As a result of a United States law and a subsequent agreement between the United States and The Bahamas, financial institutions in The Bahamas need to report certain information about accounts held by U.S. citizens to the United States. The U.S. law, called the Foreign Account Tax Compliance Act (“FATCA”), aims to prevent tax evasion by U.S. citizens living in foreign countries. It works by requiring foreign financial institutions to report equivalent information to that reported by U.S.-based taxpayers and financial institutions.

Financial institutions that do not comply with FATCA receive a 30 percent withholding tax on income of the financial institution coming from the U.S. In some countries, such as The Bahamas, there are legal and practical barriers to implementing the FATCA requirements. As a result, the U.S. and The Bahamas entered into the Agreement to Improve International Tax Compliance and to Implement FATCA (2014) and The Bahamas and the United States of America Foreign Account Tax Compliance Agreement Act (2015). The 2015 Act implements the 2014 Agreement.

Again, the Act essentially requires Bahamian financial institutions to report certain information about U.S. citizen account holders on “information returns” that are passed on to the U.S. for use in taxation. Included financial institutions that must report are banks, investment entities, and certain insurance companies. Only branches located in The Bahamas must report, whether or not the institutions as a whole are organized under the laws of The Bahamas. If the institutions have no U.S. citizen account holders, then they still must submit “nil” information returns. The institutions report the information to The Bahamas' Financial Secretary in the Ministry of Finance.

Certain entities are exempt from the Act's requirements, such as the Central Bank of The Bahamas, the Bahamian government, broad or narrow participation retirement funds, and certain pension funds and investment entities. Also, certain types of accounts are excluded: retirement and pension accounts, non-retirement savings accounts, certain term life insurance contracts, accounts held by estates, escrow accounts, and partner jurisdiction accounts.

The information that institutions must report under the Act includes the following (again, only for U.S. citizens as defined in the Agreement):

• Name
• Address
• Date of birth
• Tax Identification Number (TIN) (where available)
• Account number or equivalent in the absence of an account number
• Name and Global Intermediary Identification Number of the financial institution that is reporting the information
• Account balance or value as of the end of the calendar year or other appropriate period
  • If the account was closed during the year, the value immediately before the account was closed and the amount transferred from the account before the account was closed.

FATCA has many more details than described above, but essentially it furthers the goal of preventing tax evasion in the U.S. by imposing penalties on financial institutions foreign to the U.S. – such as those in The Bahamas – if they do not report information about certain account holders.

To find out more about financial compliance and FATCA reporting, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.