12 Top Expat Tax Tips for Americans living in the Bahamas

By Expat News

The exotic islands of the Bahamas have a lot to offer expats, including miles of white sandy beaches, a vivacious nightlife and an endless view out into the ocean. Our firm gets many questions about the tax system in the Bahamas along with their social security benefits and ways in which they may minimize their US expat tax obligation. Lastly they are concerned with whether we are able to provide US expat tax services to an American expat living in the Bahamas. Following are expat tax tips which will cover all of those questions and many more.

Guide to Filing US Expat Taxes for Americans Living in the Bahamas

Does Your Firm Provide US Expat Tax Services to Americans Living in the Bahamas?

Yes, an American expat in the Bahamas will find that we provide the full range of expat tax services they will need.

Are American Expats Living in the Bahamas Required to File a US Expatriate Tax Return?

A US expat is still required to file taxes with the Internal Revenue Service (IRS) each year, even while they are living abroad in the Bahamas. This must include all of the income earned from employment in the Bahamas, even if the nation has already applied taxes to it. There may however be ways in which the US expat taxes can be reduced using tax credits and deductions from the money they had earned in the Bahamas.

How Can Americans Living in the Bahamas Minimize US Expat Taxes and Avoid Double Taxation?

There are a few provisions which may be of help in avoiding being double taxed on any income earned in a foreign country. These include:

  • Foreign Earned Income Exclusion (FEIE)
  • Foreign Housing Exclusion or Deduction
  • Foreign Tax Credit

FEIE will allow for an expat in the Bahamas to decrease their taxable income which was earned there by excluding the first $101,300 for the 2016 tax year and $100,800 for the 2015 tax year. A US expat is going to have to meet either the physical presence test or bona fide residence test in order to quality for this exclusion. To meet the requirements of the physical presence test, a US expat must spend 330 days out of any 365 day period inside of a foreign country, and have earned an income there. The bona fide residence test is for a long term US expat who has resided abroad for at least one year and has no immediate intention of returning to the United States.

The foreign housing exclusion allows for certain housing expenses such as rent or utilities to be excluded from the foreign earned income, but only if the US expat also qualifies for FEIE.

A foreign tax credit or deduction is typically applied to the amount of income taxes paid. In the case of a US expat in the Bahamas, this is not applicable as there are no personal income taxes paid by workers in the Bahamas.

Is the Bahamas Considered a Tax Haven?

The Bahamas is considered a tax-free country. Some expats do consider the Bahamas to be a tax haven as there are no income taxes imposed on employees. There are also no capital gains taxes, inheritance, gift, sales or value added taxes. This makes it very appealing to American expats. This tax structure is beneficial to the Bahamas as it attracts investors who buy and sell real estate there and operate businesses. This is a contributing factor to the Island nation’s healthy economy.

What are Residency Requirements in the Bahamas?

A US expat who will be living in the Bahamas is required to obtain a work visa. The fee for that visa will be dependent on the level and position of the employee and will range from 500 Bahaman Dollars (BSD) to 12,500 BSD per year.

Is Foreign Income Subject to Taxation in the Bahamas?

There is no income tax in the Bahamas, on foreign or domestic earnings. There is however a social security deduction of up to 31,200 BSD annually.

What are Personal Income Tax Rates in the Bahamas?

The governing body of the Bahamas does not require workers to pay taxes on their earned income. There are however other types of taxes that residents are obligated to pay. Employed and self-employed residents and non-residents must pay national insurance out of their salary. These payments fund the benefit system, which is only available to residents of the Bahamas.

The deduction is set at 3.4% of a workers earnings, with the employer paying an additional 5.4%. Self-employed individuals will be responsible for paying benefit amount in full. American expats may be able to get a refund on any contributions that they made into the system, but only in the event that they return to the US. This refund will also be dependent on the amount of time the expat spent living in the Bahamas.

When are Tax Returns Due in the Bahamas?

Residents of the Bahamas do not have any obligation to declare their earnings to the government, and there are no tax returns which need to be completed. There is also no tax year to speak of. Further information may be obtained by visiting the Bahamas Ministry of Finance website.

Are Investment Income and Capital Gains Taxed in the Bahamas? If So, How?

There is a real estate tax which is applied to property in different categories. This includes developed land on the island of New Providence, as well as developed land on other islands that is owned by expats. Undeveloped land owned by an expat on New Providence Island is also subject to real estate tax. Each year, all property holdings must be declared to the Bahaman Chief Valuation Officer, who will determine the amount of taxes to be paid. If the property is owner occupied there will be no taxes applied, but only if the value of the property is less than $250,000. From $250,001 to $500,000 the tax rate is 0.75% of the property value. For amounts above $500,000 the tax rate is 1.00%, but is capped off at $35,000.

In the event that the property is not occupied by the owner than a different tax rate will apply. Properties of up to $500,000 in value are taxed at 1.00%. Any property above that amount is taxed at 2.00%. On New Providence Island there is a tax rate of 3.00% on unimproved properties.

The Bahaman islands do not have capital gain or inheritance taxes, nor are there any wealth taxes or taxes on share dividends and interest. There is however a high import duty on many goods brought to the islands. These duty taxes vary depending upon what type of goods they are being applied to. For example, approximately 25% is applied to imported clothing, while electrical equipment is taxed at up to 65% of its value. This is an import tax, not a sales tax or VAT, but it does mean that the cost of these goods are higher for consumers.

What is the Social Security System in the Bahamas?

Tax revenue in the Bahamas mainly comes from import and stamp duties, taxes on real property, taxes on casino earnings and license fees. Everyone who is living in the Bahamas is responsible for contributing to their national insurance program. Residents are the only individuals who may benefit from the insurance program, but everyone is obligated to pay 3.9% of their total earnings each year. As of 2013 the maximum amount payable was capped at 31,200 BSD annually.

Is There the Social Security Agreement or Tax Treaty Between the USA and the Bahamas?

No, there are no tax treaties or social security totalization in effect between the USA and the Bahamas.

Are There Other Taxes Assessed on Expats Living in the Bahamas?

An expat may be charged a stamp duty in a number of different circumstances. Real estate purchases are subject to stamp duty as are large international money transfers. Rates can be as low as 2.00%, but may go as high as 8.00% on a property sale that is valued over $100,000. The fee in this case is usually divided between the seller and the buyer. There is a 1.00% charge on a mortgage which is payable by the borrower. The charge for sending money overseas is 0.25%.

What are the FBAR and FATCA Requirements for Americans in the Bahamas?

The Caribbean Community including the Bahamas is complying with the FATCA. The Foreign Bank Accounts Report (FBAR) is a law enacted by the US that requires its citizens to report their balances being held in foreign financial institutions. This is regardless of the nation they are residing in. The rules of FBAR state that a US expat must file FinCEN form 114 if their foreign bank account has a balance that exceeds $10,000. If this form is not filed by the June 30th deadline the US citizen will be subject to large fines. There is no extension given for filing this form.

The Foreign Account Tax Compliance Act (FACTA) is legislation instated to help uncover those Americans who evade paying their US expat taxes. This law requires a US expat who files as a head of household to report their foreign financial accounts with a balance of $200,000 on the last day of the tax year or $300,000 at any point during the course of that year. Married expats are given higher thresholds to meet. If an expat qualifies for FATCA they will have to file a completed form 8938 with their US tax return.

Do You Have Additional Questions About Filing US Expat Taxes?

An American planning on taking up residence in the Bahamas should first make sure that they understand the tax structure of the nation and of the United States. If additional help is needed, an expat tax expert will be pleased to provide assistance.