The financial services industry could soon receive a major blow once the Foreign Account Tax Compliance Act (FATCA) is fully implemented come next year.
Chartered accountant and Democratic National Alliance (DNA) candidate for the Carmichael constituency, Theofanis Cochinamogulos, revealed to Guardian Business the biggest challenge for The Bahamas is going to be having the necessary technology and administrative measures in place.
"It's already embedded in local legislation. However, there is going to be a cost in time and effort in order to meet the United States requirements," he said.
Already, Cochinamogulos said the county has the potential to receive quite a significant backlash.
"With the clients that I have spoken to, they have decided not to do business with U.S. citizens because they are finding the requirements to be onerous. In some cases, they are participating as tax collectors on behalf of the U.S. government," according to Cochinamogulos.
Cochinamogulos noted that all institutions will have to comply with American law, which will undoubtedly impact costs operationally.
He shared that this piece of legislation does not only affect Americans but non-Americans as well.
"All institutions around the world will have to comply with U.S. law," he said.
"Even non-U.S. account holders can be hit with withholding tax if [they are] holding U.S. accounts [and] if information is not available. The cost of implementation is likely to exceed tax benefits."
He shared with Guardian Business how this legislation will negatively impact the Bahamian economy.
"It definitely will where individuals are holding accounts and they don't provide sufficient information," Cochinamogulos noted.
"In those cases, they are required to withhold funds from foreign entities that are account holders failing to provide sufficient information about entities of [their] substantial U.S. owners. In those cases you are required to withhold those funds."
Cochinamogulos said the country's financial institutions must now provide the necessary information to its clients and leave the decision to the individual account holders and institutions themselves.
"It will force financial institutions to pay directly to IRS funds related to U.S. citizens where the source of funds are unknown and also where their identity is uncertain as far as institutions are concerned," he shared.
"You are required to withhold 30 percent of payment for U.S. sourced income as well as the gross proceeds from sales securities that generates U.S.-sourced income directly to the IRS."
He further pointed out that FATCA is a work in progress with uncertainty about how it will be implemented.
The deadline to meet that agreement with the U.S. is June 30, 2013.

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