14. What is an active non-financial [foreign] entity?

An active non-financial [foreign] entity* (NFFE) is a category of NFE that only needs to certify that it is an NFE. It doesn't need to report on any substantial US owners, or US persons* with foreign tax obligations, it may have, and there will not be any withholding on such an entity.

Any non-financial entity can be an active non-financial entity such as:

• Active non-financial entities by reason of income and assets;
• Publicly traded non-financial entities;
• Governmental entities, international organisations, central banks, or their wholly owned entities;
• Holding non-financial entities that are members of a non-financial group;
• Start-up non-financial entities;
• Non-financial entities that are liquidating or emerging from bankruptcy;
• Treasury centres that are members of a non-financial group; or
• Non-profit non-financial entities.

An entity will be classified as an active non-financial entity if it meets any of the following criteria:

• Less than 50% of the non-financial entity's gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by the non-financial entity during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income. 
• The stock of the non-financial entity is regularly traded on an established securities market or the non-financial entity is a related entity of an entity of which the stock is regularly traded on an established securities market.
• The non-financial entity is a governmental entity, an international organisation, a central bank, or an entity that is wholly owned by one or more of the foregoing.
• Substantially all of the activities of the non-financial entity consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a financial institution, except that an entity does not qualify for this status if the entity functions as (or holds itself out to be) an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes.
• The non-financial entity is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a financial institution, provided that the non-financial entity does not qualify for this exception after a date that is 24 months after a date of the initial organisation of the non-financial entity.
• The non-financial entity was not a financial institution in the past five years and is in the process of liquidating its assets or is reorganising with the intent to continue or recommence operations in a business other than that of a financial institution.
• The non-financial entity primarily engages in financing and hedging transactions with, or for, related entities that are not financial institutions, and does not provide financing or hedging services to any entity that is not a related entity, provided that the group of any such related entities is primarily engaged in a business other than that of a financial institution.
• The non-financial entity meets all the following requirements:
  • it is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare;
  • it is exempt from income tax in its jurisdiction of residence;
  • it has no shareholders or members who have a proprietary or beneficial interest in its income or assets;
  • the applicable laws of the non-financial entity jurisdiction of residence or the non-financial entity's formation documents do not permit any income or assets of the non-financial entity to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than pursuant to the conduct of the non-financial entity's charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of the property the non-financial entity has purchased; and
  • the applicable laws of the non-financial entity's jurisdiction of residence or the non-financial entity's formation documents require that, on the non-financial entity's liquidation or dissolution, all its assets be distributed to a governmental entity or other non-profit organisation, or escheat to the government of the non-financial entity's jurisdiction of residence or any political subdivision thereof.

Examples of active non-financial entities are manufacturing companies, law firms, mining companies, estate agents, architect firms and farms.