New Tax Developments
2018-03-14
To put it mildly, we all got thrown under the bus by Congress, first and foremost by Section 965. If you own a Controlled Foreign Corporation the accumulated profits in the company are treated as a dividend to you on 12/31/17 and you have to pay tax on that full amount starting April 15, 2018. The payments are calculated at two different effective tax rates, 15.5% for the share related to cash and net receivables and 8% on the share related to everything else. There is an election you can make to spread the payments over 8 years. But until yesterday no one knew how to make the payments and how to make the calculations and elections, since the IRS has not had time to issue new forms for this. Yesterday the IRS announced how people should deal with the new law; the details are here.

https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns

The two primary takeaways from the announcement are that the 965 Tax needs to be paid separately from your regular taxes, by wire, check or money order. Second the reporting and elections are to be prepared on a PDF file to be attached to the return. Needless to say the details to be provided and the calculations to determine the proper amount to pay are going to require a lot of work. We strongly advise clients to make their best effort to calculate what is due but then extend the tax return until we get additional guidance.

The second hit we will all take is based on the fact that humans don't get treated as well as corporations. We're called "GILTI" by the new law, quite intentionally. Global Intangible Low Taxed Income is what we have. For 2018 and future years the profit of your Bonaire business will be treated as a direct flow through and reported on your US tax return every year. There is no more deferral of income. There may be a small amount that won't be taxed if you have a Bonaire company which owns tangible assets like machinery and equipment; you're given a 10% return on that type of investment to subtract from the earnings on which you have to pay tax. The only "solution" would be to be like one of the beneficiaries (i.e., campaign contributors) of the bill and create a US C corporation to own your Bonaire company. Those shareholders don't pay tax in the US on the distributed foreign profits; they do have GILTI income to report but at a lower tax rate. Of course you'll incur additional costs of setting up a new US company and filing tax returns for it, and you'll eventually pay tax on a dividend from the C Corp to you, but in some cases it might be worth considering.

We're here to help, deal with the compliance problems as well as look at any cost-effective solutions going forward for you. Contact us if you have fallen into this hole.
2017-05-10
We're often asked how you should title the ownership of real property on Bonaire. In the US rental real estate is often owned by a single member LLC. Direct ownership or joint ownership are the most common for your home, with some clients owning such property in a revocable grantor trust ("living trust.") In most states, the ownership through such a trust will not cause problems with special tax rates and exemptions for homesteads. But it's almost never wise to put your principal residence in an LLC. Doing so would cause the ownership to be separated from you, and as a result the gain on sale will not qualify for the $250,000/$500,000 exclusion and you will lose the ability to deduct mortgage interest and real estate taxes on Schedule A.

On Bonaire it is also not advisable to own your principal residence through an LLC, for reasons in addition to the loss of US tax benefits above. If you own your principal residence directly, you can qualify for the lower property tax rate, "grondbelasting," which is currently 0.315% of the assessed value/year. If you own the principal residence through an LLC it will be treated as owned by an entity separate from the person living there and will be taxed at the higher "vastgoedbelasting" rate which is currently 0.805%/year (over the $70,000 tax free amount.)

If you have questions about how to set up title to property you are buying on Bonaire, please give us a call or use the contact page to send us a message.
2017-02-22
For the first few years of business we ran our company as American Consulting Group, B.V. Beginning in 2017 we have created a new sister company, International Tax Advisors, B.V. to perform all the tax consulting and compliance services that ACG previously provided to our international clients. And we recently hired Bernice Stephens to be an associate with the firm, so we now have added someone with native Dutch language ability. She will be helping with the growth we have had in both bookkeeping and tax compliance services for Bonaire and the US, and will provide an ability for us to increase our business in the future. We look forward to serving you for years to come.
2016-08-24
The property tax assessment values are reset every 5 years and 2016 is the reset year for the whole island. The Bonaire Property tax is due annually and is 0.805% Vastgoedbelasting for vacation or rental homes with a $70,000 tax free base and 0.345% Grondbelasting for principal residences. In general, the value is fixed for the next 5 years. Most properties will have a 2016 assessed value based on a decrease of 4.5% from whatever the value was for 2011-2015. This is said to reflect the overall change in value of property on the island during the last 5 years.

But if you receive an assessment notice and it is significantly more than a recent purchase price, you need to file an objection within 2 months of the date of the assessment notice. For example, if a property you bought in 2015 for $500,000 was assessed at $750,000 in the 2011-2015 cycle, it will be assessed at $716,250 for 2016. If you don't object you will be liable for more tax than you need to pay for the next 5 years.

Keep an eye out for that notice! They started mailing out VGB notices in July. GB notices will follow shortly. Contact us if you have any questions.
2016-02-11
The local tax office, Belastingdienst Caribisch Nederlands or BCN, has slightly modified the way expats from the US are taxed. The Double Tax Decree (DTD) applies to exempt pension, IRA and Social Security payments received from the US to the extent they are taxed by the US. However only 85% of Social Security is potentially taxable in the US. The remaining 15% is never subject to US tax. And some pension payments have a difference between the taxable amount and the amount received. This usually shows up on Box 1 and Box 2 of the Form 1099-R. To the extent the US does not tax a payment, there will be no offset by the DTD.

The calculation is based on a ratio of (1) income subject to double tax divided by (2) the total gross income less the $280 fixed deduction times (3) the income tax on the gross income after subtracting the tax free amount (in 2016 this is $11,908 plus the elderly allowance of $1,347 if over retirement age.) The "income tax" in (3) does not include the portion which is premiums; for retirees over retirement age that is the Health Insurance Premium, which is a maximum of $153 in 2016.

So to compute the proper tax and report correctly, the BCN now requires a copy of the first two pages of your 1040 to be attached to the Bonaire tax form. It's also best to include supporting schedules, 1099's and K-1's if needed to explain where the amounts come from, especially if some items are not taxable here (such as rental income) or if you file a joint US return.

The net result varies depending on your income but in effect the income not taxed by the US is subject to about a 30% tax. If you have this situation, remember the foreign tax paid is a deduction on your Schedule A in the US. It cannot be claimed as a credit on Form 1116.

There is a quite different calculation in the case of dividends and interest income, too complicated to explain here.

If you have questions, please feel free to contact us.
2015-08-18
Beginning in 2016 the tax filing deadlines for a number of items affecting international taxpayers will be changing. The one affecting most Bonaire clients is the change of Foreign Bank Account reporting. Instead of the old June 30 deadline with no extension, the due date will change to coincide with the filing of individual tax returns. So for individuals living in the US the FBAR will be due April 15 and a 6 month extension to October 15th will be automatically granted. For individuals living outside the US, the due date will be June 15 with a 4 month extension to October 15. There are a number of other changes to other forms, such as corporate and partnership returns, but these will affect returns filed after 2016.
2015-05-28
If you are a US citizen but nonresident for Bonaire tax purposes and you own rental property on Bonaire the rental income is tax free on Bonaire. (It's still reportable on your US return.) The local property tax is called "Vastgoedbelasting" (VGB) and is an annual tax. The VGB rates for the years 2011 through 2014 are 0.6%+15% island surcharge, so 0.69% of the value that was set in 2011. The tax is based on that value but with the first $70,000 being tax free. The VGB rates for the years 2015 forward are 0.7%+15% island surcharge so 0.805%.

If you become a resident of Bonaire, your primary residence is taxed at 0.345% annually (called "Grondbelasting" or GB for short.) Any second property you own is taxed at the same VGB rates as above with the exception that undeveloped land is not taxed at all. And as above, there is no income tax on rental income.

There is also a new “improvement incentive” starting 2015. Let’s say you buy a piece of property for $500,000 and builds a $1 million second home on it. The current property tax on the land is $500,000 less the $70,000 allowance and the balance is taxed at 0.805%, so $3,461.50 per year. The tax office has a new form (not yet available online) you will need to prepare before construction starts. The benefit of completing the form is that the value of the property will not be increased for the value of the improvements for the next 10 years; this is up from 5 years for improvements started in 2013 and 2014. So there is no tax on the value of the house for the first 10 years.
2015-03-30
Owning property on Bonaire just got a big boost, as you can now stay on island much longer without residency. And for people becoming resident here, the annual renewal process has been replaced by a new 5 year residence permit. Way less paperwork and cost. (Details from Bob Bartikoski, Re/Max Bonaire)

Good News for American Passport Holders!

We have just received some exciting news from the Immigration Office concerning visitation and residency for American Passport Holders: The Immigration Office of the RCN has informed us that USA passport holders will now be afforded the same visitation and residency right as Dutch passport holders who are originally from the Antilles. These changes will be implemented within the next few months and are outlined briefly below.

Visitors: American Passport holders will now be allowed to visit Bonaire for up to six months in any 12 month period. The old visitation rule limiting stays to 3 months out of six months no longer applies.

Prospective Residents: American Passport holders will now be allowed to apply immediately for “resident” status “by rule of law” which will allow them to apply one time for a Bonaire Residency permit that will remain valid for five years. This new policy applies to both “first-time” applicants for residency AND for those who are in the process of renewing their residency permits.

NOTE: These new rules have just been released and the Immigration Department is still in the process of implementing these new rules and posting the updated information on their website so please be patient.
2013-12-04
The old Form 90-22.1 is now called the FinCEN Form 114. Same information as before, but new name. And there is now an official power of attorney if someone like American Consulting Group files the form on your behalf, Form 114a. It's an annual requirement but not filed with the Treasury Department unless requested. The PoA Form is shown above.
2013-11-15
In my earlier post, I have explained how US retirees over 60 effectively pay no Bonaire tax on retirement income. But retiring before 60 meant you would still be subject to the social insurance premiums. In rough terms it is the difference between no tax and about $8,000 in extra taxes per year. The change in retirement age adds a few more years where you may be subject to the $8,000 tax. If you were born before 1953, the social insurance taxes stop at age 60, so in 2012. If you were born in 1953, the retirement age increases to 62 and your social premiums stop in 2015. Born in 1954, age 63, stops in 2017. 1955 age 64 stops in 2019 and 1956 or later, age 65 is the retirement age. So please keep this in mind when reading the post below, it's not quite as good as it was if you move here as an early retiree, but just another maximum $600-700/month for living on Bonaire.

Please contact us if you're a bit confused about how this might affect you.
2013-10-01
Beginning July 1, 2013 the Form 90-22.1 is required to be filed electronically. You can register for an individual account at

http://bsaefiling.fincen.treas.gov/Enroll_Individual.html

Or we can file it for you using our business account.

As of October 1, the new electronic forms provide a section to explain why you were late (a common problem) which now solves a problem for delinquent filers. Once the system went electronic there as no simple way to send along a letter providing a reasonable cause for failure to file. Now you can.
2013-05-08
Huge tax break for US retirees on Bonaire, plus free medical care

If you are 60 or over and move to Bonaire, there are virtually no income taxes on your US source retirement income. Even for those under 60, the additional tax is usually minimal as long as you plan in advance.

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Until 2011 a US citizen who was retiring and thinking of becoming a resident of Bonaire faced a difficult tax problem. Bonaire taxes residents on a worldwide basis. Since your pension, IRA and 401(k) withdrawals, Social Security and investment income were all subject to tax in the US, moving to Bonaire created a second level of tax. Since the source of the income was US, the US did not allow a foreign tax credit for the Bonaire tax, just a deduction on Schedule A. And until 2011, Bonaire did not have a foreign tax credit or exemption system. The result was that I generally could not recommend someone in this position becoming a Bonaire resident.

But in 2011 the Bonaire government adopted a Decree on Double Taxation. This Decree basically allows a 100% exemption from Bonaire income tax for a US person who can show that their retirement income is still being taxed by the US, regardless of the actual tax rate paid. In addition the first $5,000 of interest income and $5,000 of dividend income per person is tax free.

The basic tax rate on Bonaire is 30.4% on regular income above the current tax free base of $11,387 (2013). So normally a pension, IRA withdrawal, or Social Security would be taxed at 30.4%. But if that income is subject to tax in the US, that income is exempt from the Bonaire income tax.

There are a few small caveats.

First, in the US only 85% of Social Security is potentially subject to tax. Therefore only 85% of your Social Security income is exempt on Bonaire.

Second, some IRA's (such as Roth and non-deductible IRA's) will have a slightly different tax treatment here, as they are treated more like annuities under Dutch law. In general, the first withdrawals will be tax free until you have withdrawn all of your contributions, and the balance will be treated as interest.

Third, the 30.4% rate is actually made up of four separate taxes and social insurance premiums. The decree does not apply to the premiums. The portion of the 30.4% that is income tax (and therefore can be eliminated by the decree) changes when you turn 60. To keep it simple, if you are 60 or over, the income tax rate is 29.9% on the first $29,434 (2013) and then 30.4%. If you are under 60, the income tax portion on the first $29,434 is just 3.6%. After the first $29,434 the income tax is 30.4%. (Note: these base amounts, rates and the official retirement age may change in future.)

If you are under 60, it's unlikely you have retirement income anyway, but if you do, there will be some double tax, up to approximately $8,000. Please contact us for the calculations.

So this means that a 60 or over retiree will pay just $147 in insurance premiums, and no income tax, on their retirement income. This makes Bonaire a very attractive location for US retirees.

Being a resident also entitles you to free Bonaire medical and pharmacy services. There are generally no deductibles or co-pays. Of course the services here are not the same level as in the US, but more serious health issues are covered as well, usually in Curacao or at the advanced medical facilities in Columbia. Whether to continue paying for US health care insurance if available is a personal decision.

Becoming a resident from an immigration standpoint has its own financial requirements but for most retirees they are not difficult hurdles.

Therefore, if you are considering retiring in the Caribbean, moving to Bonaire is now a very attractive location for individuals who are looking for a foreign tax-free location with great diving, windsurfing, restaurants, and free medical care.