Bahamas: Tax

Taxes imposed within The Bahamas include business licence fees, stamp duty, customs and excise duties, value added tax (“VAT”) and real property taxes. Additionally, employed and self-employed persons must make a contribution to the National Insurance Board on their wages up to the insurable wage ceiling, as determined from time to time. There is no direct taxation in The Bahamas in the form of income tax, inheritance tax or wealth tax in the Bahamas.

Generally, taxing legislation is amended annually as part of the annual national budget process of the Government. Taxes are increased or decreased to increase the revenues of the Government or provide incentives to spur growth in the economy.

The process for enacting or amending legislation involves a parliamentarian formally introducing a Bill to Parliament for a first reading. There is usually a debate where arguments are made in support of and opposition to the Bill. A second reading follows, and if a majority is in favour of the Bill, it is passed by the House of Assembly and thereafter goes to the Senate for consideration. Upon acceptance by the Senate, it goes to the Governor General to be signed, which makes the Bill an official Act of Parliament.

All persons engaging in gainful employment, employers and self-insured persons must register with the National Insurance Board before or as soon as possible after commencing work. Contributions must be paid monthly by the 15th day of the month following the month they were due.

Unless a property owner is exempt from real property taxes, real property taxes are assessable on all real estate in the Bahamas. Property owners must declare their property to the Department of Inland Revenue (DIR) for assessment and settle their real property taxes by 31st December.

Unless specifically exempted under the Business Licence Act, businesses with a turnover in excess of $100,000 per year are required to pay business licence fees annually on their turnover. On or before the 31st January of each year, businesses must submit to the Financial Secretary an application for renewal of their business licence along with financial statements showing the turnover of the business for the prior year and the difference between the actual tax and the estimated tax for the prior year. By 31st March of each year, businesses must pay any unpaid tax for the prior year. Also businesses must 31st March of each year or in four equal instalments commencing on or before the 31st March of each year, pay the estimated tax for the succeeding year. Businesses must retain reliable accounting records for a period of five (5) years.

Businesses in The Bahamas providing a taxable supply of $100,000.00 or more must register for VAT. A VAT registrant must file a VAT return indicating the total VAT inclusive amount of sales made within the specific period along with the amount of VAT collected from customers. Businesses must maintain proper accounting records for a minimum of 7 years. Businesses are required to file VAT returns within 21 days of the end of each tax period (typically one month).

There are no substantial procedural obligations for customs duties and stamp duties. These taxes are payable shortly after an event (i.e., for customs duties, upon importation of goods, and for stamp duty, within six months of closing of a transaction which is subject to stamp duty).

The Department of Inland Revenue (“DIR”) is an amalgamation of the Bahamas’ tax and revenue agencies, which operates under the auspices of the Ministry of Finance. While these tax and revenue agencies operate under one umbrella, the Comptroller of VAT is the regulator responsible for administering VAT, the Financial Secretary is responsible for Business Licence Tax, the Chief Valuation Officer administers real property tax, the Comptroller of Customs is responsible for customs duties and excise taxes, and the Treasurer is responsible for administering stamp duties. Each section has its own processes and protocols for resolving standard issues. If a taxpayer is not satisfied with the decision ultimately made by the DIR, they can appeal the decision to the Tax Appeal Commission and thereafter to the Supreme Court.

Tax Appeal Commission Act (“TAC Act”) established a Tax Appeal Commission, currently comprised of three members who hear and determine appeals against a decision rendered by the DIR. Appeals before the Tax Appeal Commission are procedurally informal but must adhere to the standards of natural justice. Pursuant to section 23(1) of the TAC Act, the Tax Appeal Commission must hear and determine each appeal within 180 days after its commencement.

The dates and frequency of tax payments vary depending on the tax. Some taxes, such as national insurance and real property tax, are payable on a specific date (i.e., the 15th day of the month and by December 31, respectively). Other taxes are payable on, or within a specified time after, the happening of an event (upon importation of goods in the case of customs duties, within six months of closing of a transaction in the case of stamp duty, and within ninety (90) days of closing of a transaction in the case of VAT charged on real property transactions). VAT on other supplies is payable within 21 days after the end of the applicable tax period. Business licence fees are payable by the 31st March of each year.

As indicated above, tax assessments that are disputed may be appealed to the Tax Appeal Commission and thereafter to the Supreme Court.

Taxpayer data is recognised and treated as highly confidential. The VAT Act and the Business Licence Act specifically provide for the confidentiality of all taxpayer information and prescribes the circumstances in which and purposes for which such information may be disclosed. Further, the DIR issued a Taxpayer’s Charter, which acknowledges the taxpayer’s right to privacy and confidentiality of all information in its possession. Additionally, the Data Protection (Privacy of Personal Information) Act (“DPA”) regulates data controllers and data processors in their collection, processing, storage, use and disclosure of personal data relating to individuals and safeguards against disclosure. The DPA requires data controllers to take appropriate security measures against unauthorised access to, alteration, disclosure or destruction of personal data.

The Bahamas is a signatory to the multilateral competent authority agreement on the automatic exchange of financial account information and the Automatic Exchange of Financial Account Information Act, 2016 was passed to domesticate its provisions. There is a register of beneficial ownership, which is not public but is searchable by the Attorney General. The Register of Beneficial Ownership Act, 2018 was enacted to establish this secure search system of databases managed by registered agents who hold beneficial ownership information under the Companies Act and the International Business Companies Act.

At common law, the primary tax residency test is that an entity resides where its real business is carried on. An entity may evidence its residence with:-

1. a tax identification number or tax residence certificate issued by a foreign jurisdiction;
2. an official receipt or statement issued by a foreign tax authority;
3. certification by the entity that the majority of meetings of the Board of Directors or controlling persons of a non-corporate entity, in any financial year, took place in the foreign jurisdiction; and
4. the ordinary residence of the majority of the Board of Directors or controlling persons.

Provisions of the Multinational Entitles Financial Reporting Act, 2018 (“the MEFR Act”) provide for the policing of cross border transactions in in the form of country-by-country reporting of profit or losses for entities incorporated or resident within The Bahamas. These requirements apply to multinational entities groups, which the MEFR Act defines as a group of two or more enterprises with their tax residences in different jurisdictions or which includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction and which has total consolidated group revenues of USD$850,000,000.00 during the fiscal year immediately preceding the reporting fiscal year. Only the ultimate parent of an MNE Group that is resident in The Bahamas must file the country-by-country report.

There are no thin capitalisation rules in The Bahamas. There is no transfer pricing regime in The Bahamas. It is not possible to obtain an advance pricing agreement.

There is no general anti-avoidance rule in The Bahamas.

There is no digital services tax in The Bahamas.

Residents who engage in digital services business much charge value added tax once they meet the minimum threshold of $100,000 of taxable activity per annum. The VAT Act imposes a similar obligation on persons domiciled outside The Bahamas who offer telecommunications services or electronic commerce for the use, enjoyment, benefit or advantage of persons within The Bahamas.

The VAT Act defines “telecommunication services” as services relating to the transmission, emission or reception of signals, writing, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the provision of access to global information networks, and the related transfer or assignment of the right to use capacity for such access, transmission, emission or reception. The term “electronic commerce” includes business transactions taking place through the electronic transmission of data over communications networks such as the internet.

Examples of telecommunication services and electronic commerce include, but are not limited to websites, web-hosting, distance maintenance of programmes and equipment; software and the updating of software; images, text and information, and databases available; political, cultural, artistic, sporting, scientific, and entertainment broadcasts and events; and distance teaching.

The Government of The Bahamas issued a press statement on 1st July, 2021 expressing its support for the proposals of the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting to reform the global taxation system geared at addressing the tax challenges arising from the digitalization of the global economy. However, the government has lodged reservations particular to The Bahamas.

Nevertheless, the statement confirmed the Bahamas’ support for the Inclusive Framework’s two tier reform proposal (referred to as Pillar 1 and Pillar 2) as it is considered consistent with the stated Bahamas policy objectives of tax fairness and equity. The Bahamas views these measures as a viable option for ensuring that small jurisdictions benefit from any effort to tax entities operating within their jurisdiction.

The Bahamas enacted several pieces of legislation in response to the European Union’s inter-governmental Code of Conduct Group (Business Taxation) guidance for determining substance when considering whether a tax measure is harmful or ‘fair’ and the OECD’s Base Erosion Profit Shifting (BEPS) Project.

The Bahamas enacted the Multinational Entities Financial Reporting Act, 2018 on 1 January 2018. This Act provides for country-by-country reporting of profits or losses attributed to entities incorporated or resident within The Bahamas that are a part of a multinational entities group which generates an annual combined turnover in excess of US$850,000,000.00.

Following this The Bahamas enacted the Register of Beneficial Ownership Act, 2018 which came into force on 20 December, 2018. This Act provides for the establishment of a secure search system of databases managed by registered agents which hold beneficial ownership information on entities incorporated, registered, or continued in accordance with the Companies Act or the International Business Companies Act. It is important to note that the secure search system does not create a public Register of Beneficial Ownership but is searchable by the Attorney General of The Bahamas.

On 31 December 2018, The Bahamas enacted the Removal of Preferential Exemptions Act, 2018, ending the practice of ring-fencing. Ring-fencing occurs when a jurisdiction has a preferential tax regime that is available to certain groups of taxpayers and unavailable to other groups of taxpayers. This preferential regime is usually unavailable to domestic taxpayers, or taxpayers that operate in the domestic economy. Prior to the Act, entities incorporated, registered, or otherwise established in The Bahamas under the International Business Companies Act, the Exempted Limited Partnership Act, the Investment Condominiums Act, 2014 and the Executive Entities Act, 2011, were exempt from certain taxes such as business licence tax and stamp tax if they operated exclusively outside of The Bahamas. This exemption was not available to companies that operated within The Bahamas.

The Bahamas also enacted the Commercial Entities (Substance Requirements) Act, 2018 on 31 December, 2018 in response to BEPs. This Act requires entities incorporated, registered or continued under Bahamian law to demonstrate economic substance in The Bahamas if they are engaged in a relevant activity. A relevant activity is (a) banking business; (b) insurance business; (c) fund management business; (d) financing and leasing business; (e) headquarters business; (f) distribution and service centres business; (g) shipping business; (h)commercial use of intellectual property; or (i) as a holding company engaged, or where one or more of its subsidiaries is engaged in one of the activities listed under paragraphs (a) to (h).

There is no taxation of business profits, employment income and pensions, savings income, royalties, income from land (except for VAT), capital gains, or capital duties. Taxation in The Bahamas is by way of VAT, stamp duties, import duties, real property taxes and business licence fees.

Except for real property transactions, the VAT rate is a flat rate, however, the rate of real property tax is graduated, and the rate of stamp duty may vary. Business licence fees are graduated for most industries but are charged as a flat rate for some other industries.

Some of the current rates are as follows:

BUSINESS LICENCE –

for a business with annual turnover greater than $100,000.00 but not exceeding $500,000.00 – 0.5% of turnover;

for a business with annual turnover greater than $500,000 but not exceeding $5 million – 0.75% of turnover

for a business with annual turnover greater than $5 million but not exceeding $50 million – 1.25% of turnover;

for a business with annual turnover greater than $50 million – 1.5% of turnover.

VAT

• on most goods and services – 10%
• Every long-term lease or transfer of an interest in a long- term lease – 2.5% where the value does not exceed $100,000 and 10% where the value exceeds $100,000
• A mortgage or transfer of mortgage of real property – 1% of mortgage or transfer of mortgage amount
• on every deed of conveyance, assignment or transfer of real property to a company or other entity – 10%.
• every deed of conveyance, assignment or transfer of real property to an individual:
  • 2.5% where the value does not exceed $100,00;
  • 4% where the value exceeds $100,000 but does not exceed $300,000;
  • 6% where the value exceeds $300,000 but does not exceed $500,000;
  • 8% where the value exceeds $500,000 but does not exceed $700,000;
  • 9% where the value exceeds $700,000 but does not exceed $1,000,000;
  • 10% where the value exceeds $1,000,000

Real Property Tax (paid annually)

• Owner-occupied residential property valued at up to $300,000 – 0
• Owner-occupied residential property valued at over $300,000 to $500,000 – 0.625%
• Owner-occupied residential property valued over $500,000 – 1%
• Unimproved property valued at up to $7,000 – $100
• Unimproved property on the part of the value which exceeds $7,000 – 2%
• Non owner-occupied residential property valued up to $75,000 – $300
• Non owner-occupied residential property valued over $75,000 – 0.625%
• Commercial property valued at up to $500,000 – 0.75%
• Commercial property valued at over $500,000 to $2,000,000 – 1%
• Commercial property valued over $2,000,000.00 – 1.5%.

Stamp Duty (a one-time payment on transactions)

• An assignment, transfer, exchange of personalty
  • Up to $100,000 – 2.5% of the value
  • Over $100,000 – 10% of the value
• A transaction comprising the sale of a business insofar as that transaction involves the sale of property other than land (save for cash and deposit accounts) the rate payable is 6% of the consideration attributable to property other than land.
• A mortgage or charge of personalty – 1% of the secured amount.

In order to conduct business activities with Bahamian residents, a business licence is required. This licence carries with it a business licence tax which is charged as a percentage of the business’ turnover. Historically, the definition of turnover diverged from the principles of commercial accountancy. However, as a result of amendments made to the Business Licence Act the basis upon which business licence tax is charged is closer to generally accepted principles of commercial accounting.

Currently, “turnover” means total revenues in money and money’s worth accruing to a person from his business activities within The Bahamas during the year of assessment, including all cash, credit sales and commissions without any deductions whatsoever, but does not include –

1. output tax collected by a business;
2. the sale of capital assets, including real property unless such sale is in the ordinary course of the business;
3. in relation to an agent, an amount received for or on behalf of a principal in an agency relationship except, where the principal is a non-resident;
4. an amount received on items sold by an auctioneer, where the auctioneer has no title or any interest in the goods sold, except for the auctioneer fee or commission;
5. revenue accruing from certain transactions between members of a group;
6. revenue derived from services provided by a business to an entity where—
   1. the ultimate beneficial owner of 90% of the shares or equivalent ownership interest in both the business and the entity is the same person; and
   2. the entity is not a business; and
7. any other exclusion as the Minister may by order allow.”

Most businesses are subject to business licence tax at the following rates, charged on the annual turnover:

• On annual turnover between $100,000 to $500,000 – 0.5%;
• On annual turnover over $500,000 to $5,000,000 – 0.75%;
• On annual turnover over $5,000,000 – 1.25%.

There are special business licence rates for certain sectors. Where the business is a financial service entity, a tax of $2,500 and for the financial services entities outlined below an additional tax as follows –

A licensed telecommunication service must pay a business licence tax equal to 1.25% of its turnover.

Yes. Different types of entities are recognized as taxable. However, as business licence tax is charged on turnover, there is no concept of a “transparent” entity for tax purposes.

No.

The Bahamas recently enacted the Economic Empowerment Zone Act, 2018. The purpose of this Act is to promote the development of Bahamian communities through the granting of certain exemptions and fiscal incentives for the renovation and restoration of property and the encouragement of businesses in areas designated as economic empowerment zones. Businesses located in those zones area are eligible to apply for exemptions from:

• Business licence fees;
• Customs duties; and
• Excise Taxes.

Once an application is approved, a certificate of trade will be issued which is valid for one year. In order to take advantage of this regime, applicants must have a valid business licence in good standing.

Additionally, certain islands within The Bahamas enjoy special tax regimes that allow exemptions from certain taxes. In Grand Bahama, the City of Freeport is exempt from paying real property tax, excise taxes, stamp duties and most customs duties until 2054 due to the Hawksbill Creek Agreement, an agreement that allows for free-trade within the city of Freeport. Additionally, the Family Islands Development Act, 2008 allows for certain islands within The Bahamas to be granted concessions with respect to customs duty and excise tax on certain imports with a view to encouraging development in those islands.

There is no tax on intellectual property in The Bahamas.

Groupings are permitted for VAT purposes. A VAT grouping allows a group of entities to apply to be treated as a single taxable entity.

Registration for the VAT grouping can be made in the name of the “representative member” under whose Tax Identification Number (TIN) the VAT return for the Group will be filed, and this can be any entity within the group. The representative member is responsible for paying the VAT and any repayment will be sent to the representative member. However, all entities belonging to a group will be jointly and severally liable for VAT debts.

The following can form a VAT group:

• A trust and a beneficiary of that trust;
• A partnership or company limited by shares and a member of such partnership or company who owns 25% or more of the rights to its income or capital;
• A shareholder and a company limited by shares, and the shareholder together with other persons related to the shareholder who control 25% or more of the voting power or own 25% or more of the rights to dividends or capital.
• Two or more companies, and a third person who either alone or with other related persons controls 25% or more of the rights to dividends or capital, or the voting rights in the companies.
• The non-resident branch or home office of a company operating in The Bahamas and the resident branch or home office of the same company in The Bahamas.

Where a business is registered as a part of a group under the VAT Act, its business licence tax rate will be based on the combined turnover of all of the members of the group. The Business Licence Act outlines which transactions must be included in the calculation of group turnover and which transactions may be excluded. The Business Licence Act provides that each member of the group is jointly and severally liable where a member of the group contravenes or fails to comply with a provision or requirement of that Act.

There are no withholding taxes in The Bahamas. However, 1.5% stamp duty is charged on all funds remitted or transferred out of The Bahamas.

While there is an environmental levy charged on certain items that are imported into The Bahamas, there is no environmental tax charged broadly in the country.

There is no tax on dividends in The Bahamas. However, 5% stamp duty is payable on funds of BS$500,000 or more representing dividends, which are converted from Bahamian dollars into a foreign currency and thereafter remitted or transferred out of The Bahamas.

Advantages

The advantages of re-locating to The Bahamas are that both residents and foreigners pay no taxes on personal income, succession, inheritance, gifts, capital gains, and corporations. As such, the government derives its revenue from VAT, real property taxes, stamp duties, import duties and business licence fees.

Further, The Bahamas has a robust business supportive legal framework with a focus on economic growth and development and compliance with international agreements promoted by organisations such as the OECD. Through this legal framework, security and protection are available to investors, making The Bahamas an attractive country in which to conduct business.

Investors have options when considering the type of entity to establish for their business. Persons wishing to incorporate in The Bahamas may decide to incorporate a domestic company under the Companies Act, 1992, or an IBC under the International Business Companies Act, 2000. The Bahamas also recognizes sole proprietorships, foreign companies, limited liability companies, companies limited by guarantee, partnerships, limited exempted partnerships and companies with segregated accounts amongst other types of entities. To incorporate a company in The Bahamas is relatively quick, as there is a turnaround time of 1 – 3 business days.

Another advantage is that The Bahamas dollar is pegged to the US dollar, providing stability, ease and a level of certainty with respect to repatriation of profits.

The Bahamas has enacted stringent anti-money laundering (AML) laws and privacy laws in an effort to deter criminal activity, protect the business environment, and comply with international organisations and standards.

Challenges

Certain industries are reserved for Bahamians and therefore foreign investment in these areas is prohibited. Some of the reserved areas include wholesale and retail operations, domestic advertising and public relations firms, domestic newspapers and magazine publications, security services, auto and appliance service operations, public ground transportation, cabotage, and the domestic gaming industry.

Non-Bahamian participation in any commercial activity requires the prior approval of the National Economic Council.