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U.S. credit card tax rule hits Caribbean retailers

credit-card-finance2Caribbean hoteliers and restaurant owners have met with a slew of red tape under a new tax regulation that requires non-U.S. firms to prove their status in order to claim exemption from revenue withholding.

Under the U.S. tax rule, credit card companies are required to withhold 28 percent of a merchant’s revenue if they are unable to verify the tax identification number and legal name associated with the merchant. In order to have the 28 percent refunded, businesses are required to file a tax return with the Internal Revenue Service, Travel Weekly reports.

Effective Jan. 1, however, non-U.S. businesses must prove their non-U.S. status in order to claim exemption from the 28 percent revenue withholding. The Bahamas Hotel and Tourism Association said that the rule could have a negative effect on smaller merchants that rely on American tourists’ credit cards, and other trade groups have voiced concern about the length of time a business waits to receive a refund.

Though MasterCard and Visa both have banks in the Caribbean, American Express, which does not have international member banks, is the only credit card company enforcing the rule. AmEx must process all of its credit card transactions through U.S. clearinghouses, where the tax rule is applicable.

“We notified all our merchants about this for the past two years, reminding them that this regulation would take effect Jan. 1, 2013,” an AmEx spokesman said, according to Travel Weekly. “We included notices on their statements, on our website and through the client managers who oversee each region of the world.”

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