Foreign Governments and Certain Other

Certain investment income earned by a foreign government is not included in the gross income of the foreign government and is not subject to chapter 3 withholding. The term “foreign government” means an integral part of a foreign sovereign or a controlled entity of a foreign sovereign. See Temporary Regulations section 1.892-2T. “Investment income” means income 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 money deposited by a foreign government in banks in the United States. A foreign government must provide a Form W-8EXP or, in the case of a payment made outside the United States to an offshore account, documentary evidence to obtain this exemption. Investment income paid to a foreign government is subject to reporting on Form 1042-S.

The following types of income received by a foreign government are subject to chapter 3 withholding.

Income (including investment income) received from the conduct of a commercial activity or from sources other than those stated above.
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.

If the foreign government is a partner in a partnership carrying on a trade or business in the United States, the ECTI allocable to the foreign government is considered derived from a commercial activity and is subject to withholding under section 1446.

Gain derived from the disposition of a USRPI. Withholding on these gains is discussed later under U.S.

real property interest.

For chapter 4 purposes, payments to a foreign government (other than earnings inuring to the benefit of a private person) are not payments to which chapter 4 withholding applies unless the payment is made to a controlled entity of the foreign government that is engaged in a commercial financial activity. See Regulations section 1.1471-6(h) for a description of a commercial financial activity. See Regulations section 1.1471-3(d)(9) for the documentation required to establish an entity’s chapter 4 status as a foreign government. Similar rules apply for chapter 4 purposes to a payment to a foreign central bank of issue.

A government of a U.S. territory is exempt from U.S. tax on all U.S. source income. This income is not subject to chapter 3 withholding, and chapter 4 withholding does not apply to income paid to a government of a U.S. territory. See Regulations section 1.1471-3(d)(9) for the documentation required to establish an entity’s chapter 4 status as a government of a U.S. territory. These governments should use Form W-8EXP to claim this exemption for both chapters 3 and 4 purposes (as required).

International organizations. International organizations are exempt from U.S. tax on all U.S. source income. Income paid to an international organization (within the meaning of section 7701(a)(18)) is not subject to chapter 3 withholding. International organizations are not required to provide a Form W-8 or documentary evidence to receive the exemption if the name of the payee is one that is designated as an international organization by executive order.

Payments made to an international organization, as defined for chapter 4 purposes, are not payments to which chapter 4 withholding applies. An “international organization” for purposes of chapter 4 means any entity described in section 7701(a)(18). The term also includes any intergovernmental or supranational organization that is comprised primarily of foreign governments, that is recognized as an intergovernmental or supranational organization under certain foreign laws, or that has in effect a headquarters agreement with a foreign government, and whose income does not inure to the benefit of private persons. See Regulations section 1.1471-3(d)(9) for the documentation required to establish an entity’s chapter 4 status as an international organization.

Foreign tax-exempt organizations. A foreign organization that is a tax-exempt organization under section 501(c) is not subject to a withholding tax on amounts that are not income includible under section 512 as unrelated business taxable income. In addition, withholdable payments made to a tax-exempt organization under section 501(c) are not payments to which chapter 4 withholding applies.

However, if a foreign organization is a foreign private foundation, it is subject to a 4% withholding tax on all U.S. source investment income. For a foreign tax-exempt organization to claim an exemption from withholding under chapter 3 or 4 because of its tax-exempt status under section 501(c), or to claim withholding at a 4% rate, it must provide you with a Form W-8EXP. However, if a foreign organization is claiming an exemption from withholding under an income tax treaty, or the income is unrelated business taxable income, the organization must provide a Form W-8BEN-E or W-8ECI. Income paid to foreign tax-exempt organizations is subject to reporting on Form 1042-S. If the organization is a partner in a partnership carrying on a trade or business in the United States, the ECTI allocable to the organization is subject to withholding under section 1446.

Foreign financial institutions (FFIs). For payments made to a reporting Model 1 FFI or reporting Model 2 FFI, see the applicable IGA for definitions of entities described under this heading. You may generally rely on

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documentation provided by such an FFI to treat an entity as described under this heading (included under the class of a nonreporting IGA FFI). See the Instructions for Form W-8BEN-E .