The IRS has recently updated the “General Compliance” section of its list of general frequently asked questions (FAQs) under the Foreign Account Tax Compliance Act (FATCA), to provide information on the taxpayer identification number (TIN) requirements for a beneficial owner withholding certificate.
In general, nonresident aliens and foreign corporations are subject to a U.S. withholding tax on certain items of income that they receive from U.S. sources that are not effectively connected with a U.S. trade or business. Such “fixed, determinable, annual, and periodic income” (FDAP) includes interest, dividends, royalties, compensation, and certain gains. The U.S. withholding tax is generally collected at the source by the withholding agent. Such agent is generally the last person in the U.S. who handles the item before it is remitted to the foreign taxpayer or the taxpayer’s foreign agent.
Under chapter 3 of Subtitle A to the Code, “Withholding of Tax on Nonresident Aliens and Foreign Corporations”, a withholding agent must withhold 30% of any payment that is subject to withholding and made to a foreign payee, unless it can reliably associate the payment with valid tax documentation. (See Code Sec. 1441 to Code Sec. 1446.)
You can see all of the IRS FAQ’s regarding FATCA here.
Freeman Tax Law and FATCA
FATCA compliance and filing requirements can be quite complex. If you have any questions on how you may be affected by FATCA, please contact our office.