Active NFE/Active NFFE

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FATCA

  • The entity is not a financial institution;
  • Less than 50% of such entity’s gross income for the preceding calendar year is passive income; and
  • Less than 50% of the assets held by such entity are assets that produce or are held for the production of passive income (calculated as a weighted average of the percentage of passive assets measured quarterly). [The term active NFFE has the meaning set forth in §1.1472-1 (c)(1)(iv).]
Category 1: Non-financial foreign entities engaged in an active trade of business

1)   Is more than 50% of the entity’s gross income from passive income for its previous reporting period or calendar year?

a)           If yes, move to Category 2.

b)           If no, move to the next question.

2)   Do more than 50% of the assets held during the previous reporting period or calendar year produce passive income, or are otherwise held for the production of passive income?

a)    If yes, move to Category 2.

b)          If no, you may qualify as an Active NFFE. Please review the tables below to determine the relevant FATCA documentation. You are not required to proceed further in these guidelines. However, if you would like to evaluate the other classification options, please move to Category 2.

Note: There might be further entity types meeting the active NFFE definition according to an applicable IGA (see Annex I, Section VI(B)(4) of the applicable IGA).

The following examples are provided as a representative sample of the types of entities that may be engaged in an active business and is in no way intended to be a comprehensive list of all entities that could be classified as an Active NFFE.

Examples: Business that may qualify as Active NFFEs

Farms

Manufacturing Companies

Management Consulting Companies

Architect Offices

Sports, religious, educational, charitable, scientific, or literary organizations, associations, or clubs (see Annex I, Section VI(B)(4) of the applicable IGA)

Example: Foreign entity engaged in an active business

The daily business of Bakery ABC consists of baking goods (cakes, pies, breads, etc.) and selling these products to customers. Bakery ABC has been very successful over the last five years and has been able to invest its profits into securities. Therefore, in addition to income received from the sale of baked goods, Bakery ABC also earns passive income (i.e., interest and dividends) on its investments. In the prior year, Bakery ABC earned gross income of USD 2 million from the sale of baked goods and USD 70k of interest and dividends on its investments. On December 31 of the prior year, Bakery ABC had assets of USD 10 million of which USD 1 million is invested into securities and the remaining USD 9 million consists of equipment, inventory and other assets that are used in the daily production of the baked goods. Bakery ABC qualifies as an Active NFFE because more than 50% (2mil / 2.07mil = 96.6%) of the gross income in the prior year is attributable to their active business of selling baked goods and more than 50% (9mil / 10mil = 90%) of the assets held by Bakery ABC are used in the production of such active income.

 

Category 2: Publicly traded non-financial foreign entities and their affiliates

1)   Is the stock of the corporate entity listed on and regularly traded on an established securities market for the previous
reporting period or that calendar year?

a)           If yes, please review the tables below to determine the relevant FATCA documentation.

b)           If no, move to the next question.

Note: This category only applies to non-financial entities. Publicly traded financial institutions should review the classification options for financial institutions contained in Part 3.

2)   Is the entity an affiliate (i.e., related by ownership greater than 50%) of a corporation whose stock is listed on and regularly
traded on an established securities market for a previous reporting period or that calendar year?

If yes, you may qualify as a publicly traded NFFE or affiliate.

Also see Rule Map

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