Office of the Prime Minister Announces IRS Decision on QJ Status – Places The Bahamas on a Level Playing Field

The Internal Revenue Service of the United States of America has approved the application by The Bahamas for Qualified Jurisdiction (QJ) status. New U.S. withholding regulations coming into effect January 1 impacted the way financial institutions deal with US securities, requiring additional guarantees that clients receiving preferential treatment are bona fide foreign investors. In effect, banks, money managers and other financial intermediaries now must apply tighter “know your customer” disclosure requirements to clients holding US securities.

The measures are targetted at US citizens owning US securities, with the intent of preventing tax avoidance on earnings or sale of such securities via foreign intermediaries, i.e. any financial institution operating outside the US.

Financial institutions approved by the IRS as Qualified Intermediaries (QIs) are required to apply IRS-specified KYC practices and to make such available for independent audit. Institutions failing to become qualified intermediaries will face difficulty in gaining access to reduced withholding rates for their clients; unqualified jurisdictions can secure beneficial treatment by allowing the IRS access to client information, putting client confidentiality at risk. Industry sources feel that QIs can maintain present levels of client confidentiality, as the amended rules require no additional disclosures to the IRS. QI status is dependent on the jurisdiction in which the institution operates having QJ status.

Prime Minister Hubert Ingraham has announced that the approval of QJ status signals the US government’s continuing acceptance of The Bahamas as an international financial center. He also indicated that this places The Bahamas on a level playing field with other similarly qualified competitors, both regionally and internationally.

BFSB Chairman Ian Fair indicated that confirmation of The Bahamas as a reputable international financial center from its largest and closest neighbour is an indication that the country is moving in the right direction. The status also confirms that the package of new and revised industry legislation passed at the end of the year is in line with international best practices and standards.

Executive Director Barry J. Malcolm further expressed confidence that The Bahamas is well positioned to compete effectively and successfully as a world-class financial center.