Expat Taxes in the Bahamas

The following is information about expat taxes in the Bahamas for American expats.

If you want to invest as an expat or high-net-worth individual, which is what i specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).

Introduction

The Bahamas are one of the most popular expat destinations in the United States for a reason. This island paradise is great for making a home because of its laid-back lifestyle and stunning beaches. Then there’s the Bahamas’ incredible tax advantages.

The Bahamas is a Tax Haven

The Bahamas is known for having some of the world’s most liberal tax policies. In truth, most kinds of taxation are not imposed by the Bahamas’ government, including income taxes, estate taxes, capital gains taxes, gift taxes, and sales taxes.

It’s no surprise that so many Americans opt to live in the Bahamas because of the tax policies. The Bahamas’ economy is also noted for its stability and growth, thanks to the influx of investors and company owners.

Taxes American Expats Have to Pay in the Bahamas

While citizens of the Bahamas are exempt from most forms of taxation, there are certain minor charges. Additionally, Americans living in the Bahamas must submit and perhaps pay their US taxes.

Expat Taxes in the Bahamas

The Bahamas’ government funding its initiatives mostly through import duties (tariffs), property taxes, stamp taxes, social security taxes, and business fees.

Even these taxes and fees, fortunately, are not excessive. Let’s look at some of the specific taxes that US expats in the Bahamas may be liable for.

Import Duties

Import duties, often known as tariffs, are a levy imposed on products entering a nation. The Bahamas has one of the world’s highest average tariff rates, with tariffs accounting for more than 60% of its total revenue.

This is, of course, merely a direct tax on enterprises that bring items into the nation. High tariff rates in the Bahamas, on the other hand, might raise the cost of living for many individuals, functioning as an indirect tax. The good news is that additional tax benefits for Americans who live in the Bahamas generally outweigh this.

Property Tax

The yearly property tax is one of the few levies that most Americans residing in the Bahamas must pay. This tax is dependent on the property’s valuation and ranges from 0.75% to 2% depending on whether it’s commercial or owner-occupied.

However, if the property owner satisfies specific criteria, the first $250,000 Bahamian dollars (BSD) are excluded from this tax.

Social Security Tax

The Bahamas, like the United States, has a Social Security system that is mostly supported by employee wages, with employers paying 5.9% and employees 3.9%. The rate for self-employed Bahamas citizens is 8.8% of their average insurable income.

The Social Security tax is set to $20,800 BSD a year for everyone.

Stamp Tax

Some legal papers in the Bahamas are subject to stamp taxes, including money orders, bonds, affidavits, letters of credit, and transfers of real property.

Stamp taxes can be applied as a fixed monetary sum or as a percentage of the value of the property.

Business Fees

Most firms in the Bahamas are required to pay a few fees, including the cost of obtaining a company license. The actual cost will be determined by the size and profitability of the company.

US Taxes for American Expats in the Bahamas

Now that we’ve covered some of the local taxes that an American residing in the Bahamas can owe, let’s move on to US taxes.

Every US citizen, regardless of where they live, is required to submit a US tax return each year. Furthermore, when submitting a tax return, expats must record their whole worldwide income, not simply income earned in the United States.

And, if you’re wondering if this is relevant to expats, the answer is yes. The US and Bahamian governments exchange taxpayer information, and if you fail to disclose your income, the IRS would most likely find out. If they do, you might face serious consequences.

Available Tax Deductions or Exemptions for US Expats in the Bahamas

While Americans residing in the Bahamas are obligated to submit an annual US tax return, the majority of them do not owe Uncle Sam anything. Because the IRS offers many tax deductions and exemptions to Americans residing overseas, this is the case.

The Foreign Housing Exclusion and the Foreign Earned Income Exclusion (FEIE) are the two most typical deductions for US expats in the Bahamas.

Foreign Housing Exclusion

Expats can deduct certain home costs from their US tax bill by using the Foreign House Exclusion. This is a useful tax advantage, but you may only use it in conjunction with the Foreign Housing Exclusion and the FEIE, which means you must first qualify for the FEIE.

You must also satisfy the following requirements:

• Your housing costs must be higher than the base amount set for your location.
• You must pay your housing charges using money given by your job (self-employed expats must apply the Foreign Housing Deduction instead)

Foreign Earned Income Exclusion

The FEIE allows expats to deduct a portion of their foreign-earned income from their US taxes. The exact amount you may omit varies from year to year, but it is normally between $100,000 and $110,000 USD. In many circumstances, the FEIE will fully eliminate an expat’s US tax liability.

The FEIE only applies to earned income like wages, professional fees, bonuses, salary, commissions, and self-employment income. It does not apply to unearned income like interest, capital gains, pensions, dividends, and social security payments.

The FEIE is not automatic. If you fail to submit your tax return correctly and on time, you risk losing the benefit of this deduction.

US Tax Forms American Expats Living in the Bahamas Have to File

As a US citizen residing in another country, you may be required to file a few more tax forms each year. Here are some of the most typical forms that expats must file, as well as when they must be filed.

IRS Form 1040: Individual Income Tax Return

Personal income tax returns are filed on Form 1040. This form must be completed by almost every American citizen.

The regular deadline for submitting Form 1040 is April 15, but expats are given an automatic extension until June 15. You can even request an extension until October 15 if required.

IRS Form 8938: Statement of Specified Foreign Financial Assets (FACTA)

US expats who has overseas assets worth more than a specific amount in the United States must submit Form 8938 with the IRS.

• The threshold for US expats filing their own taxes is $200,000 at the end of the tax year or $300,000 at any time throughout the tax year.
• The threshold for US expats filing a combined tax return is $400,000 at the end of the fiscal year or $600,000 at any time throughout the fiscal year.

Form 8938 should be attached to Form 1040 and filed at the same time.

FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)

You must file FinCEN Form 114 (FBAR) if you have more over $10,000 USD in a foreign bank account. Even if the funds are spread over many international bank accounts, this is essential.

This form, unlike Form 8938, should not be included to your personal income tax return. Instead, use the FinCEN BSA E-Filing System to submit it online.

The FBAR is due on April 15, but if it’s not received by that date, it will be automatically extended until October 15 without need to ask for a delay.

American Expats Who Haven’t Filed Expat Taxes Before

Don’t worry if you’re a US citizen residing in the Bahamas and haven’t submitted your US tax return yet. The IRS offers the Streamlined Filing Procedures program, which allows most foreigners to catch up on their prior tax filings without incurring fines.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.