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Publication 515
taxmap/pubs/p515-005.htm#en_us_publink1000225026

Foreign Governments
and Certain Other
Foreign Organizations

rule
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. 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.
  1. Income (including investment income) received from the conduct of a commercial activity or from sources other than those stated above.
  2. 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 effectively connected income allocable to the foreign government is considered derived from a controlled commercial activity and is subject to withholding under section 1446.
  3. Gain derived from the disposition of a U.S. real property interest. 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 Treasury regulations section 1.1471-6(h) for a description of a commercial financial activity. See Treasury 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. possession 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. possession. See Treasury 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. possession. These governments should use Form W-8EXP to claim this exemption for both chapters 3 and 4 purposes (as required).
taxmap/pubs/p515-005.htm#en_us_publink1000225027

International organizations.

rule
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) of the Code) 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) of the Code. 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 Treasury regulations section 1.1471-3(d)(9) for the documentation required to establish an entity’s chapter 4 status as an international organization.
taxmap/pubs/p515-005.htm#en_us_publink1000225028

Foreign tax-exempt organizations.

rule
A foreign organization that is a tax exempt organization under section 501(c) of the Internal Revenue Code is not subject to a withholding tax on amounts that are not income includible under section 512 of the Internal Revenue Code as unrelated business taxable income. In addition, withholdable payments made to a tax-exempt organization under section 501(c) of the Internal Revenue Code 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 effectively connected income allocable to the organization is subject to withholding under section 1446.
taxmap/pubs/p515-005.htm#en_us_publink100015525

Definitions under IGAs.

rule
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 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.