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HMRC internal manual

International Exchange of Information Manual

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HM Revenue & Customs
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Miscellaneous: Non-Financial Entity

Miscellaneous: Non-Financial Entity

A Non-Financial Entity or NFE (Non-Financial Foreign Entity or NFFE for FATCA) is any entity that is not a Financial Institution [see IEIM400600].

NFE are then divided into two categories, Active NFE and Passive NFE. The Passive NFE category is effectively a default category, any NFE that does not meet the criteria to be an Active NFE will be a Passive NFE.

A NFE can be an Active NFE if it meets any of the following criteria:

  • It is active by reason of income and assets. This requires less than 50% of its gross income for the preceding calendar year or other appropriate reporting period to be passive income [see IEIM404020] and less than 50% of its assets held in the same period to be assets that produce or are held for the production of passive income;

 

  • Its stock is regularly traded on an established securities market or it is a Related Entity [see IEIM404000] of such an entity;

 

  • It is a Government Entity [see IEIM400930], International Organisation [see IEIM400940], Central Bank [see IEIM400950] or a wholly owned subsidiary of such an entity;

 

  • It is holding company for NFEs that are members of a non-financial group. It will not qualify as an Active NFE where these holdings are part of a business as an investment fund or vehicle whose purpose is to acquire or fund companies and then hold interests as capital assets for investment purposes.

 

  • It is a start-up NFE which is not yet operating a business and has no prior operating history, but is investing capital into assets with the intention of operating a business other than that of a Financial Institution. This category only applies during the first 24 months after the date that the NFE was first formed.

 

  • It is a NFE that has not been a Financial Institution in the last 5 years and which is in the process of liquidating its assets or is reorganising with a view to continuing or recommencing business operations other than as a Financial Institution.

 

  • It is a treasury centre of a non-financial group engaging in financing and hedging transactions with or for Related Entities.

 

  • It is a not for profit organisation set up for religious, charitable, scientific, artistic, cultural, athletic or educational purposes; or it is established and operated as a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated for the promotion of social welfare. In all cases the organisation must be exempt from income tax and its income and assets cannot be applied other than for the express purposes for which the organisation is established.

 

FATCA Direct Reporting NFFE

The USA published a notice - Notice 2013-69 that announced the introduction of a new category of Passive NFFE – a Direct Reporting NFFE.

The US Regulations at §1.1472-1(c)(3) describes a Direct Reporting NFFE and explains how it is treated. As the name suggests, a Direct Reporting NFFE reports directly to the IRS certain information about its direct and indirect substantial US owners. The NFFE is required to register with the IRS to obtain a Global Intermediary Identification Number.

Notice 2013-69 also sets out that an Entity will be allowed to sponsor one or more Direct Reporting NFFEs (Sponsored Direct Reporting NFFEs) and report for them.