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Qualified Intermediary & W Series Forms

This post is an attempt to let the readers know what kind of form they should fill up if they are drawing any part of their income from US. Currently I am working on a US Qualified Intermediary Project, so I feel myself qualified enough to certain thoughts on the subject J But in case if I have written anything wrong, please drop in your comments which I could incorporate in my post. I had compiled this piece of information for an internal training, taking inputs from discussions with company’s QI business and IRS website.

What is QI Agreement?

A QI is a foreign financial institution that has agreed with the IRS to undertake certain U.S. tax withholding and reporting responsibilities and has agreed to audits by an external auditor.

Background:

 Purpose of IRS Regulations to:

  • Identify US persons investing into the US through Offshore Intermediaries.
  • Eliminate “treaty shopping” abuses occurring due to manipulation of the “address rule” for dividends.
  1. IRS QI regulations took effect in January 1, 2001
  2. By enforcing QI regulations, IRS meant to establish client entitlement to correct tax withholding by appropriate KYC or W series forms.
  3. Maintain valid customer documentation and supporting information to higher standards, including the completion of IRS forms (W series), to make judgments of the US tax status of bank’s clients.

W9 Forms

The W-9 is only required of independent contractors who are US citizens, US resident aliens, and some other less common categories (e.g., a domestic estate). Non-US independent contractors may be required to fill out a Form W-8 (like the Form W-8BEN) instead of a W-9. This is not always the case. Investors, or freelancers, living in other countries may simply file the W-9, which will provide the employers or financial institution with a way to keep record of their information.

Resident & Non Resident Aliens

  • You are considered a US nonresident alien for any period that you are neither a United States citizen nor a United States resident alien.
  • You are considered a US resident alien if you met one of two tests for the calendar year:
  1. Green Card Test: If at any time during the calendar year you were a lawful permanent resident of the United States according to the immigration laws, and this status has not been rescinded or administratively or judicially determined to have been abandoned, you are considered to have met the green card test.
  2. Substantial Presence Test: To meet the substantial presence test, you must have been physically present in the United States on at least 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before.

W-8BEN Form

Request Form W-8BEN from any foreign person or organization to which you are making a payment if it is the beneficial owner of the income, whether or not it is claiming a reduced rate of, or exemption from, withholding.

A beneficial owner is required to enter its U.S. taxpayer identification number (TIN) on line 6 of Form W-8BEN if it is a beneficial owner that is claiming benefits under an income tax treaty.

However, a U.S. TIN is not required to be shown in order to claim treaty benefits on the following items of income:

  • Dividends and interest from stocks and debt obligations that are actively traded;
  • Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund);
  • 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; and
  • Income related to loans of any of the above securities.

Also request Form W-8BEN when a payee may claim an exception from domestic information reporting as a foreign person or to establish that certain income is not effectively connected with the conduct of a U.S. trade or business.

W-8IMY Form

Request Form W-8IMY from any person that is an intermediary (whether a qualified intermediary or a nonqualified intermediary), a withholding foreign partnership, a withholding foreign trust, or a flow-through entity. A flow-through entity includes a foreign partnership (other than a withholding foreign partnership), a foreign simple or grantor trust (other than a withholding foreign trust), and, for any payments for which a treaty benefit is claimed, any entity to the extent it is treated as fiscally transparent under section 894. Appropriate withholding certificates, documentary evidence, and withholding statements must be associated with Form W-8IMY or you must apply the presumption rules.

Note: A qualified intermediary, withholding foreign partnership or a withholding foreign trust must provide the EIN that was issued to the entity in such capacity (its “QI-EIN”). Otherwise, any Form W-8IMY it submits is not valid.)

W-8EXP Form

Request Form W-8EXP from any foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession to which you are making a payment if such person is claiming an exemption from withholding under section 115(2), 501(c), 892, or 895, or claiming a reduced rate of withholding under section 1443(b). For all other purposes, request Form W-8BEN or W-8ECI.

A withholding agent may treat a payee as an international organization without requiring a Form W-8EXP if the name of the payee is one designated as an international organization by Executive Order (pursuant to 22 U.S.C. 288 through 288(f)) and other facts surrounding the payment reasonably indicate that the beneficial owner of the payment is an international organization. With regard to amounts derived from bankers’ acceptances, a withholding agent may treat a payee as a foreign central bank of issue without requiring a Form W-8EXP if the name of the payee and other facts surrounding the payment reasonably indicate that the beneficial owner of the payment is a foreign central bank of issue.

A U.S. TIN is required if the beneficial owner is claiming an exemption based solely on a claim of tax- exempt status as a foreign private foundation (or other foreign organization described under section 501(c)). However, a U.S. TIN is not required from a foreign private foundation that is subject to the 4% excise tax on gross investment income (under section 4948(a)) on income that would be exempt from withholding except for section 4948(a) (for example, portfolio income).

W-8ECI Form

Request Form W-8ECI from any foreign person or organization to which you are making a payment if it is the beneficial owner of the income and it claims that the income is effectively connected with the conduct of a trade or business within the United States.

Note: If you receive a Form W-8ECI without a U.S. TIN entered on line 6, you generally may not treat the income as effectively connected with a U.S. trade or business and you must apply the appropriate presumption rules.

Your receipt of Form W-8ECI serves as a representation by the payee or beneficial owner that all the income with which that form is associated is effectively connected with the conduct of a trade or business within the United States. Therefore, if a beneficial owner provides you with a Form W-8ECI, you may treat all of the U.S. source income identified on line 9 paid to that beneficial owner as effectively connected with the conduct of a trade or business within the United States.

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