Requirements to become QI
Index
What is the QI Agreement?
The QI Agreement is a private contract signed between two parties: a non-US financial intermediary and IRS.
Changed several times over time, the QI Agreement is now codified in the Revenue Procedure 2017-15. It contains all the rules governing the obligations of the QI.
Any non-US financial intermediary can qualify as a QI by applying to the IRS portal. The term “Qualified” means that the entity has a specific qualification, while the term “Intermediary” means that the role is, and should be, intermediation. The QI is essentially recognized as a qualified subject that stands between the IRS and the beneficiary of the U.S. income.
How to become a QI
Requirements:
A. Be registered and have a Chapter 4 status (FATCA) among the following:
- participating FFI (included IGA Model 2);
- registered deemed-compliant FFI (included Model 1 FFI e non-reporting Model 2 FFI considered as registered deemed-compliant);
- registered deemed-compliant Model 1 IGA FFI, or sponsoring entity of a direct reporting NFFE;
B. Be in a country whose KYC (Know Your Customer) rules have been approved by the IRS (see list of countries).
Procedure:
An entity become a QI by registering to the “QI/WP/WT system“. The registration form will provide the information on the basis of which IRS will determine whether the entity has the resources and procedures necessary to comply with the QI Agreement. The approval of the QI status is transmitted by the IRS. The accepted applicant also receives a QI-EIN. This unique 9-digit identifier is used whenever the intermediary decides to act as a QI.
Documentation to be sent to the custodians
It is up to the financial intermediary to choose for which accounts, by his custodians, he will act as a QI. For one or more accounts, the entity may decide to qualify as a NQI. Whatever the qualification is, the QI must send its W8-IMY form and the Withholding Statement to the custodian. Through the W8-IMY form, information will be communicated to the custodian:
- entity master data
- QI-EIN
- Status Chapter 3 e Chapter 4
- Liability assumed
The last point refers to the right of the QI to assume Primary Withholding Responsibility, i.e. primary responsibility for the collection and payment of the US withholding tax. In these cases, the QI relieves its depositary of the obligation to withhold tax at source, and is responsible for a) applying the withholding taxes and b) paying them to the IRS in due time. Both Chapter 3 and Chapter 4 withholding taxes, respectively QI and FATCA, are applicable.
Please note that the W8-IMY form is only sent by the QI when acting on behalf of a third party (for its customers). When the account is held for securities owned by the entity itself and not for its clients, the entity does not act as a QI and must send the form W8-BEN-E.
What is the Withholding Statement?
The Withholding Statement is the document that the QI provides to his custodian together with the W8-IMY in order to communicate the percentage of US taxation to be applied to each of his accounts.
There is no official Withholding Statement proposed by the IRS and each QI can define his own. The key aspect of the document is that it is in writing and indicates for each account the US taxes to be applied for each type of income.
The QI will have to send a new Withholding Statement to modify the previous communication.