Caribbean New U.S. credit card rule vexes some Caribbean merchants By Gay Nagle Myers / February 01, 2013 Share 1 -- A new U.S. tax regulation relating to credit card transactions is setting off some alarm bells in the Caribbean region, where merchants such as hotels and restaurants are finding a new tangle of red tape standing between them and their revenue from tourist transactions. The problem, in a nutshell, stems from a U.S. requirement that credit card companies withhold 28% of the merchant’s revenue if they cannot verify the legal name and tax identification number associated with that merchant. To get that 28% refunded, businesses have to file a tax return with the Internal Revenue Service. What’s new this year, and has confounded some Caribbean hoteliers, is that as of Jan. 1, non-U.S. merchants must provide documents proving non-U.S. status so they can claim exemption from the 28% withholding. The Bahamas Hotel and Tourism Association (BHTA) pointed out that the impact on smaller hotels that rely heavily on American tourists who pay by credit card could be severe. Likewise, other hotel associations are equally concerned, especially if hotels cannot reclaim the withheld funds in a timely manner. Some hotels have been caught unaware by the new regulations or missed deadlines to file the necessary forms. So far, it appears that American Express is the only credit card company enforcing the new law. MasterCard and Visa both have member banks in the Caribbean where credit card transactions are cleared. American Express does not have international member banks, so all credit card transactions are processed through clearinghouses in the U.S. where these new rules apply. The Caribbean Hotel and Tourism Association (CHTA) and BHTA recently met with American Express “to seek resolutions to challenges facing the industry as a result of the IRS requirement,” according to Alec Sanguinetti, the CHTA’s outgoing director general and CEO (Sanguinetti formally retired on Feb. 1). He warned that the new rules “can seriously impact all establishments in the Caribbean that accept credit cards, including our CHTA members.” American Express, for its part, has been working for more than a year to notify its partners outside the U.S. that the IRS regulation would take effect on Jan. 1. “This is a global initiative,” a spokesman said. “This ruling affects our U.S. merchants outside the U.S. that transact in U.S. dollars, maintain U.S. bank accounts and have a U.S. address.” “Our client managers in each region have been proactive in notifying businesses that this was going into effect and helping them complete the required information.” American Express explained that it is required to document the status (U.S. or non-U.S.) of any merchant it does business with. Amex must also report each year on Form 1099-K the gross amount of payment card transactions for each of its merchants, unless a merchant has properly documented his non-U.S. status. To claim exemption from future 1099-K reporting, and from the 28% withholding, Amex requested that its merchants provide documentation of their non-U.S. status by Dec. 31, 2012. “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. “We included notices on their statements, on our website and through the client managers who oversee each region of the world.” Follow Gay Nagle Myers on Twitter @gnmtravelweekly.