TaxBandits Knowledge Base

Chapter 3 Code

Authority for Exemption

Explanation

01

Effectively connected income

Any recipient whose income is effectively connected with the conduct of a trade or business in the United States. For these recipients, enter this code.

02

Exempt under IRC

A withholding agent should use this code only if none of the other chapter 3 exemption codes apply.

03

Income is not from U.S. sources

Use this exemption code only in limited cases when the income is not from U.S. sources.

04

Exempt under tax treaty

If you are exempt under the Tax treaty condition. 

05

Portfolio interest exempt under IRC

If the portfolio interest is exempted under IRC. 

06

QI that assumes primary withholding responsibility

When paying a QI that has indicated on its Form W-8IMY that it assumes primary withholding responsibility under chapters 3 and 4.

07

WFP or WFT

Use this code when paying to a foreign partnership or trust that has represented on its Form W-8IMY that it is a WP or WT. 

08

U.S. branch treated as U.S. person

When making a payment to a U.S. branch or a territory FI, it has been represented on its Form W-8IMY that it agrees to be treated as a U.S. person.

10

QI represents that income is exempt

Use this code when paying a QI that has not assumed primary withholding or backup withholding responsibility but has stated on a withholding statement with its Form W-8IMY that the income is exempt from withholding.

11

QSL that assumes primary withholding responsibility

When a withholding agent makes a substitute dividend payment to a financial institution (including a QI) that has stated on its Form W-8IMY, it acts as a QSL for the associated account.

12

Payee subjected to chapter 4 withholding 

If the recipient is subject to chapter 4 withholding, chapter 3 withholding does not apply. When reporting a payment under chapter 4, withhold 30% tax, remit it to the IRS, and report it correctly on Form 1042-S.

22

QDD that assumes primary withholding responsibility

If the payment is made to a QI acting as a QDD with respect to the payment.

23

Exempt under section 897(l)

Use this code for distributions made by a QIE to a qualified foreign pension fund exempt under section 897(l).

24

Exempt under section 892

Use this code for income paid to a foreign government or an international organization exempt under section 892.