QI Regulation

What is QI?

QI regime includes all the rules governing the taxation and reporting of US income (e.g. dividends and coupons of financial instruments) received by any person through a non-US intermediary.

The legislation aims at introducing a simplified US withholding tax management system for all non-US intermediaries who sign an agreement (QI Agreement) with IRS. While the agreement introduces stringent obligations for subscribers, it also ensures that income received by QI’s clients can benefit from tax benefits. Full taxation, 30% of the income gross value, can be reduced and, in some cases, avoided (e.g. interest from securities in the portfolio).

The obligation of the QI is to collect the documentation of its customers, to use this documentation for classifying them and to apply the correct taxation according to the tax residence ascertained. These and other obligations allow QI’s clients to benefit of a reduced rate under the double taxation agreements between the country of tax residence and the US.

History and evolution of QI legislation

The QI Agreement and the QI regime were introduced for the first time under the “Revenue Procedure 2000-12” and entered into force on 1st January 2001.

Remaining essentially unchanged for several years, a new QI Agreement with the “Revenue Procedure 2014-39” was introduced in 2014. The main purpose of this update was to incorporate and integrate the requirements of the FATCA (Foreign Account Tax Compliance Act) into the QI Regime.

With the new QI Agreement, the intermediary has became responsible not only for the due diligence, the reporting and the withholding (ex Chapter 3 of the Internal Revenue Code, IRC) and for the Backup Withholding(ex Chapter 61 of the IRC), but also for FATCA purposes, which is regulated by Chapter 4 of the IRC.

This QI Agreement expired on 31 December 2016 and have been replaced by the new QI Agreement, published with the “Revenue Procedure 2017-15“, which entered into force on 1 January 2017.
One of the most important changes for the QI is the introduction of the obligation for QIs to define and manage an internal compliance program (Compliance Program) and to submit their work to an independent review.

The figure of the QI

The Qualified Intermediary (QI) is a non-US financial intermediary that has signed the QI Agreement with the IRS.

The QI, according to the best and simplest tax regime for itself and its customers, accepts and undertakes to comply with a number of obligations, including:

  • Documentation of its customers.
  • Application of the correct withholding.
  • Annual tax reporting to the IRS.
  • Internal compliance programme.
  • Audits by an independent internal or external party.

For more information, please read our article “The figure of the QI”.

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