NFFEs

NFFEs stands for Non-Financial Foreign Entity, a term used in the context of the United States Foreign Account Tax Compliance Act (FATCA). Under FATCA, foreign entities that are not financial institutions are designated as NFFEs for purposes of tax reporting and withholding on certain U.S.-source payments. The designation helps U.S. withholding agents and foreign financial institutions determine the applicable FATCA obligations and whether information about the entity and its substantial U.S. owners must be reported or whether withholding applies.

NFFEs include operating companies, non-financial holding companies, partnerships, and other entities that do not primarily engage in financial activities. They are categorized into Active NFFEs and Passive NFFEs. An Active NFFE generally earns most of its income from non-financial activities, and less than 50% of gross income is from passive sources, with less than 50% of assets producing passive income. A Passive NFFE derives 50% or more of its gross income from passive sources and/or holds a substantial portfolio of passive assets.

To determine FATCA status, withholding agents may request documentation such as a Form W-8BEN-E from the NFFE, along with information about any substantial U.S. owners. Failure to provide compliant FATCA information can lead to withholding on certain U.S.-source payments at the FATCA rate, unless relief applies under treaties or intergovernmental agreements.

NFFEs thus play a central role in FATCA’s framework by influencing how foreign entities are treated for reporting and withholding. They are distinct from FFIs (foreign financial institutions), which operate under a different set of FATCA requirements. See also FATCA, FFI, W-8BEN-E, and GIIN.