US Expat Taxes for Americans Living in the Bahamas – What You Need to Know
It has been estimated that there are 30,000 Americans living in the Bahamas.
Living in the Bahamas is an ever-popular choice for American expats, on account of the laid back culture, the climate, the beautiful beaches, and, of course, the tax advantages. As an American expatriate living in the Bahamas though, what exactly do you need to know regarding filing US expat (and Bahamian) taxes?
All US citizens and green card holders who earn a minimum of $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in the Bahamas, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Countries like the Bahamas make tax haven status an integral part of their marketing. For Bahamians and resident aliens there are no taxes on personal income, capital gains, inheritance or gifts. ” – Forbes
There are several exemptions that allow expats to pay less or no US income tax to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Bahamian resident (or if you spend at least 330 days outside the US each year). Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Bahamian governments share taxpayer info, and Bahamian banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Bahamian dual citizen, and you have been living in the Bahamas but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Bahamian taxes – what you need to know
Bahamian residents don’t pay income tax, capital gains tax, or inheritance tax. Residency can be obtained by purchasing a property in the Bahamas.
There is however a property tax, whether you own or rent, of between 0.75% to 2% of the value of the property per annum. There is also a stamp duty on transactions (such as purchasing a property), while import and sales taxes are relatively high.
There is no tax filing requirement in the Bahamas.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in the Bahamas that you contact a US expat tax specialist.