Bahamas trusts and U.S. reporting requirements

Trust legislation and its organization

The Trustee Act and the Purpose Trusts Act address the general trustee framework and authorised purpose trusts, respectively.^[1][7]

The Trustee Act contains provisions governing investment powers, retained settlor powers and the administration of trust property. Its fiscal provisions also address trust duty and accounting records.^[7]

The Purpose Trusts Act supplies specific rules for qualifying purposes, administration and trustee records. Unless that Act provides otherwise, ordinary trust law, including the Trustee Act, also applies to authorised purpose trusts.^[1]

Trust arrangements, duration and roles

The legislation recognises ordinary trusts and a separate authorised purpose trust arrangement. The Purpose Trusts Act defines an ordinary trust by its exclusion from the authorised purpose trust category.^[1]

An authorised purpose trust can have a non-charitable purpose, including holding or investing in company shares or other trust assets. The purpose has to be possible, sufficiently certain, lawful under Bahamas law and consistent with public policy.^[1]

The instrument can provide fixed interests, discretionary interests or a combination. Capital or income can be directed to persons, charitable or non-charitable purposes, or a combination of persons and purposes.^[1]

The perpetuity rule does not apply to an authorised purpose trust. Nevertheless, its instrument has to identify an event that may or will terminate the trust and specify how surplus assets are distributed.^[1]

Bahamian land and interests in that land cannot form part of an authorised purpose trust, directly or indirectly. The legislation permits such a trust to lease office premises for its business.^[1]

The Trustee Act permits the settlor to retain specified powers without invalidating the trust, including revocation, amendment and appointment powers. Its investment provisions require reasonable care and caution, with impartial treatment of differing beneficiary interests where there are multiple beneficiaries.^[7]

For a purpose trust with several purposes, trustees can allocate capital and income between them and determine the methods used to pursue them. That discretion is subject to the instrument's terms and any contrary intention it expresses.^[1]

Bahamas legislation settles whether a trust stays valid when the settlor keeps powers. It does not settle the U.S. result. A power to revoke, to direct distributions back to the settlor, or to veto trustee decisions can make the trust a grantor trust under sections 671 to 679, so the settlor reports the trust's income and the foreign trust forms. The legal effect of retained control depends on the governing law and the facts.

Regulation, licensing and provider records

The Securities Commission of The Bahamas administers the Financial and Corporate Service Providers Act, 2020, covering non-bank financial and corporate service providers.^[2]

Corporate services under the Act include acting as trustee of an authorised purpose trust and as registered representative of a private trust company.

The Purpose Trusts Act restricts who can undertake purpose-trust trusteeship as trust business in or from The Bahamas. It identifies a licensed bank or trust company, or an individual licensed as a service provider under the specified legislation.^[1]

Local tax provisions and accounting duties

The Trustee Act imposes a $50 trust duty on qualifying Bahamas-law trust instruments that do not create a bare trust. The section applies only to instruments executed after the Act commenced.^[7]

Payment is recorded through a Bahamas revenue stamp attached to the instrument. The statutory stamping procedure includes cancellation by an executing person, using the specified name or initials and the execution-related date.^[7]

Section 93 addresses distributions to beneficiaries treated as non-resident for Exchange Control purposes through exemptions from the listed Bahamas taxes and charges. It also provides specified stamp-duty exemptions where every beneficiary meets that non-residence condition.^[7]

Those section 93 exemptions do not apply if the trust holds Bahamian land as an underlying asset or conducts business or trade in The Bahamas.^[7]

Express-trust trustees have accounting duties covering receipts, expenditure, assets and liabilities. Supporting records have to explain transactions, permit financial statements and be retained for at least five years.^[7]

The Department of Inland Revenue administers revenue functions that include Business Licence, Real Property Tax and Value Added Tax.^[8]

Information exchange and trust identity records

The Bahamas implements CRS through the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, using a non-reciprocal approach.^[6]

Its wider approach requires financial institutions to collect and retain CRS information for all account holders. Due diligence extends to accounts whose holders or controlling persons are tax resident in jurisdictions that are not reportable jurisdictions.^[6]

Collecting CRS information is a separate step from submitting it to the Competent Authority. Information on reportable accounts is reported each year, while information collected on other accounts under the wider approach is submitted when the Authority requests it.^[6]

The Treasury jurisdiction table lists The Bahamas as having a Model 1 FATCA intergovernmental agreement in force.^[9]

FATCA reporting covers financial accounts held by U.S. taxpayers and by foreign entities in which U.S. taxpayers have substantial ownership interests.^[9]

Purpose-trust trustees have local identity and document-recording duties. Their Bahamas records include the trust instrument, amendments and a register identifying the creator, summarising the purposes and recording named authorised applicants and their addresses.^[1]

U.S. tax and reporting regimes

U.S. citizens are U.S. persons for tax purposes, and connections with foreign trusts carry both tax and information-reporting consequences.^[11]

For federal classification, a domestic trust requires U.S. court supervision of administration and U.S. persons' control over all substantial decisions. A trust outside that domestic definition is foreign.^[12]

A U.S. owner under the grantor trust rules generally reports the trust's income. A U.S. beneficiary receiving a foreign nongrantor trust distribution generally reports the beneficiary's share of distributable net income.^[11]

• Form 3520 generally covers foreign-trust creation, transfers, loans, distributions and U.S. ownership under the grantor trust rules, subject to applicable exceptions.^[11][12]
• Form 3520-A provides annual information for a foreign trust with a U.S. owner, including required statements for U.S. owners and beneficiaries.^[11]
• Form 8938 may apply when the total value of specified foreign financial assets exceeds the applicable reporting thresholds.^[11]
• FBAR may apply to a financial interest in, or signature authority over, a foreign financial account, including relevant trust accounts.^[11]

The Form 3520 instructions require separate reporting for each foreign trust, and Part II applies to an owner even without trust transactions during the tax year.^[12]

The IRS assigns U.S. owners responsibility for ensuring timely, complete Form 3520-A reporting and annual statements. If the trust does not file, the owner attaches a substitute Form 3520-A to a timely Form 3520.^[11]

Exceptions for qualifying foreign retirement or benefit arrangements depend on the stated eligibility conditions. Exceptions from Forms 3520 and 3520-A do not remove independently applicable Form 8938 or FBAR obligations.^[11]

Court structure

The Bahamas court structure includes the Magistrates Court, the Supreme Court and the Court of Appeal.^[5]

The Supreme Court comprises the Chief Justice and between six and twenty other justices. The Magistrates Court is presided over by Stipendiary and Circuit Magistrates, including a Chief Magistrate and two deputies.^[5]

The Court of Appeal is the highest court located in The Bahamas and forms part of the government's judicial branch under Article 98 of the Constitution.^[5]

Primary sources

The Purpose Trusts Act and the Trustee Act are published in the Statute Law of The Bahamas.^[1][7]

More on Bahamas

Questions and answers

Related resources

Related glossary terms

• Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
• Enforcer: An enforcer is a person given a role in relation to certain trusts. Jersey and Cayman law describe how enforcers are appointed, with their duties and rights.
• Settlor: A settlor is associated with creating a trust or placing property into it. Definitions describe the role through trust creation and property disposition.

Related articles and guides

• Nevis reporting and information exchange: CRS and FATCA information exchange for Nevis and St. Kitts and Nevis, with the IRS reporting rules for U.S. persons who own or benefit from a Nevis trust.

Tools and official documents

• FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.