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IRS Updates Non-Resident Withholding Tax Guide

Wednesday, January 7, 2015

With particular reference to issues associated with the requirements of the Foreign Account Tax Compliance Act (FATCA), the United States Internal Revenue Service (IRS) has updated Publication 515: The Withholding of Tax on Nonresident Aliens and Foreign Entities.

It is specified that the Publication is for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign Governments, and international organizations.

It describes the persons responsible for withholding tax (withholding agents), the types of income subject to withholding, and the information return and tax return filing obligations of withholding agents. It also contains sections on the withholding that applies to the disposition of US real property interests and the withholding by partnerships on income effectively connected with the active conduct of a US trade or business.

The IRS has pointed out that, although the revision of Publication 515 is primarily for use in 2015, it also includes information that is relevant for 2014, as this latest revision was delayed to incorporate recent guidance relating to the new withholding and reporting obligations for withholding agents under FATCA.

FATCA, which took effect on July 1, 2014, is intended to ensure that the IRS obtains information on accounts held at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income.

The Publication therefore incorporates the requirements for FATCA withholding, including certain of the reporting required and the withholding requirements of FFIs making withholdable payments. It also describes which payments are withholdable payments.