An Active Non-Financial Foreign Entity (“Active NFFE”) is a foreign entity that is not a foreign financial institution (FFI) under the Foreign Account Tax Compliance Act (FATCA).
An Active NFFE is an entity in which less than 50 percent of its gross income for the preceding year was passive income, and less than 50 percent of the weighted average percentage of its assets (calculated quarterly) are assets that produce passive income.1 Passive income generally includes dividends, interest, rents, royalties, annuities, capital gains and losses, and foreign currency gains and losses.2
Example of Active NFFE
Company A Ltd is a Cayman Islands limited company that owns and operates a grocery store on the island. The Company’s income statement shows gross income from selling inventory to its customers. The Company’s balance sheet includes cash, prepaid expenses, the building, land, and equipment.
Given that the Company does not generate any passive income and most of its assets are not the type that produces passive income, the Company is an Active NFFE for U.S. FATCA. The Company can select Active NFFE for its Chapter 4 status when completing its Form W-8BEN-E (Certificate of Foreign Status for Entities)