 1040x free U. 1040x free S. 1040x free agent of foreign person. 1040x free   If you make a payment to a U. 1040x free S. 1040x free person and you have actual knowledge that the U. 1040x free S. 1040x free person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. 1040x free However, if the U. 1040x free S. 1040x free person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. 1040x free   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. 1040x free S. 1040x free person and not as a payment to a foreign person. 1040x free You may be required to report the payment on Form 1099 and, if applicable, backup withhold. 1040x free Disregarded entities. 1040x free   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. 1040x free The payee of a payment made to a disregarded entity is the owner of the entity. 1040x free   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. 1040x free   If the owner is a U. 1040x free S. 1040x free person, you do not apply NRA withholding. 1040x free However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. 1040x free You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. 1040x free Flow-Through Entities The payees of payments (other than income effectively connected with a U. 1040x free S. 1040x free trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. 1040x free This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 1040x free Income that is, or is deemed to be, effectively connected with the conduct of a U. 1040x free S. 1040x free trade or business of a flow-through entity is treated as paid to the entity. 1040x free All of the following are flow-through entities. 1040x free A foreign partnership (other than a withholding foreign partnership). 1040x free A foreign simple or foreign grantor trust (other than a withholding foreign trust). 1040x free A fiscally transparent entity receiving income for which treaty benefits are claimed. 1040x free See Fiscally transparent entity , later. 1040x free In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. 1040x free You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. 1040x free You must determine whether the owners or beneficiaries of a flow-through entity are U. 1040x free S. 1040x free or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. 1040x free You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. 1040x free If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. 1040x free See Documentation and Presumption Rules , later. 1040x free Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. 1040x free Foreign partnerships. 1040x free    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. 1040x free If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. 1040x free However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 1040x free If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. 1040x free Example 1. 1040x free A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. 1040x free S. 1040x free citizen. 1040x free You make a payment of U. 1040x free S. 1040x free source interest to the partnership. 1040x free It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. 1040x free S. 1040x free citizen. 1040x free The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. 1040x free You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. 1040x free Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. 1040x free Report the payment to the U. 1040x free S. 1040x free citizen on Form 1099-INT. 1040x free Example 2. 1040x free A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. 1040x free The second partnership has two partners, both nonresident alien individuals. 1040x free You make a payment of U. 1040x free S. 1040x free source interest to the first partnership. 1040x free It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. 1040x free In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. 1040x free The Forms W-8IMY from the partnerships have complete withholding statements associated with them. 1040x free Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. 1040x free Example 3. 1040x free You make a payment of U. 1040x free S. 1040x free source dividends to a withholding foreign partnership. 1040x free The partnership has two partners, both foreign corporations. 1040x free You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. 1040x free You must treat the partnership as the payee of the dividends. 1040x free Foreign simple and grantor trust. 1040x free   A trust is foreign unless it meets both of the following tests. 1040x free A court within the United States is able to exercise primary supervision over the administration of the trust. 1040x free One or more U. 1040x free S. 1040x free persons have the authority to control all substantial decisions of the trust. 1040x free   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. 1040x free A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. 1040x free   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. 1040x free The payees of a payment made to a foreign grantor trust are the owners of the trust. 1040x free However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 1040x free If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. 1040x free Example. 1040x free A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. 1040x free S. 1040x free citizen. 1040x free You make a payment of interest to the foreign trust. 1040x free It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. 1040x free S. 1040x free citizen. 1040x free The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. 1040x free You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. 1040x free Report the payment to the nonresident aliens on Forms 1042-S. 1040x free Report the payment to the U. 1040x free S. 1040x free citizen on Form 1099-INT. 1040x free Fiscally transparent entity. 1040x free   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. 1040x free The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. 1040x free ). 1040x free The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. 1040x free An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. 1040x free Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. 1040x free   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. 1040x free Example. 1040x free Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. 1040x free A has two interest holders, B and C. 1040x free B is a corporation organized under the laws of country Y. 1040x free C is a corporation organized under the laws of country Z. 1040x free Both countries Y and Z have an income tax treaty in force with the United States. 1040x free A receives royalty income from U. 1040x free S. 1040x free sources that is not effectively connected with the conduct of a trade or business in the United States. 1040x free For U. 1040x free S. 1040x free income tax purposes, A is treated as a partnership. 1040x free Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. 1040x free The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. 1040x free Accordingly, A is fiscally transparent in its jurisdiction, country X. 1040x free B and C are not fiscally transparent under the laws of their respective countries of incorporation. 1040x free Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. 1040x free Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. 1040x free S. 1040x free source royalty income for purposes of the U. 1040x free S. 1040x free -Y income tax treaty. 1040x free Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. 1040x free Therefore, A is not treated as fiscally transparent under the laws of country Z. 1040x free Accordingly, C is not treated as deriving its share of the U. 1040x free S. 1040x free source royalty income for purposes of the U. 1040x free S. 1040x free -Z income tax treaty. 1040x free Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. 1040x free This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 1040x free You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. 1040x free An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. 1040x free A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. 1040x free In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. 1040x free You must determine whether the customers or account holders of a foreign intermediary are U. 1040x free S. 1040x free or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. 1040x free You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. 1040x free If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. 1040x free See Documentation and Presumption Rules , later. 1040x free Nonqualified intermediary. 1040x free   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. 1040x free The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. 1040x free Example. 1040x free You make a payment of interest to a foreign bank that is a nonqualified intermediary. 1040x free The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. 1040x free S. 1040x free person for whom the bank is collecting the payments. 1040x free The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. 1040x free The account holders are the payees of the interest payment. 1040x free You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. 1040x free S. 1040x free person on Form 1099-INT. 1040x free Qualified intermediary. 1040x free   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. 1040x free S. 1040x free intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. 1040x free You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. 1040x free In this situation, the QI is required to withhold the tax. 1040x free You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. 1040x free   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. 1040x free If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. 1040x free S. 1040x free person. 1040x free Branches of financial institutions. 1040x free   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. 1040x free The countries with approved KYC rules are listed on IRS. 1040x free gov. 1040x free QI withholding agreement. 1040x free   Foreign financial institutions and foreign branches of U. 1040x free S. 1040x free financial institutions can enter into an agreement with the IRS to be a qualified intermediary. 1040x free   A QI is entitled to certain simplified withholding and reporting rules. 1040x free In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. 1040x free   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. 1040x free These forms, and the procedures required to obtain a QI withholding agreement are available at www. 1040x free irs. 1040x free gov/Businesses/Corporations/Qualified-Intermediaries-(QI). 1040x free Documentation. 1040x free   A QI is not required to forward documentation obtained from foreign account holders to the U. 1040x free S. 1040x free withholding agent from whom the QI receives a payment of U. 1040x free S. 1040x free source income. 1040x free The QI maintains such documentation at its location and provides the U. 1040x free S. 1040x free withholding agent with withholding rate pools. 1040x free A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. 1040x free   A QI is required to provide the U. 1040x free S. 1040x free withholding agent with information regarding U. 1040x free S. 1040x free persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. 1040x free   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. 1040x free This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. 1040x free Form 1042-S reporting. 1040x free   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. 1040x free Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). 1040x free Collective refund procedures. 1040x free   A QI may seek a refund on behalf of its direct account holders. 1040x free The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. 1040x free U. 1040x free S. 1040x free branches of foreign banks and foreign insurance companies. 1040x free   Special rules apply to a U. 1040x free S. 1040x free branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. 1040x free If you agree to treat the branch as a U. 1040x free S. 1040x free person, you may treat the branch as a U. 1040x free S. 1040x free payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. 1040x free S. 1040x free branch on which the agreement is evidenced. 1040x free If you treat the branch as a U. 1040x free S. 1040x free payee, you are not required to withhold. 1040x free Even though you agree to treat the branch as a U. 1040x free S. 1040x free person, you must report the payment on Form 1042-S. 1040x free   A financial institution organized in a U. 1040x free S. 1040x free possession is treated as a U. 1040x free S. 1040x free branch. 1040x free The special rules discussed in this section apply to a possessions financial institution. 1040x free   If you are paying a U. 1040x free S. 1040x free branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. 1040x free S. 1040x free person for amounts subject to NRA withholding. 1040x free Consequently, amounts not subject to NRA withholding that are paid to a U. 1040x free S. 1040x free branch are not subject to Form 1099 reporting or backup withholding. 1040x free   Alternatively, a U. 1040x free S. 1040x free branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. 1040x free In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. 1040x free See Nonqualified Intermediaries under  Documentation, later. 1040x free   If the U. 1040x free S. 1040x free branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. 1040x free Withholding foreign partnership and foreign trust. 1040x free   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. 1040x free A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. 1040x free   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. 1040x free A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. 1040x free You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. 1040x free WP and WT withholding agreements. 1040x free   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. 1040x free Also see the following items. 1040x free Revenue Procedure 2004-21. 1040x free Revenue Procedure 2005-77. 1040x free Employer identification number (EIN). 1040x free   A completed Form SS-4 must be submitted with the application for being a WP or WT. 1040x free The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. 1040x free Documentation. 1040x free   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. 1040x free The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. 1040x free The Form W-8IMY must contain the WP-EIN or WT-EIN. 1040x free Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. 1040x free A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. 1040x free S. 1040x free person. 1040x free It also includes a foreign branch of a U. 1040x free S. 1040x free financial institution if the foreign branch is a qualified intermediary. 1040x free In most cases, the U. 1040x free S. 1040x free branch of a foreign corporation or partnership is treated as a foreign person. 1040x free Nonresident alien. 1040x free   A nonresident alien is an individual who is not a U. 1040x free S. 1040x free citizen or a resident alien. 1040x free A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. 1040x free Married to U. 1040x free S. 1040x free citizen or resident alien. 1040x free   Nonresident alien individuals married to U. 1040x free S. 1040x free citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. 1040x free However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. 1040x free Wages paid to these individuals are subject to graduated withholding. 1040x free See Wages Paid to Employees—Graduated Withholding . 1040x free Resident alien. 1040x free   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. 1040x free Green card test. 1040x free An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. 1040x free This is known as the green card test because these aliens hold immigrant visas (also known as green cards). 1040x free Substantial presence test. 1040x free An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. 1040x free Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. 1040x free   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. 1040x free This exception is for a limited period of time. 1040x free   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. 1040x free Note. 1040x free   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. 1040x free For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). 1040x free Resident of a U. 1040x free S. 1040x free possession. 1040x free   A bona fide resident of Puerto Rico, the U. 1040x free S. 1040x free Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. 1040x free S. 1040x free citizen or a U. 1040x free S. 1040x free national is treated as a nonresident alien for the withholding rules explained here. 1040x free A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. 1040x free   For more information, see Publication 570, Tax Guide for Individuals With Income From U. 1040x free S. 1040x free Possessions. 1040x free Foreign corporations. 1040x free   A foreign corporation is one that does not fit the definition of a domestic corporation. 1040x free A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. 1040x free Guam or Northern Mariana Islands corporations. 1040x free   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). 1040x free Note. 1040x free   The provisions discussed below under U. 1040x free S. 1040x free Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. 1040x free U. 1040x free S. 1040x free Virgin Islands and American Samoa corporations. 1040x free   A corporation created or organized in, or under the laws of, the U. 1040x free S. 1040x free Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. 1040x free S. 1040x free Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. 1040x free S. 1040x free Virgin Islands, American Samoa, Guam, the CNMI, or the United States. 1040x free Foreign private foundations. 1040x free   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. 1040x free Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. 1040x free Other foreign organizations, associations, and charitable institutions. 1040x free   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. 1040x free In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. 1040x free   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. 1040x free   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. 1040x free U. 1040x free S. 1040x free branches of foreign persons. 1040x free   In most cases, a payment to a U. 1040x free S. 1040x free branch of a foreign person is a payment made to the foreign person. 1040x free However, you may treat payments to U. 1040x free S. 1040x free branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. 1040x free S. 1040x free regulatory supervision as payments made to a U. 1040x free S. 1040x free person, if you and the U. 1040x free S. 1040x free branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. 1040x free For this purpose, a financial institution organized under the laws of a U. 1040x free S. 1040x free possession is treated as a U. 1040x free S. 1040x free branch. 1040x free Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. 1040x free The payee is a U. 1040x free S. 1040x free person. 1040x free The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. 1040x free In most cases, you must get the documentation before you make the payment. 1040x free The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. 1040x free See Standards of Knowledge , later. 1040x free If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. 1040x free For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. 1040x free The specific types of documentation are discussed in this section. 1040x free However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. 1040x free As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. 1040x free Section 1446 withholding. 1040x free   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. 1040x free In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. 1040x free This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. 1040x free Joint owners. 1040x free    If you make a payment to joint owners, you need to get documentation from each owner. 1040x free Form W-9. 1040x free   In most cases, you can treat the payee as a U. 1040x free S. 1040x free person if the payee gives you a Form W-9. 1040x free The Form W-9 can be used only by a U. 1040x free S. 1040x free person and must contain the payee's taxpayer identification number (TIN). 1040x free If there is more than one owner, you may treat the total amount as paid to a U. 1040x free S. 1040x free person if any one of the owners gives you a Form W-9. 1040x free See U. 1040x free S. 1040x free Taxpayer Identification Numbers , later. 1040x free U. 1040x free S. 1040x free persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. 1040x free Form W-8. 1040x free   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. 1040x free Until further notice, you can rely upon Forms W-8 that contain a P. 1040x free O. 1040x free box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. 1040x free S. 1040x free person and that a street address is available. 1040x free You may rely on Forms W-8 for which there is a U. 1040x free S. 1040x free mailing address provided you received the form prior to December 31, 2001. 1040x free   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. 1040x free You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. 1040x free S. 1040x free possession. 1040x free Other documentation. 1040x free   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. 1040x free The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. 1040x free These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. 1040x free Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. 1040x free Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. 1040x free   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. 1040x free   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. 1040x free For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. 1040x free Claiming treaty benefits. 1040x free   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. 1040x free S. 1040x free TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. 1040x free   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. 1040x free   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. 1040x free See Fiscally transparent entity discussed earlier under Flow-Through Entities. 1040x free   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. 1040x free For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. 1040x free   The exemptions from, or reduced rates of, U. 1040x free S. 1040x free tax vary under each treaty. 1040x free You must check the provisions of the tax treaty that apply. 1040x free Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. 1040x free   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. 1040x free You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. 1040x free Exceptions to TIN requirement. 1040x free   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. 1040x free Income from marketable securities (discussed next). 1040x free Unexpected payments to an individual (discussed under U. 1040x free S. 1040x free Taxpayer Identification Numbers ). 1040x free Marketable securities. 1040x free   A Form W-8BEN provided to claim treaty benefits does not need a U. 1040x free S. 1040x free TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. 1040x free For this purpose, income from a marketable security consists of the following items. 1040x free Dividends and interest from stocks and debt obligations that are actively traded. 1040x free Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). 1040x free Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. 1040x free Income related to loans of any of the above securities. 1040x free Offshore accounts. 1040x free   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. 1040x free   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. 1040x free However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. 1040x free An offshore account is an account maintained at an office or branch of a U. 1040x free S. 1040x free or foreign bank or other financial institution at any location outside the United States. 1040x free   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. 1040x free This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. 1040x free In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. 1040x free Documentary evidence. 1040x free   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. 1040x free To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. 1040x free Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. 1040x free Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. 1040x free In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. 1040x free Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. 1040x free   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. 1040x free (See Effectively Connected Income , later. 1040x free )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. 1040x free   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. 1040x free S. 1040x free trade or business is subject to withholding under section 1446. 1040x free If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. 1040x free    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. 1040x free Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. 1040x free   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. 1040x free S. 1040x free possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. 1040x free   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. 1040x free   See Foreign Governments and Certain Other Foreign Organizations , later. 1040x free Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. 1040x free The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. 1040x free The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. 1040x free Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. 1040x free S. 1040x free Branches for United States Tax Withholding. 1040x free   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. 1040x free S. 1040x free branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. 1040x free S. 1040x free branch of a foreign bank or insurance company and either is agreeing to be treated as a U. 1040x free S. 1040x free person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. 1040x free For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. 1040x free 1446-5. 1040x free Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. 1040x free A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. 1040x free The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. 1040x free The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. 1040x free Responsibilities. 1040x free   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. 1040x free However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. 1040x free Instead, it provides you with a withholding statement that contains withholding rate pool information. 1040x free A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. 1040x free A qualified intermediary is required to provide you with information regarding U. 1040x free S. 1040x free persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. 1040x free S. 1040x free person unless it has assumed Form 1099 reporting and backup withholding responsibility. 1040x free For the alternative procedure for providing rate pool information for U. 1040x free S. 1040x free non-exempt persons, see the Form W-8IMY instructions. 1040x free   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. 1040x free   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. 1040x free Primary responsibility not assumed. 1040x free   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. 1040x free Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. 1040x free S. 1040x free person subject to Form 1099 reporting and/or backup withholding. 1040x free The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 1040x free Primary NRA withholding responsibility assumed. 1040x free   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. 1040x free S. 1040x free person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. 1040x free The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 1040x free Primary NRA and Form 1099 responsibility assumed. 1040x free   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. 1040x free It is not necessary to associate the payment with withholding rate pools. 1040x free Example. 1040x free You make a payment of dividends to a QI. 1040x free It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. 1040x free S. 1040x free individual who provides it with a Form W-9. 1040x free Each customer is entitled to 20% of the dividend payment. 1040x free The QI does not assume any primary withholding responsibility. 1040x free The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. 1040x free S. 1040x free individual. 1040x free You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. 1040x free The part of the payment allocable to the U. 1040x free S. 1040x free individual (20%) is reportable on Form 1099-DIV. 1040x free Smaller partnerships and trusts. 1040x free   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. 1040x free It is a foreign partnership or foreign simple or grantor trust. 1040x free It is a direct account holder of the QI. 1040x free It does not have any partner, beneficiary, or owner that is a U. 1040x free S. 1040x free person or a pass- through partner, beneficiary, or owner. 1040x free   For information on these rules, see section 4A. 1040x free 01 of the QI agreement. 1040x free This is found in Appendix 3 of Revenue Procedure 2003-64. 1040x free Also see Revenue Procedure 2004-21. 1040x free Related partnerships and trusts. 1040x free    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. 1040x free It is a foreign partnership or foreign simple or grantor trust. 1040x free It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. 1040x free For information on these rules, see section 4A. 1040x free 02 of the QI agreement. 1040x free This is found in Appendix 3 of Revenue Procedure 2003-64. 1040x free Also see Revenue Procedure 2005-77. 1040x free Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. 1040x free S. 1040x free branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. 1040x free S. 1040x free branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. 1040x free The NQI, flow-through entity, or U. 1040x free S. 1040x free branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. 1040x free A withholding statement must be updated to keep the information accurate prior to each payment. 1040x free Withholding statement. 1040x free   In most cases, a withholding statement must contain the following information. 1040x free The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. 1040x free The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. 1040x free The status of the person for whom the documentation has been provided, such as whether the person is a U. 1040x free S. 1040x free exempt recipient (U. 1040x free S. 1040x free person exempt from Form 1099 reporting), U. 1040x free S. 1040x free non-exempt recipient (U. 1040x free S. 1040x free person subject to Form 1099 reporting), or a foreign person. 1040x free For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. 1040x free S. 1040x free branch. 1040x free The type of recipient the person is, based on the recipient codes used on Form 1042-S. 1040x free Information allocating each payment, by income type, to each payee (including U. 1040x free S. 1040x free exempt and U. 1040x free S. 1040x free non-exempt recipients) for whom documentation has been provided. 1040x free The rate of withholding that applies to each foreign person to whom a payment is allocated. 1040x free A foreign payee's country of residence. 1040x free If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. 1040x free ). 1040x free In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. 1040x free The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. 1040x free S. 1040x free branch from which the payee will directly receive a payment. 1040x free Any other information a withholding agent requests to fulfill its reporting and withholding obligations. 1040x free Alternative procedure. 1040x free   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. 1040x free S. 1040x free exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. 1040x free To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. 1040x free You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. 1040x free    This alternative procedure cannot be used for payments to U. 1040x free S. 1040x free non-exempt recipients. 1040x free Therefore, an NQI must always provide you with allocation information for all U. 1040x free S. 1040x free non-exempt recipients prior to a payment being made. 1040x free Pooled withholding information. 1040x free   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. 1040x free A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. 1040x free For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). 1040x free The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. 1040x free Failure to provide allocation information. 1040x free   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. 1040x free You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . 1040x free An NQI is deemed to have f