Why has an entire nation stopped accepting American Express at all hotels, prescription restaurants and retailers? Because AMEX thinks the Republic of Palau is part of the U.S.
In January the United States implemented new tax requirements for U.S. companies, which requires them to have a correct Tax Identification Number or TIN. If a company does not have the correct information on file with the IRS then a 30% withholding fee is imposed by credit card companies. So why does this impact a small independent island nation in the Pacific? Well it shouldn’t. The fee only applies to U.S. corporations however the folks at American Express refuse to recognize Palau as a sovereign nation and are imposing the withholding tax on Palauan businesses. Many businesses in Palau that have been accepting American Express were surprised to find a hefty 30% withheld from their credit card transactions following the error American Express made. In just a matter of days nearly every business in the country either stopped taking American Express or imposed a 30% surcharge to use the card.
During a phone call with an American Express representative it was revealed that Palau is in their database as a U.S. territory. The representative explained that the system being used at American Express was antiquated and updating to indicate that the Republic of Palau is actually a country and not a U.S. state would be difficult and in their view Palau businesses have to pay U.S. taxes. Finally the representative suggested that business in the Republic of Palau contact a U.S. tax attorney if they want to receive a proper U.S. tax id and forgo the withholding tax.
While American Express is trying to maintain Palau as part of the union, other cards including Visa, Master Card and Discover have recognized Palau’s 20 years of independence and are not imposing U.S. taxes on foreign businesses.