Connecticut Sales and Use Tax

The state of Connecticut imposes a sales and use tax which is applicable to online access to information including all data and access fees.

The tax rate as of 2017 is 1% and is applicable to clients with the state of legal residency of Connecticut or a Connecticut permanent/resident address.

The sales and use tax will be applied to all research and market data subscriptions as well as special connections such as VPN, IB Gateway, Extranet and Dedicated Leased Lines.

The sales and use tax will be passed through to client accounts at the time of the subscription billing. The tax is only applicable if a monthly fee is charged, therefore should an account receive a waiver the sales and use tax will similarly be waived.

 

 

Chicago Personal Property Tax

Chicago has a personal property tax which applies to a non-possessory computer lease by a Chicago resident. The Chicago tax authorities have ruled that tax is to be applied in cases where a customer pays for electronic research/use of an interactive site. The passive receipt or streaming of information is not subject to the tax.

Clients whose permanent residential address or principal business address is Chicago will have this tax passed through to their accounts.

The tax rate, as of October 2017, is 9%. The tax will be charged on the research and news feeds a client is subscribed to. Should a research and news feed be eligible to a waiver based upon commissions generated, the tax will not be applied.

As of October 2017, research and news subscriptions which would be subject to the tax would include

Base IBIS Research Platform and the IBIS Research Essentials Subscription Bundle
Cusip
Dow Jones News Service
Dow Jones Real Time News
US Press Release Feed
Reuters Global Newswire
Reuters StreetEvents Calendars
Reuters Fundamentals
Reuters Basic Newfeed
Morningstar Equity, ETF and Credit Reports
Wall Street Horizons
Zacks Equity Research Reports

The above list is provided on a best efforts basis and is subject to change. Clients will be responsible for any pass through tax regardless of any discrepancy from the list provided above.

 

股息等值支付预征税款 - 常见问题

背景

自2017年1月1日起,根据新的国税局(IRS)规定,美国将对持有美国股票衍生品头寸的非美人士就股息等值支付预征税款。之前,美国未对此类收入征税。法规要求我们这样的中介机构充当扣税代理人,代表IRS征税。以下内容涵盖所涉税种概况、税额确定方式以及受影响的产品。
 
概述
新法规的目的?
新规定源于国内税收法第871(m)章节,旨在协调非美人士获得的美国股票股息及(很大程度上)使持有人等同于持有美国股票的衍生品合约的股息等值支付之税收处理办法。
 
比如以IBM为底层证券的总回报互换。持有IBM股票头寸的非美人士需就股息收入缴纳30%的美国预扣税(根据税收优惠协定可减少)。而在第871(m)章节实施前,在互换上持有IBM多头敞口的非美人士若收到等同于股息的收入,则无需缴纳美国预扣税。之前,尽管因互换收到的股息与直接持有股票的情况相同,但互换持有人免于纳税。现在,第871(m)章节规定此类“股息等值支付”也需缴纳美国预扣税。
 
什么是股息等值支付?
股息等值支付指参照美国股票股息支付的净额,用于计算转移至多头方或从多头方转移的净额,即使是多头方向空头方支付一定净额或净支付额为零。相应地,此等支付不仅包括代替股息进行的实际支付,还包括在计算交易的一项或多项条款(包括利率、名义金额或买价)时考虑的预估股息支付额。
 
以某美股的上市看涨期权为例,若期权持有人在除息日之前未行权,则持有人无权获得股息。然而,持有人在买入期权时支付的权利金隐含了期权有效期内的预估股息现值。[1]由于该因素降低了期权买方向卖方支付的金额,它被视为股息等值支付,需遵守相关税收法规。
 
谁需缴纳股息等值预扣税?
该税收适用于非美国纳税人账户中持有的符合要求的头寸。它不适用于美国纳税人。非美国纳税人的账户通常以提交IRS表格W-8为证,可包括以下账户类型:个人账户、联名账户、机构账户和信托账户。
 
哪些衍生产品可能面临股息等值预扣税征缴?
法规采用两步走检验法来确定某衍生产品是否需缴纳该预扣税。首先,衍生产品必须参照美国权益证券的股息。举例:
-          股票期权
-          受监管的个股期货
-          受监管的指数期货和指数期货期权
-          结构化、交易所交易的票据
-          差价合约
-          可转债
-          证券借贷交易
-          自定义篮子的衍生品以及
-          权证
 
如果底层头寸为美国股票。该产品所在的交易所以及交易对手方的身份不影响法规的适用。换言之,不论衍生品是在交易所上市,还是在场外市场交易,也不论它是在美国还是海外交易,都可能需适用该法规。
 
其次,衍生品产品在发行时必须基本复制底层美国股票的风险收益因素。法规通过delta(对于简单的合约)以及等效性检验(对于复杂的合约)来确定衍生品是否符合该要求。
 
Delta是一项关联度指标,计算衍生品公允市值变动和该衍生品参照的美国股票公允市值变动之比。通常,就本法规而言,delta仅在衍生品“发行”时被计算一次。底层证券的公允市值变动或衍生品在二级市场被重新销售后,该值不会重新计算。
 
对于大多数合约,规则如下:
·         2017年之前 – 2017年1月1日以前发行的衍生品(即客户于2016年12月31日在我司持有的任意衍生品)不适用新的扣税规则。
·         2017年当年 - 对于2017年发行的衍生品,若其发行时的delta为1.0,则可能需按新规则纳税。
·         2017年以后 – 对于2017年12月31日以后发行的衍生品,若其发行时的delta大于等于0.8,则可能需按新规则纳税。
如衍生品被归为“复杂”产品,则不适用delta规则,而适用实质等效性检验。 
 
如何确定衍生品发行的时间?
确定衍生品的发行时间非常重要。这将决定该产品是否适用新规(2017年以前发行的产品无需按新规纳税),以及计算delta的时间。一般来说,产品的“发行”时间为自其存在、诞生日期或最初的发行时间。在二级市场上再次销售不算作发行。
 
因此,上市期权、期货、其他交易所交易产品及场外市场产品的发行规则不同。比如,在美国交易所交易的期权在其首次被交易所列为可交易时一般尚未发行。相反,当客户买入期权时该期权才算发行(可确定delta)。另一方面,交易所交易票据、可转债和权证等可转让衍生品仅在它们首次被出售时才视作发行。发行时的delta值在其被出售给之后的买方时将沿用。
 
有无特例?
新规的确有少数几个特例。包括:
•        参照“合格指数”的衍生品 - 其中“合格指数”一般指标普500、纳斯达克100或Russell 2000等被市场广泛应用的美国股票被动宽基指数。
•        参照基本不由美国股票构成的指数的衍生品 – 比如参照恒生指数的产品。
•        如果非美国人士直接拥有底层证券,则股息等值支付(或其部分)无需缴纳美国预扣税的情况。 这在底层证券为支付“股息”的美国共同基金、房地产投资基金(REIT)及交易所交易基金的衍生品中最常见(其中“股息”被重新定义为资本利得或资本回报)。
 
是否能举例说明新规何时适用、何时不适用?
•        客户于2017年1月2日买入IBM的个股期货。该期权的delta为1.0。需适用新规。
•        客户于2016年12月28日买入IBM在OCC上市的深度价内期权。该期权的delta为1.0。由于该期权于2017年以前发行,因此不适用新规。
•        客户于2017年1月15日买入窄基指数期货。假设指数不是“合格指数”。该期货应适用新规。
•        客户于2017年1月2日买入追踪美国股票的交易所交易票据,delta为1.0。该票据于2016年7月1日发行。由于票据的发行日早于2017年,因此不适用新规。
 
股息等值预扣额是如何计算的?
如果衍生品适用新的871(m)规则,则该衍生品的股息等值支付等于底层美股每股股息乘以该衍生品对应的底层股票数,再乘以delta(如一份对应100股、支付1.00美元股息、delta为.80的期权合约需为80美元股息等值支付纳税)。
 
对于复杂的衍生品合约,股息等值支付等于底层证券每股股息乘以合约发行时合约对底层证券的对冲数量。
 
如何合并计算合约的delta?
自2018年起,客户若在2天内买入delta小于.80的多头看涨期权并卖出相同数量、相同底层证券看跌期权,则此类头寸在计算delta时将被合并计算(如买入delta为0.60的多头看涨期权,卖出delta为.40的看跌期权将导致多头delta为1.0)。
 
2017年,只有场外产品可能被合并计算并导致产品的delta达到1.0。 
 
我们会向客户提供什么信息,告知他们受影响的头寸?
为尽量降低税赋,当非美国人士创建可能产生税收的定单时,我们会通过TWS发出警示信息。这将给客户机会取消定单,以防产生潜在税赋;客户也可选择提交定单,在产生股息时支付税款。客户可通过在税务预扣日期(通常为股息登记日)不持有衍生品来避税。
 
 

重要提示: 我方不提供税务、法律或财务建议。客户应咨询其自有顾问,以确定法规871(m)对其交易活动的影响。


[1] 尽管看涨期权持有人不会收到股息,持有人为期权支付的权利金隐含了预期股息(因为除息日股价预期会下跌,跌幅等于股息额,因此现金股息会降低看涨期权的权利金)。

How to update the US Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) on your account

Background: 

If you have been informed or believe that your account profile contains an incorrect US SSN/ITIN, you may simply log into your Account Management to update this information. Depending on your taxpayer status, you can update your US SSN/ITIN by modifying one of the following documents:

1) IRS Form W9 (if you are a US tax resident and/or US citizen holding a US SSN/ITIN)

2) IRS Form W-8BEN (if you are a Non-US tax resident holding a US SSN/ITIN)

Please note, if your SSN/ITIN has already been verified with the IRS you will be unable to update the information. If however the IRS has not yet verified the ID, you will have the ability to update through Account Management. 

 

How to Modify Your W9/W8

1) To submit this information change request, first login to Account Management

2) Click on the Settings section followed by Account Settings

 

3) Find the Profile(s) section. Locate the User you wish to update and click on the Info button (the "i" icon) to the left of the User's name

 

4) Scroll down to the bottom where you will see the words Tax Forms. Next to it will be a link with the current tax form we have for the account. Click on this tax form to open it

 

5) Review the form. If your US SSN/ITIN is incorrect, click on the UPDATE button at the bottom of the page

 

6) Make the requisite changes and click the CONTINUE button to submit your request.

 

7) If supporting documentation is required to approve your information change request, you will receive a message.  Otherwise, your information change request should be approved within 24-48 hours.

Withholding Tax on Dividend Equivalent Payments - FAQs

Background

Beginning January 1, 2017, new IRS regulations will impose U.S. withholding taxes on US dividend equivalent payments to non-US persons holding derivative positions on US equities. Previously, US withholding tax was not imposed on these payments. The regulations require intermediaries, such as us, to act as withholding agents and collect US tax on behalf of the IRS. An overview of the tax, how it’s determined and the products impacted is provided below.
 
Overview
What is the purpose of the regulation?
The regulation derives from Section 871(m) of the Internal Revenue Code and is intended to harmonize the US tax treatment imposed on non-U.S. persons with respect to dividends on U.S. stock and dividend equivalent payments paid on derivative contracts that replicate (to a high degree) ownership of such stock.
 
An example of this would be a total return swap having IBM as its underlying.  A non-U.S. person holding an IBM stock position would be subject to a 30% US withholding tax (reduced by treaty) on dividend payments. On the other hand prior to the implementation of Section 871(m), a non-U.S. person holding long exposure to IBM on the swap could receive payments equivalent to the dividends without imposition of U.S. withholding tax. This was the case even though the payments replicated similar economic exposure. Section 871(m) now considers those ‘dividend equivalent payments’ subject to US withholding tax.
 
What is a dividend equivalent payment?
A dividend equivalent payment is any gross amount that references the payment of a dividend on a U.S. equity and that is used to compute any net amount transferred to or from the long party, even if the long party make a net payment to the short party or the net payment is zero. Accordingly, such payments would include not only an actual payment in lieu of a dividend but also an estimated dividend payment that is implicitly taken into account in computing one or more of the terms of the transaction, including interest rate, notional amount or purchase price.
 
In the case of a listed call option on a U.S. stock, for example, the holder of the call is not entitled to receive a dividend unless the option is exercised prior to the dividend ex-date. Nonetheless, the premium paid by the holder to purchase the option implicitly takes into account the present value of the expected dividends over the option term.[1] Since this factor serves to lower the payment from the option buyer to the seller, it is viewed as a dividend equivalent payment potentially subject to the rules.
 
Who is subject to the dividend equivalent withholding tax?
The tax applies to qualifying positions held in an account of a non-U.S. taxpayer. It does not apply to U.S. taxpayers. Accounts of non-U.S. taxpayers generally are evidenced by the submission of an IRS Form W-8 and can include the following account types: individual, joint, organization and trust.
 
What derivative instruments potentially are subject to the dividend equivalent withholding tax?
The regulations adopt a two-part test to determine if a derivative instrument is subject to the rules. First, the derivative instruments must reference the dividend on a U.S. equity security. Examples include:
-          equity options
-          regulated single stock futures
-          regulated index futures and options on index futures
-          structured and exchange traded notes
-          CFD contracts
-          convertible bonds
-          securities lending transactions
-          derivatives on custom baskets and
-          warrants
 
If the underlying position is a U.S. equity. The exchange upon which the instrument is traded and the identity of the counterparty do not affect the application of the rules. That is, a derivative can be subject to the rules, whether it is exchange listed or over the counter or trades in the United States or overseas.
 
Second, the derivative instrument must substantially replicate the economics of the underlying U.S. equity at the time of issuance. The rules look to delta (for simple contracts) and a substantially equivalency test (for complex contracts) to make this determination.
 
Delta is a correlation measurement that computes the ratio of the change in the fair market value of the derivative instrument to a change in the fair market value of the U.S. equity referenced by the derivative.  In general, for purposes of this regulation, delta is only determined once over the life of the derivative instrument – at the time it is ‘issued’. It is not recomputed as the fair market value of the underlying security changes or when the derivative instrument is re-sold in the secondary market.
 
For most contracts, the rules are as follows:
·         Pre-2017 – a derivative instrument issued prior to January 1, 2017 (i.e., anything held by a customer with us on December 31, 2016) is not subject to the new withholding tax rules.
·         2017 - a derivative instrument issued in 2017 is potentially subject to the new withholding tax regime if the delta at the time of issuance is 1.0.
·         After 2017 – a derivative instrument issued after December 31, 2017 is potentially subject to the new withholding tax rules if the delta at the time of issuance is 0.8 or greater.
If the derivative is classified as “complex,” the delta test does not apply and instead the substantial equivalency test applies. 
 
So When Is a Derivative Instrument Issued?
Identified when a derivative instrument is issued is very important. It determines if the instrument is subject to the rules (pre-2017 issued instruments are not) and when the delta computation is made. In general, an instrument is ‘issued’ when it comes into existence, its inception date or date of original issuance. Instruments are not issued when re-sold in the secondary market.
 
As a result, there are differences in the issuance rules for listed options, futures, other exchange traded products and over-the-counter products. For example, a listed option traded on a US exchange, generally, is not issued when first listed by an exchange as available for trading. Instead, the listed option is issued (delta determined) when the option is entered into by the customer. On the other hand, for transferable derivatives, such as exchange traded notes, convertible bonds and warrants, they would be issued only when first sold. The delta determined at that time would carryover when sold to a subsequent purchaser. 
 
Are There Any Exceptions?
The rules do provide limited exceptions to withholding. These include:
•        a derivative instrument that references a “qualified index” - generally, a passive broad publicly available index on U.S. equities such as the S&P 500, NASDAQ 100 or Russell 2000.
•        a derivative instrument that references an index with little or no U.S. equity composition – such as the Hang Seng Index.
•        if the dividend equivalent payment (or portion thereof) would not be subject to U.S. withholding tax if the non-US person owned the underlying security directly. This most often will occur for derivative instruments on U.S. mutual funds, REITs and exchange traded funds that pay ‘dividends’ which are re-characterized as capital gain distributions or returns of capital.
 
Can you provide some examples of when the rules will or will not apply?
•        Customer purchases single stock futures on IBM on January 2, 2017. The delta of the future is 1.0. The future is subject to the rule.
•        Customer purchases a deep in the money OCC listed option on IBM on December 28, 2016. The delta of the future is 1.0. The option is not subject to the rule as it was issued prior to 2017.
•        Customer purchases index future on a narrow based index on January 15, 2017. Assume the index is not a ‘qualified index.’ The future is subject to the rule.
•        Customer purchases an exchange trade note that tracks U.S. equities on January 2, 2017 with a delta of 1.0. The note was issued on July 1, 2016. The option is not subject to the rule as it was issued prior to 2017
 
How is the dividend equivalent withholding computed?
If the derivative instrument is subject to the new Section 871(m), a dividend equivalent payment with respect to such instrument equals the per share dividend on the underlying U.S. equity, multiplied by the number of underlying shares referenced by the instrument, multiplied by the delta (e.g., an option contract delivering 100 shares of a stock paying $1.00 dividend and having a delta of .80 would be subject to a tax based upon $80.00 dividend equivalent payment).
 
In the case of a complex derivative contract, the dividend equivalent will be equal to the per share dividend on the underlying, multiplied by the contract’s hedge equivalent to the underlying as calculated when the contract was issued.
 
How are contracts combined for purposes of determining delta?
Starting in 2018, customers who purchase derivative instrument such as a long call having a delta below the .80 threshold and selling a put on the same underlying and same share quantity within 2 days of one another will have those positions combined for the purpose of determining whether the threshold has been exceeded (e.g., the purchase of a long call with a delta of 0.60 coupled with the sale of a put with a delta of .40 would result in a long delta of 1.0).
 
In 2017, only over-the-counter instruments are potentially subject to combination to create a delta 1.0 instrument. 
 
What information do we provide to inform clients about impacted positions?
To minimize exposure to the withholding tax, we intend to provide a TWS warning message will be provided when non-U.S. persons create an order that could generate the tax. This will give customers the option of canceling the order to avoid potential withholding or submitting the order and possibly paying the tax when a dividend occurs. Customers may avoid the potential withholding tax by not owning the derivative on the applicable withholding date (i.e., generally the dividend Record Date).
 
 

IMPORTANT NOTE: We do not provide tax, legal or financial advice. Each customer must speak with the customer’s own advisors to determine the impact that the Section 871(m) rules may have on the customer’s trading activity.


[1] While the holder of the call option does not receive a dividend, the premium paid by the holder for the option implicitly takes expected dividends into account (i.e., because the stock price is expected to drop by the amount of the dividend on the ex-dividend date, cash dividends imply lower call premiums).

Common Reporting Standard (CRS)

The Common Reporting Standard (CRS), referred to as the Standard for Automatic Exchange of Financial Account Information (AEOI), calls on countries to obtain information from their financial institutions and exchange that information with other countries automatically on an annual basis. The CRS sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
 
Interactive Brokers will comply with the OECD's Common Reporting Standard – Automatic Exchange of Information (CRS-AEOI).
 
  • What is reported:
    • Name
    • Address
    • Tax ID Number
    • Tax Country
    • Date of Birth
    • Place of Birth
    • Year-end account balance
    • Gross Proceeds (all sales)
    • Interest income
    • Dividend income
  • To whom is the information reported:
    • For accounts held by the Interactive Brokers U.K. entity, the above information will be reported to HM Revenue & Customs of the United Kingdom. (During the first reporting period in May 2017, only Jurisdiction 1 countries will be reported.) The list can be found on the OECD website by clicking here http://www.oecd.org/tax/transparency/AEOI-commitments.pdf
    • For accounts held by Interactive Brokers Hong Kong entity, the above information will be reported to Inland Revenue Department of Hong Kong.
    • For accounts held by Interactive Brokers Japan entity, the above information will be reported to National Tax Agency of Japan
    • For accounts held by Interactive Brokers India entity, the above information will be reported to Income Tax Department of Japan
    • For accounts held by Interactive Brokers Canada entity, the above information will be reported to the Canada Revenue Agency
    • For accounts held by Interactive Brokers LLC, there is no reporting since the United Sates has not signed the CRS.
  • When will reporting take place and for what timeframe:
    • For IB UK accounts, the information will be reported for the first time in May 2017 for the calendar year 2016
    • For IB India, the information will be reported for the first time in May 2017 for the calendar year 2016
    • For IB HK, the information will be reported for the first time in May 2018 for the calendar year 2017
    • For IB Japan, the information will be reported for the first time in May 2018 for the calendar year 2017
    • For IB Canada, the information will be reported for the first time in May 2018 for the calendar year 2017
    • Non-Disclosed Introducing Brokers are responsible for their own reporting

 

FATCA Procedures - Grantor Trust Tax Information Submission

Overview: 

Interactive Brokers is required to collect certain documentation from clients to comply with U.S. Foreign Account Tax Compliance Act (“FATCA”) and other international exchange of information agreements.

This guide contains instructions for a Trust to complete the online tax information and to electronically submit a W-9 or W-8BEN.

 

U.S. Tax Classification

Your U.S. income tax classification determines the tax form(s) required to document the account.

You must login to Account Management with the trust's primary username to access the Tax Form Collection page.

1.      Tax Form Collection

The Tax Form Collection page lets account holders review and update important tax-related information and lets account holders electronically fill out an IRS Form W-9 (U.S. taxpayers) and IRS Form W-8 (non-U.S. taxpayers).
 
Accessing the Tax Form Collection Page
 
a. Click Manage Account > Account Information > Tax Information > Tax Forms.
 
b. Click the Update Tax Forms button to access the Collection page.
The Tax Form Collection page opens, displaying a form with tax-related information that should already be completed. (Advisors and brokers can check the status of client updates to this page on the Dashboard Pending Items tab.
 
c.  Review the Trust’s information and update as required.
 
Confirm the primary tax residency of the trust beside the Tax Residency question, "In what country is the trust a resident for tax purposes?"  Select the appropriate country in the drop down menu.
 
 
Select in the Tax Residency drop down menu the applicable country.
 
d. Click Continue.
 

2.      Classification for US Tax Purposes

 
Confirming the Trust’s classification for U.S. purposes
 
a. Review the Trust’s status by confirming the question, “How are you classified for US tax purposes?” The answer is pre-filled based upon your information completed during the account application process. 
 
 
b. Click the Continue button to confirm the trust classification and complete the Form W-8 or W-9 for the entity. 
 
c. Click the Continue button to identify each Grantor. 
 

3.      Identify Grantors

 

a. Click Manage Account > Account Information > Tax Information > Tax Forms.

 
b. Click the Create button beside each grantor to send each user the applicable tax questionnaire and to submit the tax certification form (W-8 or W-9).  
 
Also, update the "Percentage of Ownership" to add up to 100%, if necessary.
 
 
 
 
c. Enter the required fields for the username and password for specified grantor and click the Continue button to complete the email delivery of the link.
 
 
 
We will then send the owner a link to complete the necessary tax form. This link will only be used for the collection of tax forms. You must provide the username and password to the Grantor as link will not contain them.   
 
Each Grantor must login with the username/password created and complete the pending tasks by going to Manage Account > Account Information > Tax Information > Tax Forms  > Update Tax Forms.
 
d. Click the Continue button upon creating and sending usernames to each Grantor.  
 
 
 
 
Disclaimer
This guide does not constitute tax or legal advice and Interactive Brokers cannot advise you on how to complete an IRS Forms W-8 or W-9.  Instructions are for information purposes only and do not address all possible scenarios. Please consult your tax professional if you are unsure how to complete.
 

Entity and FATCA Classification for Non-Financial Entities

Introduction
Interactive Brokers (“IB”, “we” or “us”) is required to collect certain documentation from clients (“you”) to comply with U.S. Foreign Account Tax Compliance Act (“FATCA”) and other international exchange of information agreements.

This guide contains a series of flowcharts and accompanying notes that summarize IRS rules relating to:

1. The tax classification for purposes of determining which W-8 or W-9 tax form an entity is required to complete; and

2. The FATCA classification required of entities completing the W-8 tax form (Part I, Section 5).

Note: The flowcharts and notes contained herein do not cover every possible scenario and other scenarios not presented here exist and may more closely align with your situation. You should consult a tax professional regarding your particular circumstances if you are still unsure of your U.S. entity and/or FATCA classification after reading this guide.

 

What is NOT Covered in this Guide
The guide is directed to non-U.S. entities that (i) are the beneficial owners of the payments made to the account and (ii) are not financial institutions. This guide does not apply to:
 

• Individuals (use W-9 or W-8BEN)
• U.S. entities (use W-9)
• Entities acting as an intermediary (such as a nominee, broker, custodian, investment advisor) on behalf of another person (use W-8IMY).
• Non-U.S. Tax-Exempt Organizations and Private Foundations
• Financial Institutions
 

Note: The U.S. entered into bilateral agreements called Intergovernmental Agreements (IGAs) with many countries regarding the implementation of FATCA. In some cases, the provisions of an applicable IGA could modify the results described in this guide. Entities are covered by an IGA should refer to the IGA and/or consult a tax professional for their filing requirements.
 

1. U.S. Tax Classification
Your U.S. income tax classification determines the tax form(s) required to document the account. The flow chart below may help you determine your tax classification and the tax form to be completed.

Important: The U.S. imposes income tax on its residents’ worldwide income. On the other hand, nonresidents are only subject to withholding tax on certain limited types of US source investment income (dividends from U.S. companies, etc.). Completion of a W-8 series tax form certifies you are NOT taxable as a U.S. resident. A W-8 form may also be used to claim a reduced rate of withholding tax under a U.S. income tax treaty.

 

Flowchart for Determining Tax Classification and Required Tax Form (Non-Trust Entities)

 

 

Flowchart for Determining Tax Classification and Required Tax Form (Trusts)

 

 

 

2. FATCA Classification

The W8 tax forms are also used to collect FATCA classifications. Many countries have executed “Intergovernmental Agreements (IGA)” with the U.S. requiring its local financial institutions to classify its customers for FATCA purposes. The classification rules under an IGA may not exactly match the classification rules established by the IRS. Other institutions have agreed with the IRS to become FATCA compliant and determine their customers’ FATCA classifications under the IRS rules. We are required to collect this information. The flowchart below applies the IRS default FATCA classification rules and is general in nature.  The flowchart is accompanied by sample W-8BEN-E screenshots for a common account structure: a non-U.S. corporation classified for FATCA purposes as a Passive Non-Financial Foreign Entity (NFFE), which qualifies for treaty witholding rates.
 

Note: It is important to recognize many organizations meet the qualifications for multiple FATCA types and you must select the most appropriate classification. Your specific situation may not fall within the general guidance. We recommend you seek your own independent advice as we are not in a position to make this determination for you and the rules are complex.
 

Flowchart for Determining FATCA Classification

 

Example: A corporation is a common form of entity ownership, involving two or more owners with none having any personal liability for the debts of entity.  As outlined in the Tax Classification flowchart above, an entity of this type would be required to complete the W-8BEN-E. Assuming the corporation is not classified as a Foreign Financial Entity (e.g. bank, broker, investment manager, hedge fund, mutual fund, insurance company) as discussed in footnote 5 below, then its FATCA classification would be Passive NFFE.  Screenshots of the W-8BEN-E for this sample entity are provided below.

 Sample Screenshots - W-8BEN-E (Passive NFFE)

 

 

 

Footnotes

 1  The US Internal Revenue Service (IRS) established rules for determining the tax classification of entities formed outside the United States. These rules apply regardless of how the entity is classified in its country of organization or residency.
 

Generally corporate entities are treated as the beneficial owners of an account and should complete a W-8BEN-E and select “corporation” unless they elect otherwise (discussed below).


IRS regulations assign a default classification to each entity type. This default classification may be overridden by making a filing with the IRS and obtaining an US employer identification number. Certain entities cannot change their classification and are treated as corporations in all events (e.g., Sociedad Anonima, Public Limited Company and Aktiengesellschaft). A complete list may be found at US Treasury Regulation Section 301.7701-2(b)(8).
 

The IRS default classification usually depends on (i) the number of owners and (ii) whether any owner is personally liable for the debts of the entity based on the organizing statute (i.e., bank guarantees or other contractual agreements by owners are ignored). The following table summarizes the default rules:
 

 
Number of Owners
Owners have Limited Liability?
 
 
Yes?
No?
 
 
1 Owner
Corporation
Disregarded Entity
 
 
2+ Owners
Corporation
Partnership
 
 
 
 

Note: Since the entity tax classification of a disregarded entity is determined by its owner, a US disregarded entity may find the flowchart helpful if the owner is a non-US entity.
 

A fiscally transparent entity (such as a partnership, simple trust or grantor trust) using IRS Form W-8IMY must provide IRS tax forms for all of its beneficial owners (partners in a partnership, beneficiaries for a simple trust and settlors for a grantor trust) for the account to be documented for US tax purposes.
 

Certain unit investment trusts (generally where there is an ability to vary the investments) are not considered trusts for US tax purposes. These investment trusts are treated in the same manner as a traditional business entity under the rules discussed above (i.e., corporation, partnership or disregarded entity).
 

Finally, a trust (other than a unit investment trust treated as a business entity) is considered a non-US trust for US tax purposes if (1) a court outside the United States is able to exercise primary supervision over the administration of the trust, and (2) any non-US person has the ability to control (or veto) any “substantial decision” of the trust.
 

The flowchart assumes that the default entity classification rules apply and the entity is not a per se corporation.
 

 

A partnership or simple or grantor trust may enter into a withholding agreement with the IRS pursuant to which the partnership or simple or grantor trust agrees to withhold US taxes on the account. The flowchart assumes no withholding agreement was executed.
 

 

 

3  In general, US tax treaty benefits are granted to the beneficial owner of the income determined under US tax principles. For fiscally transparent entities (such as partnerships, simple or grantor trusts or disregarded entities), this means the owners of the entity, NOT THE ENTITY ITSELF, claim US tax treaty benefits. These benefits are claimed on the beneficial owners’ W8 tax forms. However in certain limited cases, an entity may be considered fiscally transparent for US tax purposes but not fiscally transparent by the country with which the US has an income tax treaty. This type of an entity is called a “hybrid entity.” In certain cases, a hybrid entity, not the owners, may claim US tax treaty benefits if the hybrid entity meets the so-called qualified resident test under the applicable tax treaty. A qualifying “hybrid entity” claims the benefits of a US tax treaty by providing a Form W-8BEN-E, in addition to the form required by the flowchart. Importantly, electing hybrid status does not eliminate the need to document all beneficial owners. We note it is unusual for a hybrid entity to claim treaty benefits. The more common scenario is the beneficial owners claim treaty benefits on their tax forms.
 

 

4  The rules for classifying trusts are difficult and complex. The flowchart applies generalized rules only. There are many nuances to be considered when classifying a trust which are not addressed in the flowchart. For example, simple trusts cannot have charitable beneficiaries.
 

 

5  What is a foreign financial institution for FATCA purpose?
The various FATCA classifications can be broken down into two major categories: foreign financial institutions (FFI) and non-financial foreign (NFFE). Very generally, a financial institution is an entity that is a:


• Depository Institution
• Custodial Institution
• Investment Entity
• Insurance Company that issues certain cash value insurance or annuity contracts.
 

An FFI typically is required to register with the IRS, obtain a Global Intermediary Identification Number and report on its customers / owners to the appropriate tax authorities. If the entity does not meet the definition of a Financial Institution, it is considered an NFFE and covered by this guide book.
 

Subject to variations under IRS regulations and intergovernmental agreements:


• a Depository Institution is an institution that accepts deposits in the ordinary course of a banking or similar business. This includes banks and credit unions.
• a Custodial Institution is an institution which holds financial assets for the account of others as a substantial portion of its business. This includes brokers, custodial banks, trust companies, clearing organizations, etc.
• an Investment Entity is any entity if either
(i) the entity generates 50%+ of its gross income from (i) trading in money market instruments, foreign currency, transferrable securities, interest rates, futures, etc.; (ii) portfolio management or (iii) otherwise investing, administering or managing funds or financial assets on behalf of other persons (generally, broker-dealers and investment managers);
or
(ii) 50%+ of the entity gross income is attributable to investing, reinvesting, or trading in financial assets AND it is managed by a Financial Institution (mutual funds, hedge funds, and collective investment vehicles are examples);
or

(iii) the entity holds itself out as an entity created to invest, reinvest, or trade invest in financial assets (mutual funds, hedge funds, and collective investment vehicles are examples).
 

An individual cannot be an FFI. Thus, an organization managed by a professional individual investment advisor (as opposed to an employee of an organization) would not be considered an Investment Entity under (ii) above because it is not managed by a financial institution.
 

Trusts, family investment companies and funds may fall within the definition of an Investment Entity when they are professionally managed by a financial institution – i.e. where a financial institution handles the day-to-day functions of the entity or has discretionary authority over the fund.
 

Example: Individual created a non-US Trust A and appoints X, a non-US bank or other financial institution, as the trustee. X, as trustee, is responsible for the management and administration of Trust A. Trust A is an Investment Entity and a Foreign Financial Institution because it is managed by a Foreign Financial Institution.
 

Example: Individual created a non-US Trust A and appoints Y, an individual professional manager, as the trustee. Y, as trustee, is responsible for the management and administration of Trust A. Trust A is not an Investment Entity or a Foreign Financial Institution because it is not managed by a Foreign Financial Institution. Individuals cannot be financial institutions.
 

 

6  The IRS has a list of countries with which it has executed intergovernmental agreements (IGAs) to authorize the implementation of FATCA in that jurisdiction. The list of IGAs can be found at https://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA....
 

 

7  See #4 for the definition of Financial Institution. An organization that is not considered a financial institution is considered a non-financial foreign entity (NFFE). There are 3 types of NFFEs; Excepted, Active and Passive. An Active NFFE is an operating business where less than 50% of (i) its gross income is considered passive income and (ii) its average assets are held for the production of passive income. Any NFFE that is not Excepted or Active is a Passive NFFE and must provide us with a certification of its substantial US owners (if any) – generally 10%+ direct or indirect ownership. Some IGAs modify the means of substantial US owners and refer to them as Controlling Persons.
 

8   Other possible choices include nonfinancial group entity, excepted nonfinancial start-up company, excepted non-financial entity in liquidation or bankruptcy, publicly traded NFFE or sponsored NFFE. See the instructions to the W-8 for further information.
 

 

Disclaimer

This guide does not constitute tax or legal advice and Interactive Brokers cannot advise you on how to complete IRS Forms W-8. Examples included in this guide are for illustration only and do not address all possible scenarios. Please consult your tax professional if you are unsure how to complete IRS Forms W-8.

FATCA FAQs - Issues Involving Mismatch Between Tax Treaty Country and Address

FATCA related FAQs involving mismatches between tax treaty country and address. See KB2601 for other FATCA related FAQ topics.

 

Q1: I claimed treaty benefits in one country but have an address outside that treaty country. Why did I receive an email asking for additional documentation?
 

A1: We are required to verify your connection with the treaty country since you also have an address outside that country. We can process your claim for treaty benefits if you provide one document from Category (A) AND one document from Category (B) below.
 

                                Category (A)
AND
Category (B)
ANY OF the following unexpired documents issued by the treaty country:
ANY OF the following documents that match your address in the treaty country:
·         Driver’s license
·         Driver’s license
·         Passport
·         Bank or brokerage statement*
·         National identity card
·         Utility bill*

*Bank or brokerage statements and utility bills must be less than 12 months old.  Alternatively, if you cannot provide documents from both categories, please provide a written explanation as to why you are entitled to treaty benefits together with any supporting documentation. Note: we may request further information or documentation from you depending on the explanation provided.
 

 

Q2: I submitted a proof of address and I received an email that the document submission did not resolve the issue. Why?
 

A2: Please confirm that the proof of identity you submitted was issued by the treaty country and that the proof of address relates to your address in the treaty country. A proof of address document alone is not sufficient to resolve the matter. Sometimes, customers inadvertently submit documentation for the other address. Please check the date of the proof of address document. We can only accept documents dated less than 12 months old. Also confirm you submitted a proof of identity document from the treaty country.
 

 

Q3: I live in Hong Kong and chose China as my tax treaty country on my Form W-8BEN. I received a notification saying the proof of address and proof of identity I submitted was not sufficient to claim benefits under the U.S.-China tax treaty. Hong Kong is a Special Administrative Region of the People’s Republic of China, so the U.S.-China tax treaty applies to it, correct?
 

A3: No. According to the US Internal Revenue Service, the U.S.-People’s Republic of China tax treaty does NOT apply to Hong Kong. Unless you can provide a proof of address and identity in the People’s Republic of China or provide other evidence that you are a tax resident of People’s Republic of China, you may not claim Chinese tax treaty benefits.
 

 

Q4: I live in Macau and chose China as my tax treaty country on my Form W-8BEN. I received an e-mail saying that the proof of address I submitted for my Macau address was not sufficient to claim benefits under the U.S.-China tax treaty. Macau is a Special Administrative Region of the People’s Republic of China, so the U.S.-China tax treaty applies to it, correct?
 

A4: No. According to the U.S. Internal Revenue Service, the U.S.- People’s Republic of China tax treaty does NOT apply to Macau. Unless you can provide a proof of address and identity in the People’s Republic of China or provide other evidence that you are a tax resident of People’s Republic of China, you may not claim Chinese tax treaty benefits.
 

 

Q5: I live in Taiwan and chose China as my tax treaty country on my Form W-8BEN. I received an e-mail saying that the proof of address I submitted for my address in Taiwan was not sufficient to claim benefits under the U.S.-China tax treaty. Taiwan is formally known as the Republic of China, so the U.S.-China tax treaty applies to it, correct?
 

A5: No. According to the US Internal Revenue Service, the U.S.- People’s Republic of China tax treaty does NOT apply to Taiwan. Unless you can provide a proof of address in People’s Republic of China or provide other evidence that you are a tax resident of People’s Republic of China, you may not claim Chinese tax treaty benefits.
 

 

Q6: The information you have in your master file is out-of-date. I moved so that the address you identified as outside the treaty country is incorrect. What should I do?
 

A6: The fastest and most effective way to remedy the situation is to provide the requested information (see FAQ#1 above) so that our records are complete. You should also log into Account Management and make any required changes to your personal information.
 

 

We do not provide tax advice. Please consult your tax advisor for advice in completing tax forms and determining your taxpayer status.

FATCA FAQs - Issues Involving U.S. Address or Telephone Number

FATCA related FAQs involving U.S. address or telephone number. See KB2601 for other FATCA related FAQ topics.

 

Q1: I received a notification that a review of my file indicated a U.S. address or telephone and additional information is required. What additional information do I need to provide?
 

A1: You need to provide one document from Category (A) AND one document from Category (B) from the table below AND a written explanation explaining the U.S. address.
 

Category (A)
AND
Category (B)
AND
Category (C)
ANY OF the following documents issued by a non-US country:
ANY OF the following documents that match your foreign address:
A reasonable written explanation supporting your claim of non-US status. 
·         Driver’s license
·         Driver’s license
·         Passport
·         Bank or brokerage statement*
·         National identity card
·         Utility bill*

*Bank or brokerage statements and utility bills must be less than 12 months old.

 

Q2: The day count table on the account application says I am a U.S. tax resident and will not let me complete IRS Form W-8. What should I do?
 

A2: The US Internal Revenue Service generally considers individuals who spend a significant number of days in the United States each year to be U.S. taxpayers. The table flags customers who exceed those IRS rules for U.S. income tax residency and requires a W-9. Alternatively, it may be possible for you to satisfy the “closer connection test” or utilize a U.S. tax treaty to avoid U.S. tax residency. Please refer to IRS Publication 519 for details or consult a tax professional regarding IRS rules for counting days, the closer connection test and U.S. tax treaties.
 

 

Q3: I am a studying in the U.S. and present on an F-1 visa. I responded to your email and provided a copy of my F-1 visa. I received an email saying my response was insufficient to resolve the issue. Why?
 

A3: Please check the expiration date of your visa. If your visa has expired, please provide other evidence of your status, such as an Optional Practical Training (OPT) card, a copy of Form I-20 endorsed by the DSO for your school or another Employment Authorization Document (EAD). Also confirm you submitted the necessary proof of identify and address documentation.
 

 

Q4: I use my daughter’s address to receive all mail. She lives in the United States. What should I do?
 

A4: In this case, you can probably satisfy the substantial presence test noted in the notification you've received . Please provide the number of days you spent or plan to spend in the U.S. in the current and prior two years (e.g., 2015, 2014 and 2013). Also refer to the documentation requirements outlined in FAQ#1 above.

 
 

Q5: The address or telephone you noted in your email is out-of-date. I have since moved out of the United States. What should I do?
 

A5: The fastest and most effective way to remedy the situation is to provide the information as requested in the notification you've received (see FAQ#1 above), so that our records are complete. You should also log into Account Management and make any required changes to your personal information of record.
 

 

We do not provide tax advice. Please consult your tax advisor for advice in completing tax forms and determining your taxpayer status.

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