Under the Foreign Account Tax Compliance Act (FATCA) a [foreign] entity* that is not a financial institution* is a non-financial [foreign] entity* (NFFE), and under Common Reporting Standard (CRS) an entity that is not a financial institution* is a non-financial entity (NFE).
There are two types of NFEs:
- Active non-financial [foreign] entities* (active NFEs) and
- Passive non-financial [foreign] entities* (passive NFEs)
An NFE that conducts an active trade (active NFE) and earns income mainly from business activities is an active NFE.
While an NFE that earns income only from investment income, such as dividends, interest, annuities, rental income, or royalties is a passive [foreign] NFE.
If your entity is classified as a passive [foreign] NFE, you have to certify whether or not any of your controlling persons are either US persons* and/or have tax obligations, tax liabilities or tax residencies outside the country of onboarding.
NFEs include, but are not limited to, the following:
- Listed or privately held operating or trading businesses.
- Professional service firms.
- Certain entities with passive income (i.e., not an operating/trading business).
- Charitable organisations.
*For any defined terms please see the Table of terms and definitions.
