Bahamas Trust Tax and Reporting Rules

Bahamas rules for trust instruments and records

The Bahamas Trustee Act sets a trust duty for certain trust instruments and requires accounting records for express trusts. The Act defines income to include rents and profits, while its fiscal provisions address instrument duty, trust records, and specified tax exemptions.^[2]

A trust instrument whose proper law is Bahamian law and that does not create a bare trust is subject to a trust duty of fifty dollars instead of stamp duty. The instrument records payment through a Bahamas revenue stamp, and the statute describes how the stamp is cancelled by a person executing the instrument.^[2]

Trustees of express trusts must maintain reliable accounting records for money received and spent, transactions, and trust assets and liabilities. The records must explain transactions, support a reasonably accurate view of financial position, and permit financial statements to be prepared.^[2]

Supporting documentation such as invoices, contracts, and receipts is included in the recordkeeping requirement. The Act requires these records and documents to be retained for at least five years.^[2]

The Department of Inland Revenue describes its remit as combining Business Licence, First Homeowners Exemption, Real Property Tax, and Value Added Tax functions.^[3]

How the Act describes tax treatment

The Act ties a specified distribution rule to the beneficiary's Exchange Control status. A beneficiary treated as nonresident for Exchange Control purposes is exempt from the listed Bahamian income, capital gains, estate, inheritance, succession, and gift taxes, rates, duties, levies, and other charges in respect of a distribution from a trustee.^[2]

This provision is framed around the beneficiary's classification and the distribution. The Act expressly excludes trusts with Bahamian land as an underlying asset, or which carry on a business or trade in The Bahamas, from the section's exemptions.^[2]

The exemption provision also addresses stamp duty on certain instruments where all beneficiaries have the stated non-resident status. It lists instruments appointing assets under the trust and instruments transferring assets to or from the trustee, and specifies transfer instruments for beneficial interests.^[2]

The Bahamas does not set out a general trust income tax return based on trustee residence or the source of trust income. The Trustee Act imposes an accounting obligation on trustees of express trusts and sets particular distribution and instrument rules, but it does not create a trust income tax filing.^[2][3]

Information exchange and financial institutions

The Bahamas applies a collection and retention approach to financial institutions under the Common Reporting Standard (CRS). Under the wider approach, financial institutions collect and retain account holder information, keep information on non-residents ready to report, and transmit it to the Competent Authority on request.^[1]

Financial institutions perform due diligence on financial accounts even where an account holder, or its controlling person, is resident in a jurisdiction that is not reportable. For reportable accounts, the required information is reported to the Competent Authority each year.^[1]

These CRS provisions concern financial institutions and financial accounts. CRS reporting and the Act's recordkeeping requirement for trustees of express trusts are separate obligations.^[1][2]

U.S. reporting for a U.S. citizen connected to a foreign trust

For U.S. reporting purposes, the IRS defines a U.S. person to include a U.S. citizen. Its materials say a U.S. person may have income tax consequences and information reporting when creating a foreign trust, transacting with one, being treated as its owner, or receiving a distribution.^[6]

The IRS describes Form 3520 as the annual return used for specified transactions with foreign trusts and certain foreign gifts. Filing applies to listed situations such as creating or transferring money or property to a trust, receiving a distribution, or being treated as the U.S. owner under grantor trust rules. The instructions state that a separate Form 3520 is filed for transactions with each foreign trust.^[6][7]

For a U.S. person treated as owner under grantor trust rules, IRS materials describe Form 3520-A as the annual information return for a foreign trust with a U.S. owner. The foreign trust is to file the form and provide annual statements to U.S. owners and beneficiaries. If the foreign trust does not file, the U.S. owner completes and attaches a substitute Form 3520-A to the owner's timely filed Form 3520.^[6][7]

The IRS states that an owner treated as owning trust assets under grantor trust rules generally reports trust income on the owner's U.S. income tax return. A U.S. beneficiary who receives a distribution from a foreign nongrantor trust generally reports the beneficiary's share of distributable net income, with statements describing distribution tax treatment.^[6]

The IRS instructions say Form 3520 is generally due on the fifteenth day of the fourth month after the U.S. person's tax year ends, subject to stated rules for extensions and qualifying citizens or residents abroad. Form 3520-A is generally due by the fifteenth day of the third month after the foreign trust's tax year ends. When that day falls on a weekend or legal holiday, the due date moves to the next business day.^[7]

Other federal reports may also apply depending on the account or asset facts. The IRS identifies possible Form 8938 reporting for specified foreign financial assets and FinCEN Form 114 reporting for a financial interest in, or signature authority over, a foreign financial account.^[6]

The United States does not have an income tax treaty with The Bahamas. Treaty treatment applies only to specified income, and where no treaty covers the income or no treaty exists between the countries, the applicable U.S. return instructions govern the tax treatment.^[5]

Questions and answers

Related resources

Related glossary terms

• Intergovernmental agreement: An intergovernmental agreement appears in FATCA rules for foreign financial institutions. Form 8938 instructions also use the term for certain foreign accounts.
• FATCA: FATCA requires certain U.S. taxpayers to report specified foreign financial assets, and it requires foreign financial institutions to report accounts held by U.S. persons to the IRS. Form 8938 applies when the reporting thresholds are met.
• Section 679: Section 679 addresses certain transfers by U.S. persons to foreign trusts. It treats a U.S. person who transfers property to a foreign trust with a U.S. beneficiary as the owner of the portion of the trust attributable to that property.

Related articles and guides

• Bahamas tax treaty and FATCA agreement position: The IRS treaty list does not include the Bahamas, while Treasury lists a FATCA agreement entry for the jurisdiction. A FATCA agreement is separate from an income tax treaty.
• BVI trust tax rules and U.S. reporting: The British Virgin Islands Trustee Act describes income tax treatment for trusts and beneficiaries. IRS rules address U.S. person reporting for foreign trusts.

Related pages

• Bahamas: overview: Start page for this jurisdiction.
• Types of trusts
• Trustee regulation and licensing
• Reporting and information exchange