How Does FATCA Impact EU Investors and Funds?

FATCA isn’t just a problem for U.S. LPs investing in funds outside the country. It’s also a regulatory hurdle for EU fund managers and investors that complicates onboarding, reporting, and cross-border investments. 

Originally introduced to crack down on U.S. tax evasion in 2010, FATCA requires foreign financial institutions (FFIs) and funds worldwide to collect and report information on U.S. taxpayers, adding layers of complexity to fund operations. 

For EU-based funds, this means not only adapting to U.S. regulations but also managing overlapping compliance requirements and investor scepticism.

Ivo Schmiedt

Founder, CEO & General Counsel

A recent ruling in the Webster v HMRC case brought FATCA back into the spotlight. The case involved a U.S. citizen in the UK challenging the automatic sharing of her financial data with the IRS. 

The court’s decision to uphold the data transfer highlights a growing tension between aggressive tax transparency measures and individual privacy rights. But more importantly, it raises questions for EU funds about how FATCA compliance will continue to shape investments.

So, what’s the real impact for EU funds and investors? FATCA’s requirements (like the W-8 forms) create additional compliance costs and pose operational risks if not managed correctly. 

Whether it’s correctly filing W-8BEN and W-8BEN-E forms for non-U.S. investors or handling W-8IMY for intermediary entities, EU fund managers need to stay vigilant. A misstep can result in severe penalties or even withholding of U.S.-sourced income, which directly affects fund performance.

Key FATCA Forms: W-8BEN, W-8BEN-E, and W-8IMY

FATCA compliance starts with providing the right information. For EU funds and investors, while it’s not mandatory to submit W-8 forms specifically, such as W-8BEN, W-8BEN-E, and W-8IMY, it has become a market standard. 

These forms are commonly used to certify non-U.S. status, claim treaty benefits, and avoid unnecessary U.S. tax withholdings, making them an efficient way to meet compliance requirements. 

W-8BEN/W-8BEN-E for Non-U.S. Investors

Both forms serve the same core purpose—certifying that the investor is not a U.S. taxpayer—but are tailored to different types of investors.

• W-8BEN: Used by individuals.
• W-8BEN-E: Used by entities such as corporations, partnerships, and trusts.

Why EU Investors Must Submit These Forms

When investing in U.S. based funds or receiving U.S.-sourced income, EU investors are subject to U.S. withholding tax regulations. By submitting a W-8BEN or W-8BEN-E, investors certify that they are not U.S. persons and can claim benefits under any tax treaty between their country of residence and the United States. 

This is crucial for reducing or eliminating the standard 30% withholding tax rate applied to foreign investors. Without these forms, the default withholding rate is applied, which can significantly reduce investment returns. 

Ivo Schmiedt

Founder, CEO & General Counsel

How to Complete the W-8BEN and W-8BEN-E Forms

For Individual Investors (W-8BEN)

Part I: Identification of Beneficial Owner

• Enter your name, citizenship, and permanent residence address.
• Provide a Taxpayer Identification Number (TIN) if it’s required to claim treaty benefits.
• Add a Foreign Tax Identification Number (FTIN) - This field is where you provide your local tax identification number (e.g., a national insurance number or tax number issued by your home country). 
• Field 6b: When FTIN is Not Legally Required - This checkbox should be marked if your country does not legally require you to obtain a foreign TIN or if you are unable to get one.

Note: Leaving 6a blank and failing to check 6b can lead to form rejection, so it’s crucial to ensure one of these fields is filled out or checked appropriately.

• Field 7: References - This field is optional and is used if the beneficial owner (individual or entity) has a specific reference number that the withholding agent should use to track their information. It can be left blank if there is no such reference number.

Some funds or custodians use an internal reference number for each investor or entity, especially when multiple entities are involved. This field can be filled with an account number, investor ID, or other tracking reference the withholding agent uses.

When is a TIN required?

For many EU investors, one of the most common points of confusion is the requirement for a TIN (Taxpayer Identification Number). A TIN is typically a local tax identification number assigned by the investor’s home country or a U.S. TIN (e.g., a Social Security Number for individuals or an Employer Identification Number for entities).

A TIN is mandatory if the investor wishes to claim treaty benefits under a tax treaty between their home country and the U.S. Without a TIN, the investor cannot claim a reduced withholding rate and may be subject to the default 30% tax rate on U.S.-sourced income.

Ivo Schmiedt

Founder, CEO & General Counsel

When a TIN is not required?

If an investor is not claiming treaty benefits and is merely certifying non-U.S. status, a TIN is not required. 

What to do if you don’t have a TIN? 

EU investors without a TIN should first check if their country issues a local tax identification number that can be used. Tax advisors can help with obtaining a U.S. TIN or helping with the application for a local TIN if it’s needed to claim treaty benefits.

What to do if you don’t have an FTIN? 

If you're not claiming tax treaty benefits, you can leave the FTIN field blank. However, if you're applying for treaty benefits, you should provide your local tax identification number (FTIN) from your country of residence (e.g., a TIN from Germany.) to avoid complications. It’s important to note that from the U.S. perspective, under FATCA, a TIN refers to a U.S. tax number, whereas an FTIN is a non-U.S. tax number.

Part II & III of W-8BEN: Claiming Tax Treaty Benefits and Certifying Accuracy

• Country of Tax Residence - This line must reflect the country where the individual is considered a tax resident. It should match the tax residency documented in Part I. For EU investors, this would be the country where they are subject to personal income tax as residents.
• Special Rates and Conditions - Use this line to specify the article and paragraph of the tax treaty that applies to the type of income being received (e.g., dividends, interest, or royalties). 

What to include in parts II and III?

• Identify the exact article and paragraph number in the U.S.-EU tax treaty that applies to the income type.
• State the type of income you’re claiming benefits for (e.g., “dividends” or “interest”).
• Provide a brief description of the specific benefit you’re claiming. For example: “Claiming 15% withholding rate on dividends under Article 10 of the U.S.-Country XYZ tax treaty.”

What are the common mistakes when filling in these sections?

Leaving Line 10 blank or providing vague explanations (e.g., “applicable tax treaty benefits”) can cause the withholding agent to deny the claim. Failing to specify the type of income can also result in the wrong withholding rate being applied.

When to leave line 10 blank?

If the investor is not claiming any tax treaty benefits and is only certifying their non-U.S. status, Line 10 can be left blank. 

For Entities (W-8BEN-E)

Part I: Identification of Beneficial Owner

• Enter the full legal name of the entity. This should match the name registered in the entity’s country of incorporation or formation.

• Specify the country where the entity was legally formed. For EU entities, this would be the country where the entity is registered and conducts business activities.
• If the entity is classified as a disregarded entity for U.S. tax purposes, provide the name in line 3. Otherwise, leave this line blank.
• Choose the appropriate Chapter 3 status that best describes the entity (e.g., “Corporation,” “Partnership,” or “Trust”). This status determines how the entity is treated for U.S. tax withholding purposes.
• Select the entity’s FATCA status (e.g., “Active NFFE,” “Passive NFFE,” or “Foreign Financial Institution (FFI)”). This classification is critical as it determines the entity’s reporting and withholding requirements under FATCA. Misclassification here can lead to rejected forms or issues with the IRS.
• If the entity has a U.S. TIN (e.g., an Employer Identification Number), enter it here. This line is optional if the entity is not claiming any tax treaty benefits.
• Provide the Global Intermediary Identification Number (GIIN) if the entity is a participating Foreign Financial Institution (FFI) or Registered Deemed-Compliant FFI. Entities without a GIIN should leave this blank.
• Enter the entity’s local tax identification number issued by its country of residence. This is required for entities claiming tax treaty benefits to demonstrate their tax residency.

Selecting the right FATCA status on the W-8BEN-E form is one of the most complicated—and critical—decisions for EU funds and investors. It directly impacts the entity’s reporting obligations and how U.S. tax authorities view its compliance.

Ivo Schmiedt

Founder, CEO & General Counsel

For many EU-based entities, the definitions and distinctions between FATCA classifications are not straightforward.

There are three primary FATCA classifications to consider when completing Part I of the W-8BEN-E form:

1. Foreign Financial Institution (FFI)

• FFIs include banks, investment funds, and other financial entities that primarily deal with holding or investing in financial assets.

• They accept deposits in the ordinary course of business, hold financial assets for others, and engage primarily in the business of investing, reinvesting, or trading in securities or other financial instruments.
• Examples of EU Entities That Qualify as FFIs 
  • Private equity funds and hedge funds that pool investor capital and invest in U.S. securities.
  • Custodial institutions that hold securities for third-party investors.

FFIs have stringent reporting requirements under FATCA, including annual disclosures of U.S. account holders and compliance with IRS registration (obtaining a GIIN). FFIs that fail to register or report are subject to a 30% withholding tax on U.S.-sourced payments.

2. Active Non-Financial Foreign Entity (NFFE)

An Active NFFE is an entity that earns most of its income from active business operations rather than passive investments. It is generally not involved in financial services or investments as its primary activity.

• Less than 50% of gross income is derived from passive sources (e.g., dividends, interest, royalties).
• Less than 50% of the assets are held for the production of passive income.
• Engages in substantive business activities (e.g., manufacturing, trading, or services).

Examples of EU Entities that qualify as Active NFFEs:

• Operating companies in sectors like manufacturing, consulting, or technology.
• EU-based subsidiaries of multinational corporations that conduct active business operations.

Active NFFEs are exempt from FATCA reporting, meaning they do not need to register with the IRS or obtain a GIIN. This makes Active NFFE a desirable classification for qualifying entities that want to avoid the administrative burden of FATCA compliance.

3. Passive Non-Financial Foreign Entity (Passive NFFE)

A Passive NFFE is an entity that derives more than 50% of its gross income from passive sources, such as dividends, interest, and investments. This classification often includes holding companies, family offices, or investment entities that are not considered FFIs under FATCA.

• Over 50% of the entity’s income is passive (e.g., dividends, interest, royalties).
• More than 50% of the entity’s assets are held for producing passive income.

Examples of EU Entities that qualify as passive NFFEs:

• Holding companies or SPVs (special purpose vehicles) that are set up to hold investments.
• Family offices that derive most of their income from investment activities.

Passive NFFEs must disclose any substantial U.S. owners (generally those holding more than 10% of shares or capital) to avoid FATCA withholding. If the entity has no U.S. owners, it must certify this on the W-8BEN-E form.

Part II: Claim of Tax Treaty Benefits

• Indicate the specific article and paragraph number under the tax treaty that applies to the type of income being reported. For example, for dividends, you might reference “Article 10, Paragraph 2” of the U.S.-Country XYZ tax treaty. Clearly specify the type of income (e.g., “dividends”).
• Describe how the entity meets the requirements of the LOB (Limitation on Benefits) clause under the applicable tax treaty. This is a key provision to prevent entities that are not legitimate residents of the treaty country from claiming treaty benefits. Provide a brief but clear explanation of how your entity meets the LOB requirements (e.g., “Entity meets the active business test under LOB clause”).
• Use line 15 to claim any special rates or conditions under a specific treaty provision that were not covered in Line 14. For instance, if there are unique conditions for a certain type of income, specify them here.

You don’t need to fill in all sections of the W-8BEN-E form. The form is designed to accommodate many types of entities, so you only need to complete the parts that apply to your entity’s specific classification and tax situation.

Ivo Schmiedt

Founder, CEO & General Counsel

You might be asking yourself which fields you need to fill in. 

Required for all entities

1. Part I: Identification of Beneficial Owner - This part is mandatory for every entity completing the form. It establishes the entity’s identity, FATCA classification, and tax residency.
2. Part III: Certification - This section is required for all entities as it certifies that the information provided is accurate and complete. The form must be signed and dated by an authorized person.

Conditionally required sections

1. Part II: Claim of Tax Treaty Benefits
   • Required if the entity claims a reduced withholding tax rate based on an income tax treaty between its country of residence and the U.S. If the entity is not claiming treaty benefits, this part can be left blank.
2. Part IV–XXVIII: FATCA Status Certifications
   • These sections vary depending on the FATCA classification selected in Part I, Line 5. Each classification (e.g., Active NFFE, Passive NFFE, or FFI) has its own specific section. The entity only needs to fill in the certification part corresponding to its selected classification.
     Examples:
     • Part V: If the entity is a “Certified Deemed-Compliant FFI,” it should complete Part V only and leave the other FATCA certification sections blank.
     • Part XXV: If the entity is an “Active NFFE,” it should complete Part XXV and ignore all other certification sections.
3. Part XXIX: Substantial U.S. Owners of Passive NFFEs
   • Required only if the entity is classified as a Passive NFFE and has one or more substantial U.S. owners. This part is used to disclose U.S. owners holding more than 10% of shares or capital.

In short, you should complete only the sections relevant to your entity’s classification and tax treaty status. Leaving irrelevant sections blank will make the form easier to review and less error-prone.

W-8IMY: The Form for Intermediaries

The W-8IMY form is used by foreign entities that act as intermediaries, flow-through entities, or partnerships to certify their status under FATCA and U.S. tax regulations. Unlike other W-8 forms (such as W-8BEN or W-8BEN-E), which establish beneficial ownership and non-U.S. status, the W-8IMY is designed for entities that act on behalf of others or hold investments as custodians. 

This form is particularly relevant for EU-based funds, such as fund-of-funds or pooled investment vehicles, which need to distinguish themselves as intermediaries rather than beneficial owners of the income.

The W-8IMY form is used by foreign entities that act as intermediaries, flow-through entities, or partnerships to certify their status under FATCA and U.S. tax regulations.

Unlike other W-8 forms (such as W-8BEN or W-8BEN-E), which establish beneficial ownership and non-U.S. status, the W-8IMY is designed for entities that act on behalf of others or hold investments as custodians. 

This form is particularly relevant for EU-based funds, such as fund-of-funds or pooled investment vehicles, which need to distinguish themselves as intermediaries rather than beneficial owners of the income.

When to Use the W-8IMY Form

The W-8IMY form is typically used by entities in the following scenarios:

• Intermediary or Nominee - When the entity is acting as an intermediary, holding financial assets on behalf of another person or entity (e.g., a broker or a custodial institution).
• Flow-Through Entity or Partnership - When the entity is a partnership or trust that allocates income to its partners or beneficiaries, who are the beneficial owners of the income.
• Non-Withholding Foreign Partnership or Foreign Simple Trust - When the entity is a foreign partnership or trust that receives U.S.-sourced income and passes it through to its partners or beneficiaries.
• Withholding Foreign Partnership or Withholding Foreign Trust - When the entity is a partnership or trust that is authorized to withhold tax on behalf of its partners or beneficiaries.

Sections of the W-8IMY and What They Mean

Part I: Identification of Entity

• Enter the full legal name of the entity acting as an intermediary or flow-through entity.
• Specify the country where the entity was legally formed. This establishes the entity’s foreign status.
• Choose the entity’s Chapter 3 status (e.g., “Non-Withholding Foreign Partnership,” “Non-Withholding Foreign Trust,” or “Foreign Intermediary”).
• Select the appropriate FATCA classification, such as “Registered Deemed-Compliant FFI,” “Certified Deemed-Compliant FFI,” or “Non-Participating FFI.” This classification impacts the entity’s reporting and withholding obligations under FATCA.

If you’re unsure about the FATCA Classification, please see a more detailed explanation in the W-BEN-E section above. 

• Enter the entity’s permanent address. This should be the address where the entity is registered, not a P.O. box unless required by the local postal system.
• Include the U.S. TIN if the entity has one. Otherwise, this line can be left blank.
• If the entity is a participating FFI or a registered deemed-compliant FFI, provide the GIIN.

Part II: Disregarded Entity or Branch Receiving Payment

Complete this section if the entity is a disregarded entity or branch of an FFI that is receiving payments. If not applicable, leave this section blank.

Part III: Claim of Tax Treaty Benefits

This section should only be completed if the entity claims tax treaty benefits on its behalf or the income it receives. If the entity acts solely as an intermediary and does not claim treaty benefits, this section can be left blank.

• Identify the tax treaty article and paragraph number applicable to the income being reported, along with the type of income (e.g., “interest,” “dividends”).
• If applicable, describe how the entity meets the requirements of the LOB clause under the tax treaty.

Part IV: Withholding Statement and Allocation Information

• Attach a withholding statement that lists the allocation of income to each underlying beneficial owner or partner, along with any associated forms (e.g., W-9, W-8BEN, W-8BEN-E) for each person or entity.
• Indicate how the income is allocated among the underlying owners. This will help determine the appropriate withholding tax rates for each recipient.

Part V: Certification

This part is where the entity certifies that all information provided is accurate and complete. The form must be signed and dated by an authorized person.

Who Needs to File the W-8IMY?

Entities that act as intermediaries, partnerships, trusts, or withholding agents need to submit the W-8IMY to certify their status and establish their role in relation to the income. 

Ivo Schmiedt

Founder, CEO & General Counsel

This form helps clarify that the entity is not the beneficial owner of the income, which can affect how withholding tax is applied.

Why Do EU-Based Funds or Financial Entities Use W-8IMY?

EU-based funds and financial entities often act as intermediaries rather than beneficial owners of income. In these cases, the W-8IMY form helps clarify their role, ensuring the correct tax treatment is applied and preventing the entity from being mistakenly treated as a beneficial owner.

Filing W-8IMY correctly protects the intermediary from being held liable for U.S. tax withholding errors and prevents potential penalties or withholding complications.

Practical Scenarios for FATCA Compliance in the EU

Scenario 1: European LPs Investing in US-Based Private Funds

When European Limited Partners (LPs) invest in U.S.-based private equity or venture capital funds, they are subject to U.S. tax regulations, specifically FATCA and withholding tax rules.

To avoid the default 30% withholding tax on U.S.-sourced income—such as dividends, interest, and gains from the sale of U.S. securities—European LPs must submit the appropriate W-8 forms:

• W-8BEN for individual LPs
• W-8BEN-E for LPs structured as entities (e.g., corporate investors, trusts, or partnerships)

Consider a German-based LP investing in a U.S. private equity fund. By submitting a W-8BEN-E, the LP certifies its non-U.S. status and claims tax treaty benefits under the U.S.-Germany tax treaty. 

This treaty may reduce the withholding tax rate on dividends from 30% to 15%, significantly enhancing the net return on investment.

Failing to provide the W-8BEN or W-8BEN-E can result in over-withholding, as the U.S. fund will default to the highest withholding rate of 30%, which could lead to reduced cash flow and complications for the LP.

Scenario 2: European Private Equity Fund with U.S. Investors

When U.S. investors participate in EU-based private equity funds, the compliance obligations extend beyond the usual local tax and regulatory requirements. Under FATCA, these U.S. investors—whether individuals or entities—are required to submit Form W-9 to certify their U.S. taxpayer status.

U.S. investors are required to submit Form W-9 during the fund’s onboarding process, typically as part of the subscription agreement. 

Collecting W-9 forms at the beginning ensures that the fund has the necessary documentation to certify the investor’s status from day one, reducing administrative burdens and compliance risks.

Without W-9 forms, the EU fund cannot accurately report U.S. investors to the IRS. Inaccurate or incomplete reporting may result in penalties or issues during IRS audits.

Scenario 3: European Funds Acting as Intermediaries (W-8IMY)

When European funds act as intermediaries—such as in fund-of-funds structures or pooled investment vehicles—they are not considered the beneficial owners of the U.S.-sourced income they receive. Instead, they are holding these investments on behalf of their underlying investors. In these cases, the fund must file a W-8IMY to certify its role as an intermediary and prevent the U.S. withholding agent from applying the default 30% withholding tax to its income.

Suppose an EU-based fund-of-funds has the following investor profile:

• 30% of its capital is contributed by a German institutional investor, which submits a W-8BEN-E to claim treaty benefits under the U.S.-Germany tax treaty.
• 40% is contributed by a U.S. pension fund, which provides a W-9 form to confirm its U.S. taxpayer status.
• 30% is contributed by a Luxembourg holding company, which submits a W-8BEN-E form as a Passive NFFE with no substantial U.S. owners.

What the fund should do:

• File a W-8IMY to confirm its status as an intermediary.
• Attach the W-8BEN-E and W-9 forms from each underlying investor.
• Include a withholding statement that allocates income and withholding tax obligations to each investor based on their tax status and applicable treaty benefits.

Streamlining FATCA Compliance for European Investors and Funds

Handling FATCA compliance is a complex and resource-intensive task for EU-based funds, requiring careful collection and management of various forms such as W-9, W-8BEN, W-8BEN-E, and W-8IMY. 

For funds managing large investor bases, manual processes lead to inefficiencies and heightened compliance risks. This is where a combination of legal expertise and advanced data collection tools becomes essential.

While fund administrators are critical for processing and validating investor documentation, they often need support in gathering complex FATCA and CRS data efficiently. Vestlane addresses this need with smart data capture, which automates the collection of critical investor information, including:

• Basic Details and Banking Information
• KYC/AML Data
• Ultimate Beneficial Owner (UBO) Details
• Wealth Origin
• Investor Classification
• FATCA/CRS and Tax Compliance Data

By using intuitive questionnaires, Vestlane simplifies the process for both administrators and investors, ensuring that all required information is captured accurately from the start.

If you’re ready to try Vestlane, you’ll be joining more than 280 leading funds that are already using the platform and have access to more than 6,000 already onboarded LPs. 

Book a demo today, and let’s discuss how we can support your fund’s growth.