The Bahamas: A Premier International Financial Centre on the Move

The International Monetary Fund credits The Bahamas with a mature, resilient, and stable financial system. Moreover, its financial services industry boasts decades of experience in private wealth and asset management. The Gateway of The Americas as The Bahamas is often called is an ideal jurisdiction based on its robust regulatory framework, political and economic stability, advanced infrastructure, respected judicial and court system, strategic geographical location and highly skilled workforce.

In February 2020, The Bahamas was removed from the EU grey list. The Bahamas has always been an International Financial Centre (IFC) committed to upholding the highest standards in promoting transparency and tax compliance. Removal of The Bahamas from the EU grey list confirmed The Bahamas’ commitment to international cooperation and the global fight against financial crime.

Tax Cooperation and Compliance

Every taxing authority in the world has laws to distinguish between legal tax minimization strategies and illegal tax evasion. As part of its legitimate regulatory authority, the EU maintains a an adverse list of nations that are subject to its sanctions due to laws that facilitate evasion of the EU’s tax laws.

When The Bahamas was unexpectedly placed on the EU’s Annex II which is often referred to as “the grey list,” EU citizens and businesses were concerned with their ability to access the financial services industry in The Bahamas. With the removal of The Bahamas from the grey list, these concerns were allayed, and the cloud created by the grey list was lifted.

Importantly, The Bahamas was never blacklisted. Rather, an intermediate step of greylisting was used so The Bahamas could demonstrate its commitment to regulatory best practices. The Bahamas spent less time on the grey list than most other countries and, after further enhancing its banking laws and regulations, exited the grey list three months earlier than planned.

The Bahamas as a Top IFC

The Bahamas was removed from the grey list in acknowledgment of the reforms it implemented to meet the EU’s criteria on tax governance and cooperation on tax matters. To demonstrate its commitment, The Bahamas clarified its enforcement of anti-money laundering provisions in its existing laws.

Moreover, The Bahamas pledged to cooperate with other nations investigating money laundering, tax evasion, and false statements. The Bahamas is not required to enforce EU tax laws or the tax laws of EU member nations. However, if Bahamian law is violated by laundering proceeds of illegal activity or submitting false reports to Bahamian tax regulators, The Bahamas will enforce its laws as it has always done.

“The Bahamas has worked diligently to demonstrate its commitment at the highest political level to international standards on information exchange, tackling harmful tax practices and dismantling artificial tax structures,” said Deputy Prime Minister and Minister of Finance K. Peter Turnquest.

The Bahamas continues to maintain its position as one of the top IFCs in the world. The Bahamas provides all the benefits of a low-tax financial center without regulatory questions from the EU or other taxing authorities. A few of the benefits include:

●No direct taxes: The Bahamas does not assess taxes on personal income, inheritances, gifts, or capital gains for its citizens and residents.

●No double taxation: Because The Bahamas does not assess direct taxes, foreign income that is taxed where it is earned is not taxed again when it is brought into The Bahamas.

●Strong banking confidentiality laws: Confidentiality laws require a court order for a private third party to obtain banking information. Keep in mind, however, that international agreements implemented by The Bahamas to be removed from the grey list allow information sharing between The Bahamas and taxing authorities in foreign jurisdictions.

●Corporate tax exemptions: Businesses incorporated in The Bahamas are exempt from stamp and estate taxes for 20 years and have no corporate tax liability for foreign-derived revenue.

●No real estate ownership restrictions: Foreign citizens can buy and own property in The Bahamas without restriction. This contrasts with other jurisdictions, like Mexico, that require foreign citizens to hold real estate in a foreign trust.

●Low real estate taxes: For owner-occupied properties, the first $250,000 of market value is exempt from real estate taxes. The market value between $250,000 and $500,000 is assessed as a marginal real estate tax of 0.625%. Additional marginal property tax brackets cover market values between $500,000 and $5,000,000 and over $5,000,000. For comparison, Florida exempts only the first $50,000 of a residence’s market value from real estate taxes.

What’s Next for This Premier IFC?

With its primary industry – tourism – limited by coronavirus and hurricane recovery efforts, the financial services industry, currently the second largest sector of the Bahamian economy, will continue to play a prominent role as a contributor to Gross Domestic Product. As a result, The Bahamas will be an even more favorable place to do business.

As recently as 2019, the parliament of The Bahamas amended its corporate laws and considered revisions to its real estate tax laws. This means the government is always looking to improve its business environment and reduce taxes. Look for The Bahamas to seek additional ways to incentivize investment and expand its share of the world’s financial services industry.

After exiting the EU’s grey list, structural benefits inherent in The Bahamas’ financial services industry can be fully recognized.

For additional insight into The Bahamas’ role as a premier IFC, contact us today.