A Bermudian returns home to face a tax maze

  • Meeting requirements: returning to Bermuda does not mean tax obligations overseas, particularly with the US, vanish. There are many intertwined obligations

    Meeting requirements: returning to Bermuda does not mean tax obligations overseas, particularly with the US, vanish. There are many intertwined obligations

“Going home, going home, I am going home — to a tax compliance maze.”

A reader asks: “Perhaps, heeding the call from our local politicians and business leaders, a Bermudian friend of ours is returning home to Bermuda with his foreign spouse after two decades living in the United States. He was educated abroad and always planned to return.

“They will resettle here with plans to start a business. What are the ramifications of his connections to the United States? Does he have to do anything?”

The answers will depend upon numerous factors including his residency, citizenship status, and the laws pertaining to each country’s taxation regime.

But first a disclosure: the following discussion is general in nature and cannot be considered in any way whatsoever as specific tax, investment, immigration, legal, or any other financial planning advice for anyone reading or referencing this article. Tax, financial, legal, immigration legislation and regulations are subject to change without notice. I make no representation as to the current accuracy or representation of hypothetical facts.

Readers, if you, or anyone you know has similar questions, you must seek advice specific to your personal situation from qualified professionals (in Bermuda) experienced in both domestic and international financial planning relative to the jurisdictions connected — in this case United States and Bermuda.

Do not attempt to handle this type of situation yourself. The sheer complexity can be overwhelming and no, I am not exaggerating.

Let’s review the few facts and questions that we have regarding our hypothetical returning Bermudian, Mr Jones. We will have to make assumptions and discuss alternative choices regarding what we don’t know.

He is Bermudian born and raised, and has a BOTC (British Overseas Territory Citizen) passport stamped with his Bermudian status.

His spouse is foreign, with a Philippine passport. They have been married for 15 years.

Can he just walk in and resume residency immediately in Bermuda?

Will his spouse be allowed to reside with him based upon their lengthy marital status?

He wants to start a business in Bermuda. Can she be a shareholder?

How should he structure his Bermuda business, for example as a sole trader or corporation?

If they buy a Bermuda property, can they hold the title jointly?

Can he bring back his US 401-K pension?

What about their US life insurance policies?

What about their US wills?

How connected is he to the United States?

Does he have a green card and for how long held?

Or, does he have a US passport?

And the same questions for his spouse.

Or did they reside in the US as US tax residents all of those years? Possible, but generally, not probable. But their US status is very important to both Bermuda and US authorities.

He owns US property, which is now rented.

Bermuda does not have an income tax regime. Since he is returning home, he doesn’t feel he should have to pay US income tax now (except the net rental income on the US property). Is that correct?

Their current financial positions can be divided into two parts, and possibly three, namely the viewpoints of the United States, Bermuda, and possibly the Philippine Governments regarding their citizens.

Are they US citizens with US passports?

US citizens are subject to US tax on their worldwide income regardless of the sources, and most importantly, regardless of where they reside.

Mr and Mrs Jones are working, earning active and passive income. If they are US citizens, they will have to continue to file an income tax return each year and pay any US tax liability on both his US and Bermuda income, and possibly other income — from all sources — to US Internal Revenue Service. Plus, they are required by law to report their foreign bank and financial accounts, another complete, annoying surprise.

Perhaps, they are instead US green card holders. Do the same US tax laws apply?

Generally, yes, but it depends.

How do they handle all of their other questions? It sounds so complicated, should they expatriate? Will that get rid of having to manage finances for two different countries?

It is the same answer, it depends.

How does the Bermuda Government look at their status?

In today’s transparent, full-disclosure climate, Bermuda has many international tax and reporting agreements with various countries that require unilateral and bilateral exchange of information.

The international finance centre of Bermuda has a serious reputation to maintain as a highly regulated, clean jurisdiction. Thus, Bermuda financial institutions of all types are legally mandated to be ever vigilant to fully identify their clients, their citizenship, residency, domicile, and tax status to various country taxing authorities. It isn’t reporting to just the United States Internal Revenue Service anymore.

Where to hold savings they will transfer from the US?

Mr and Mrs Jones are about to experience opening bank and investment accounts in a Bermuda financial institution, which will require significant documentation, including their individual tax status, citizenship, sources of funds, uses of funds, proof of Bermuda residency (rental lease, utility bill, house assessment number) passport, marital/family relationships and disclosure of offshore connections — in their case with the United States.

Even though Bermuda does not have an income tax regime, Bermuda’s financial climate has become so tediously tax-focused for everyone residing here, that the rigmarole process (as some perceive it) that Mr and Mrs Jones will be required to fulfil is frustrating, cumbersome, and complicated compared to a simple account opening with a US bank.

Our hypothetical couple are true Pondstraddlers!

• Bermuda residents, find out if you are a Pondstraddler by taking the Pondstraddler Quiz. http://www.pondstraddler.com/AreYouaPondstraddlerQuiz.htm

• Also read Bermuda Residents are Perennial Pondstraddlers at http://www.pondstraddler.com/bermuda_residents_international_financial_planning.htm

The next article in this series will appear on October 7. There are many more questions to be answered, but I’ve spread out the timeframe because readers who are not connected to the US also need interesting topics.

Next week I will focus on the cost of living survey.

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: martha@pondstraddler.com

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Published Sep 16, 2017 at 8:00 am (Updated Sep 15, 2017 at 11:54 pm)

A Bermudian returns home to face a tax maze

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