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Seychelles trust taxation and U.S. reporting

For a U.S. citizen, Seychelles law describes trust filing duties when a trust derives assessable income in Seychelles. IRS materials separately describe U.S. tax and reporting rules that can apply to U.S. persons connected to a foreign trust.

When Seychelles trust filing duties apply

The Trusts Act ties its fiscal reporting duties to a trust deriving assessable income in Seychelles. It defines assessable income by reference to the Business Tax Act.[2]

Trustee residence is a separate legal consideration in the Act. For choosing a trust's proper law when no law is expressly stated or implied, the Act lists trustee residence or business among the factors used to identify the trust's closest connection. The Act also gives the Seychelles Court jurisdiction in some cases involving a foreign trust, including when a trustee resides in Seychelles or trust property is managed there.[2]

These provisions address governing law and jurisdiction, while section 87 addresses filing after assessable income arises in Seychelles.[2]

Trustees' notification and return

Within one month after the trust derives its first assessable income in Seychelles, its trustees must notify the Financial Services Authority in writing. The notice identifies that the trust is deriving assessable income and describes the activities producing it. The Authority sends a copy of that notice to the Seychelles Revenue Commission.[2]

Within one year after the first assessable income, the trustees must submit an annual return in the Authority's prescribed form. The return must include annual financial statements meeting the requirements named in the Act. The statutory trigger is the trust's assessable income in Seychelles, and the stated filing period runs from its first occurrence.[2]

Records when a trustee is in Seychelles

The Act extends specified record duties to a foreign trust with a trustee in Seychelles. Those sections require accounting records and trust registers, and provide for furnishing records. This rule is distinct from the filing trigger based on assessable income.[2]

The Act defines accounting records to include documents on trust assets and liabilities, receipts and expenditure, and transactions to which the trust is a party. In this way, the Act states a records obligation connected with a Seychelles trustee, while its fiscal return rule uses assessable income derived in Seychelles as its trigger.[2]

Separate U.S. rules for a U.S. citizen

The IRS defines a U.S. person to include a U.S. citizen. It says a U.S. person who creates a foreign trust, is treated as its owner, or receives a distribution may have U.S. income tax consequences and information reporting duties. Seychelles filing does not replace those separate U.S. rules.[5]

The IRS identifies Form 3520 for certain transactions with foreign trusts, ownership under grantor trust rules, and distributions. A U.S. person treated as an owner under those rules is generally taxed on trust income. The IRS also says such owners must ensure the foreign trust files Form 3520-A and provides the required annual statements.[5][6]

The IRS describes Form 3520 reporting for creating or funding a foreign trust, receiving distributions or certain loans, and being treated as the U.S. owner. The exact reporting depends on the person's connection and the transaction. IRS materials also identify Form 8938 and FinCEN Form 114 among other reporting rules that can apply; not every person connected to a foreign trust is required to file each form.[5]

Questions and answers

When does a Seychelles trust have to notify the Authority?

The Act says trustees must notify the Authority in writing within one month after the trust derives its first assessable income in Seychelles. The notice states that income is being derived and describes the activities that give rise to it.[2]

When is the annual return due under the Trusts Act?

The trustees must submit an annual return within one year after the trust first derives assessable income in Seychelles. The return includes annual financial statements that meet the requirements named in the Act.[2]

Does trustee residence matter under Seychelles law?

The Act includes a trustee's residence or business among factors for determining a trust's closest connection when its proper law is not expressly stated or implied. A trustee of a foreign trust residing in Seychelles is also one basis for Seychelles Court jurisdiction.[2]

Can a U.S. citizen have IRS reporting duties for a foreign trust?

Yes. IRS materials say U.S. persons, including citizens, may have reporting duties when they create or transfer assets to a foreign trust, are treated as its owner, or receive distributions. Depending on the circumstances, Form 3520 and Form 3520-A may apply.[5]

What does the IRS say about a U.S. owner of a foreign trust?

In general, a U.S. person treated as the owner under grantor trust rules is taxed on the trust's income. The IRS says the U.S. owner must ensure the foreign trust files Form 3520-A and provides required annual statements.[5]

Related glossary terms

  • Specified foreign financial asset: The Form 8938 instructions use specified foreign financial asset for certain foreign accounts and investment holdings. The term identifies assets for reporting.
  • Foreign grantor trust: A foreign grantor trust is a foreign trust treated as owned by a grantor, often a U.S. person. Ownership brings Form 3520 and Form 3520-A reporting duties.

Related articles and guides

Tools and official documents

  • Form 1116: foreign tax credit: Form 1116 claims the foreign tax credit for U.S. citizens: income categories, supporting information, related forms and filing timing under the instructions.
Sources and data notes
  1. Seychelles Revenue Commission, International Tax. https://src.gov.sc/international-tax/. Retrieved .
  2. Republic of Seychelles, Official Gazette, Trusts Act, 2021 (Act 34 of 2021). https://www.gazette.sc/sites/default/files/2021-08/Act%2034%20-%20Trust%20Act%202021.pdf. Retrieved .
  3. U.S. Department of the Treasury, Foreign Account Tax Compliance Act: agreements and understandings by jurisdiction. https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act. Retrieved .
  4. Internal Revenue Service, United States income tax treaties, A to Z. https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z. Retrieved .
  5. Internal Revenue Service, Foreign trust reporting requirements and tax consequences. https://www.irs.gov/businesses/international-businesses/foreign-trust-reporting-requirements-and-tax-consequences. Retrieved .
  6. Internal Revenue Service, Instructions for Form 3520. https://www.irs.gov/instructions/i3520. Retrieved .

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