Instructions for Form W-8EXP |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Section references are to the Internal Revenue Code unless otherwise noted.
Note.
For definitions of terms used throughout these instructions, see Definitions on pages 2 and 3.
Purpose of form.
Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S. sources that consists of interest
(including certain
original issue discount (OID)), dividends, rents, premiums, annuities, compensation for, or in expectation of, services performed,
or other fixed or
determinable annual or periodical gains, profits, or income. This tax is imposed on the gross amount paid and is generally
collected by withholding
under section 1441 or 1442 on that amount. A payment is considered to have been made whether it is made directly to the beneficial
owner or to another
person for the benefit of the beneficial owner.
Foreign persons are also subject to tax at graduated rates on income they earn that is considered effectively connected
with a U.S. trade or
business. If a foreign person invests in a partnership that conducts a U.S. trade or business, the foreign person is considered
to be engaged in a
U.S. trade or business. The partnership is required to withhold tax under section 1446 on the foreign person's distributive
share of the partnership's
effectively connected taxable income.
If you receive certain types of income, you must provide Form W-8EXP to:
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Establish that you are not a U.S. person,
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Claim that you are the beneficial owner of the income for which Form W-8EXP is given, and
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Claim a reduced rate of, or exemption from, withholding as a foreign government, international organization, foreign central
bank of issue,
foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession.
In general, payments to a foreign government (including a foreign central bank of issue wholly-owned by a foreign
sovereign) from investments in
the United States in stocks, bonds, other domestic securities, financial instruments held in the execution of governmental
financial or monetary
policy, and interest on deposits in banks in the United States are exempt from tax under section 892 and exempt from withholding
under sections 1441
and 1442. Payments other than those described above, including income derived in the U.S. from the conduct of a commercial
activity, income received
from a controlled commercial entity (including gain from the disposition of any interest in a controlled commercial entity),
and income received by a
controlled commercial entity, do not qualify for exemption from tax under section 892 or exemption from withholding under
sections 1441 and 1442. See
Temporary Regulations section 1.892-3T. In addition, certain distributions to a foreign government from a real estate investment
trust (REIT) may not
be eligible for relief from withholding and may be subject to withholding at 35% of the gain realized. For the definition
of “ commercial
activities,” see Temporary Regulations section 1.892-4T.
Amounts allocable to a foreign person from a partnership's trade or business in the United States are considered derived
from a commercial activity
in the United States. The partnership's net effectively connected taxable income is subject to withholding under section 1446.
In general, payments to an international organization from investment in the United States in stocks, bonds and other
domestic securities, interest
on deposits in banks in the United States, and payments from any other source within the United States are exempt from tax
under section 892 and
exempt from withholding under sections 1441 and 1442. See Temporary Regulations section 1.892-6T. Payments to a foreign central
bank of issue (whether
or not wholly owned by a foreign sovereign) or to the Bank for International Settlements from obligations of the United States
or of any agency or
instrumentality thereof, or from interest on deposits with persons carrying on the banking business, are also generally exempt
from tax under section
895 and exempt from withholding under sections 1441 and 1442. In addition, payments to a foreign central bank of issue from
bankers' acceptances are
exempt from tax under section 871(i)(2)(C) and exempt from withholding under sections 1441 and 1442. Effectively connected
income or gain from a
partnership conducting a trade or business in the United States may be subject to withholding under section 1446.
Payments to a foreign tax-exempt organization of certain types of U.S. source income are also generally exempt from
tax and exempt from
withholding. Gross investment income of a foreign private foundation, however, is subject to withholding under section 1443(b)
at a rate of 4%.
Effectively connected income or gain from a partnership conducting a trade or business in the United States may be subject
to withholding under
section 1446.
Payments to a government of a possession of the United States are generally exempt from tax and withholding under
section 115(2).
To establish eligibility for exemption from 30% tax and withholding, a foreign government, international organization,
foreign central bank of
issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession must provide a Form
W-8EXP to a withholding
agent or payer with all necessary documentation. The withholding agent or payer of the income may rely on a properly completed
Form W-8EXP to treat
the payment, credit, or allocation associated with the Form W-8EXP as being made to a foreign government, international organization,
foreign central
bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession exempt from
withholding at the 30% rate
(or, where appropriate, subject to withholding at a 4% rate).
Provide Form W-8EXP to the withholding agent or payer before income is paid, credited, or allocated to you. Failure
by a beneficial owner to
provide a Form W-8EXP when requested may lead to withholding at the 30% rate, the backup withholding rate, or the rate applicable
under section 1446.
Additional information.
For additional information and instructions for the withholding agent, see the Instructions for the Requester of Forms
W-8BEN, W-8ECI, W-8EXP, and
W-8IMY.
Who must file.
You must give Form W-8EXP to the withholding agent or payer if you are a foreign government, international organization,
foreign central bank of
issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession. Submit Form W-8EXP
whether or not you are
claiming a reduced rate of, or exemption from, U.S. tax withholding.
Do not use Form W-8EXP if:
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You are not a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization,
foreign
private foundation, or government of a U.S. possession claiming the applicability of section 115(2), 501(c), 892, 895, or
1443(b). Instead, provide
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or 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. For example, if you
are a foreign tax-exempt
organization claiming a benefit under an income tax treaty, provide Form W-8BEN.
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You are receiving income that is effectively connected with the conduct of a trade or business in the United States. Instead,
provide Form
W-8ECI.
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You are a tax-exempt organization receiving unrelated business taxable income subject to withholding under section 1443(a).
Instead, provide
Form W-8BEN or Form W-8ECI for this portion of your income.
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You are a foreign partnership, a foreign simple trust, or a foreign grantor trust. Instead, provide Form W-8ECI or Form W-8IMY,
Certificate
of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding. However,
a foreign grantor trust is
required to provide documentation of its grantor or other owner for purposes of section 1446. See Regulations section 1.1446-1.
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You are acting as an intermediary (that is, acting not for your own account, but for the account of others as an agent, nominee,
or
custodian). Instead, provide Form W-8IMY.
Giving Form W-8EXP to the withholding agent.
Do not send Form W-8EXP to the IRS. Instead, give it to the person who is requesting it from you. Generally, this
person will be the one from whom
you receive the payment, who credits your account, or a partnership that allocates income to you. Generally, a separate Form
W-8EXP must be given to
each withholding agent.
Give Form W-8EXP to the person requesting it before the payment is made, credited, or allocated to you or your account.
If you do not provide this
form, the withholding agent may have to withhold tax at the 30% rate, the backup withholding rate, or the rate applicable
under section 1446. If you
receive more than one type of income from a single withholding agent, the withholding agent may require you to submit a Form
W-8EXP for each different
type of income.
Change in circumstances.
If a change in circumstances makes any information on the Form W-8EXP you have submitted incorrect, you must notify
the withholding agent within 30
days of the change in circumstances and you must file a new Form W-8EXP or other appropriate form.
Expiration of Form W-8EXP.
Generally, a Form W-8EXP filed without a U.S. taxpayer identification number (TIN) will remain in effect for a period
starting on the date the form
is signed and ending on the last day of the third succeeding calendar year. However, in the case of an integral part of a
foreign government (within
the meaning of Temporary Regulations section 1.892-2T(a)(2)) or a foreign central bank of issue, a Form W-8EXP filed without
a U.S. TIN will remain in
effect until a change in circumstances makes any of the information on the form incorrect. A Form W-8EXP furnished with a
U.S. TIN will remain in
effect until a change in circumstances makes any information on the form incorrect provided that the withholding agent reports
on Form 1042-S, Foreign
Person's U.S. Source Income Subject to Withholding, at least one payment annually to the beneficial owner.
Beneficial owner.
For payments other than those for which a reduced rate of withholding is claimed under an income tax treaty, the beneficial
owner of income is
generally the person who is required under U.S. tax principles to include the income in gross income on a tax return. A person
is not a beneficial
owner of income, however, to the extent that person is receiving the income as a nominee, agent, or custodian, or to the extent
the person is a
conduit whose participation in a transaction is disregarded. In the case of amounts paid that do not constitute income, beneficial
ownership is
determined as if the payment were income.
Foreign partnerships, foreign simple trusts, and foreign grantor trusts are not the beneficial owners of income paid
to the partnership or trust.
The beneficial owners of income paid to a foreign partnership are generally the partners in the partnership, provided that
the partner is not itself a
partnership, foreign simple or grantor trust, nominee or other agent. The beneficial owners of income paid to a foreign simple
trust (that is, a
foreign trust that is described in section 651(a)) are generally the beneficiaries of the trust, if the beneficiary is not
a foreign partnership,
foreign simple or grantor trust, nominee or other agent. The beneficial owners of a foreign grantor trust (that is, a foreign
trust to the extent that
all or a portion of the income of the trust is treated as owned by the grantor or another person under sections 671 through
679) are the persons
treated as the owners of the trust. The beneficial owners of income paid to a foreign complex trust (that is, a foreign trust
that is not a foreign
simple trust or foreign grantor trust) is the trust itself.
The beneficial owner of income paid to a foreign estate is the estate itself.
These beneficial owner rules apply primarily for purposes of withholding under sections 1441 and 1442. The rules also
generally apply for purposes
of section 1446, with a few exceptions. See Regulations section 1.1446-1 for instances where the documentation requirements
of sections 1441 and 1442
differ from section 1446.
Foreign person.
A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust,
foreign estate, foreign
government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation,
or government of a
U.S. possession, and any other person that is not a U.S. person. It also includes a foreign branch or office of a U.S. financial
institution or U.S.
clearing organization if the foreign branch is a qualified intermediary. Generally, a payment to a U.S. branch of a foreign
person is a payment to a
foreign person.
Foreign government.
A foreign government includes only the integral parts or controlled entities of a foreign sovereign as defined in
Temporary Regulations section
1.892-2T.
An integral part of a foreign sovereign, in general, is any person, body of persons, organization, agency, bureau,
fund, instrumentality, or other
body, however designated, that constitutes a governing authority of a foreign country. The net earnings of the governing authority
must be credited to
its own account or to other accounts of the foreign sovereign, with no portion benefiting any private person.
A controlled entity of a foreign sovereign is an entity that is separate in form from the foreign sovereign or otherwise
constitutes a separate
juridical entity only if:
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It is wholly owned and controlled by the foreign sovereign directly or indirectly through one or more controlled entities.
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It is organized under the laws of the foreign sovereign by which it is owned.
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Its net earnings are credited to its own account or to other accounts of the foreign sovereign, with no portion of its income
benefiting any
private person.
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Its assets vest in the foreign sovereign upon dissolution.
A controlled entity also includes a pension trust defined in Temporary Regulations section 1.892-2T(c) and may include
a foreign central bank of
issue to the extent that it is wholly owned by a foreign sovereign.
A foreign government must provide Form W-8EXP to establish eligibility for exemption from withholding for payments
exempt from tax under section
892.
International organization.
An international organization is any public international organization entitled to enjoy privileges, exemptions, and
immunities as an international
organization under the International Organizations Immunities Act (22 U.S.C. 288-288(f)). In general, to qualify as an international
organization, the
United States must participate in the organization pursuant to a treaty or under the authority of an Act of Congress authorizing
such participation.
Amounts exempt from tax under section 892.
Only a foreign government or an international organization as defined above qualifies for exemption from taxation
under section 892. Section 892
generally excludes from gross income and exempts from U.S. taxation income a foreign government receives from investments
in the United States in
stocks, bonds, or other domestic securities; financial instruments held in the execution of governmental financial or monetary
policy; and interest on
deposits in banks in the United States of monies belonging to the foreign government. Income of a foreign government from
any of the following sources
is not exempt from U.S. taxation.
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The conduct of any commercial activity.
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A controlled commercial entity.
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The disposition of any interest in a controlled commercial entity.
For the definition of “ commercial activity,” see Temporary Regulations section 1.892-4T.
Section 892 also generally excludes from gross income and exempts from U.S. taxation income of an international organization
received from
investments in the United States in stocks, bonds, or other domestic securities and interest on deposits in banks in the United
States of monies
belonging to the international organization or from any other source within the United States.
Controlled commercial entity.
A controlled commercial entity is an entity engaged in commercial activities (whether within or outside the United
States) if the foreign
government holds:
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Any interest in the entity that is 50% or more of the total of all interests in the entity, or
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A sufficient interest or any other interest in the entity which provides the foreign government with effective practical control
of the
entity.
An entity includes a corporation, a partnership, a trust (including a pension trust) and an estate. A partnership's
commercial activities are
attributable to its general and limited partners for purposes of section 892. The partnership's activities will result in
the partnership having to
withhold tax under section 1446 on the effectively connected taxable income allocable to a foreign government partner.
Note.
A foreign central bank of issue will be treated as a controlled commercial entity only if it engages in commercial
activities within the United
States.
Foreign central bank of issue.
A foreign central bank of issue is a bank that is by law or government sanction the principal authority, other than
the government itself, to issue
instruments intended to circulate as currency. Such a bank is generally the custodian of the banking reserves of the country
under whose law it is
organized. For purposes of section 895, the Bank of International Settlements is treated as though it were a foreign central
bank of issue.
A foreign central bank of issue must provide Form W-8EXP to establish eligibility for exemption from withholding for
payments exempt from tax under
either section 892 or section 895.
Amounts exempt from tax under section 895.
Section 895 generally excludes from gross income and exempts from U.S. taxation income a foreign central bank of issue
receives from obligations of
the United States (or of any agency or instrumentality thereof) or from interest on deposits with persons carrying on the
banking business unless such
obligations or deposits are held for, or used in connection with, the conduct of commercial banking functions or other commercial
activities of the
foreign central bank of issue.
Amounts subject to withholding.
Generally, an amount subject to withholding under section 1441 or 1442 is an amount from sources within the United
States that is fixed or
determinable annual or periodical (FDAP) income. FDAP income is all income included in gross income, including interest (as
well as original issue
discount (OID)), dividends, rents, royalties, and compensation. FDAP income does not include most gains from the sale of property
(including market
discount and option premiums).
Income is subject to withholding under section 1446 if the income is effectively connected with a partnership's trade
or business in the United
States and is allocable to a foreign person.
Withholding agent.
Any person, U.S. or foreign, that has control, receipt, or custody of an amount subject to withholding or who can
disburse or make payments of an
amount subject to withholding is a withholding agent. The withholding agent may be an individual, corporation, partnership,
trust, association, or any
other entity including (but not limited to) any foreign intermediary, foreign partnership, and U.S. branches of certain foreign
banks and insurance
companies. Generally, the person who pays (or causes to be paid) an amount subject to withholding to the foreign person (or
to its agent) must
withhold.
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