Bahamas

*Updated July 2020*

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• Legal system
• Inheritance and succession
• Estate planning
• Taxation
• Residence and domicile
• Other relevant information

Legal system

The legal system in the Bahamas is based on common law. Decisions of the superior courts in England, while not binding on the Bahamian courts, have persuasive authority and are generally followed in the absence of local judicial authority or statute. The Bahamas has its own supreme court and court of appeal, but the UK Privy Council is the final appellate court.

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Inheritance and succession

Succession

There are no statutory provisions that prohibit, limit or frustrate the ability of a person to dispose of their property in whatever manner they desire. With regard to movables located in the Bahamas, while it is possible for a person who is not domiciled in the jurisdiction to execute a will dealing with such property, the essential validity of such a will is determined by the law of the person's domicile.

Key legislation:

• The Trusts (Choice of Governing Law) Act, 1989.
• The Wills Act, 2002.

Family law and defined inheritance rules

Where a deceased person has a validly executed will, the statutory inheritance rules do not apply. This is not the case where a person dies intestate. On intestacy, children born out of wedlock have equal status under the law with those born in wedlock. See below for the Table of Succession of Intestacy. However, where a dependant, whether legitimate or illegitimate, can demonstrate maintenance by a parent who failed to make adequate provision for such child in a valid will, the court has the discretion to allocate resources from the estate for such dependant. Under Bahamian conflict of laws, the applicable law to determine the succession to or devolution of the estate of the deceased will depend upon whether such property comprises movable or immovable property.

Intestate succession to movables will be governed by the law of the country in which the deceased was domiciled at the time of death. As regards immovables, succession will be governed by the lex situs.

The courts of the Bahamas apply the doctrine of double or total renvoi to questions of conflict of laws that arise in respect of intestate succession.

Key legislation:

• Inheritance Act, 2002.
• Status of Children Act, 2002.

Probate process

The Probate and Administration of Estates Act 2011 and the Probate and Administration of Estates Rules, 2011 govern probate applications, executors and administrators and estate administration. The probate process is generally straightforward, and once granted, assets can be freely distributed to the beneficiaries.

Mental capacity

Mental capacity is determined under the Mental Health Act, 1969 (as amended) (the 1969 Act), which provides for the care and treatment of mentally disordered persons, the appointment of guardians in respect of mentally disordered persons and the management of the property and affairs of mentally disordered persons by the appointment of a receiver.  The 1969 Act provides that a person who is suffering from a mental disorder may have a mental illness, arrested or incomplete development of the mind, a psychopathic disorder, or any other disorder of the mind.

Table of succession of intestacy, pursuant to the Inheritance Act, 2002

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Estate planning

Use of trusts in estate planning

The Trustee Act, 1998 (as amended) (the Trustee Act) provides a flexible framework through which a person can plan their estate. The Bahamas trust provides a great deal of flexibility and can be established in perpetuity. A variety of needs and objectives can be met including succession/estate planning and asset protection – from a spendthrift and third-party creditor perspective. Directed trusts are permissible as are the inclusion of in terrorem clauses. Where permitted by the trust instrument, disputes arising within a trust can be resolved through arbitration. Recent amendments to the Trustee Act retain in Bahamian law the application of the Rule in Hastings-Bass which existed prior to the UK Supreme Court decision in Futter v HMRC; Pitt v HMRC.

Use of foundations in estate planning

The Foundations Act, 2004 (as amended) governs foundations in the Bahamas. A registered legal entity, the foundation shares characteristics of both a trust and a company and is typically used where a trust is not the preferred vehicle for the client, such as those from a civil-law jurisdiction or where a greater degree of control, not available with the use of a trust, is desired. The foundation can also be used as a holding vehicle for the shares of a private trust company. It benefits from the Bahamas’ creditor-protection legislation.

Types of entities

Private trust company

A company established to act as trustee of family-related trusts. Underlying trusts can be domiciled outside of the Bahamas, and can be for the benefit of family members or third parties including charities.

Bahamas trust: See above.

Purpose trust: The purpose trust has application where the benefit is designed for a purpose and not an individual(s). However, individuals may benefit from a purpose trust. Uses such as charities, holding shares of an operating business and holding shares of a private trust company are common.

Bahamas foundation: See above.

International business company (IBC): IBCs can be formed as guarantee and limited duration companies or segregated accounts companies (SACs). A SAC may segregate its assets into separate accounts that are independent and separate from each other and from the ‘core’ account of the company. Directors need not be resident in the Bahamas. Registers of directors and officers must be filed with the Registrar of Companies.

Exempted limited partnership: Exempted limited partnerships are often used as private investment funds or as an estate-planning tool.

Bahamas executive entity: A vehicle established to perform a specific executive, administrative or shareholder function with limited liability. It has no shareholders (therefore no capital) nor any beneficiaries. Uses include acting as a director, family advisory council, protector and shareholder of a PTC.

SMART Funds: SMART Funds were introduced by the Investment Funds Act 2004, and are a collection of turn-key/template funds having application in both the investment management and private client fields. These innovative regulated entities can be established inexpensively and in a timely manner. SMART Fund Model 007, the Super Qualified Investment Fund, was recently introduced and allows for up to 50 investors with a minimum investment of USD500,000.

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Taxation

Income tax system

NOT APPLICABLE

Personal income tax rates

NOT APPLICABLE

Corporate income tax rates

NOT APPLICABLE

Capital gains tax

NOT APPLICABLE

Non-residents taxable on

NOT APPLICABLE

Withholding tax rate (non-treaty)

NOT APPLICABLE

Withholding tax rate (treaty)

NOT APPLICABLE.

Taxation at death

NOT APPLICABLE

Other taxes

i) Real property taxes

Real property tax is payable annually by real property owners in the Bahamas, unless specifically exempted by the Real Property Tax Act (the Property Act). The applicable rate of tax is dependent on the type of property. The annual tax payable on owner-occupied property valued at more than BSD250,000 and less than BSD500,000 is 0.625 per cent. If the market value of the property exceeds BSD500,000, the tax payable is 1 per cent of the portion that exceeds BSD500,000, capped at BSD50,000. No real property taxes are payable on property with a market value that does not exceed BSD250,000. A recent amendment to the Property Act has changed the definition of and requirements to establish 'owner-occupied' properties.

The annual real property tax payable in respect of residential property where the assessed value does not exceed BSD75,000 is BSD300, and 0.625 per cent of the assessed value where the assessed value exceeds BSD75,000.

ii) Stamp duty

Stamp duty is payable on transfers of real property and some transfers of personal property. The rate of stamp duty on the transfer of real property is 10 per cent of the value of the property, and 2.5 per cent on the transfer of personalty. Generally speaking, no stamp duty is payable on the transfer of real or personal property from a personal representative to a beneficiary. Following recent amendments to the Property Act, transfers of real property are exempt from VAT.

Transfer of real estate to a trust

Stamp duty is charged when Bahamian real estate is conveyed to trustees or there is a change in beneficial ownership, for example, the addition of a beneficiary except where the beneficiaries are limited to the beneficial owner, their spouse and issue. Subsequent transfer of the shares or real estate to a beneficiary under a trust, however, is exempt from stamp duty. However, an exemption can be claimed should it be deemed there is no change in beneficial ownership.

iii) Value added taxes

The Value Added Tax Act, 2014 provides for the imposition, assessment and collection of the tax on the supply and importation of goods and services in the Bahamas at a rate of 12 per cent. Similar to stamp duty, VAT is not payable on the transfer of real property from a personal representative to a beneficiary.

Creation of trusts

The Trustee Act exempts trusts for non-resident beneficiaries (for exchange-control purposes) from all taxation except for a trust duty of BSD50 on the creation of the trust. There is a penalty of BSD100 per annum for failure to pay this duty.

Tax treaties

Given the tax-neutral status of the Bahamas, no tax treaties exist.

Tax information exchange agreements

TIEAs have been signed with 29 jurisdictions. Reference: www.oecd.org

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Residence and domicile

Special rules on becoming resident

A person wishing to reside in the Bahamas has a choice of three residency options. The three available options are

• permanent residency;
• homeowners residence permit; and
• an annual residence permit.

Each of the options requires specific levels of connection to the jurisdiction to support the application.

The minimum tangible investment threshold which entitles an investor to apply for permanent residency in the Bahamas was recently increased to USD750,000 (this can comprise equity and debt).  An investment of USD1.5 million will qualify for accelerated consideration of the application.  The grant of permanent residency status may also permit the holder to engage in employment in the Bahamas where the applicant intends to establish a business in the jurisdiction.  
The homeowners’ residence permit requires the applicant to own a home in the Bahamas but not at the level of investment required of a permanent resident applicant. An annual residence applicant may submit a lease of residential premises in support of that permit application.

Recently, the government of the Bahamas has announced a tax residency programme that will grant successful applicants the right to reside in the Bahamas and such persons will be issued certificates of tax residency in respect of such residency, provided the persons satisfy the required length of stay within the jurisdiction.

Special rules on ceasing residence

Upon ceasing to be resident, a person who is resident in the Bahamas, and who intends to leave and export bank notes, gold, securities, postal orders and or foreign currency, must make a declaration to the Central Bank of The Bahamas of what he intends to export and its corresponding value.

Domicile concept for gifts and inheritance

In general, this can be done freely within the Bahamas. However, should the domicile/tax residence of the person gifting the asset be outside of the Bahamas, such a transaction may be taxable in that particular jurisdiction.

Taxation of holdings by non-residents on death and of gifts

Gifts: not applicable.

Death: not applicable.

Reporting/auditing requirements

Generally there are no reporting or audit requirements for unlicensed entities, for example, trusts/companies/foundations used for private purposes. Entities licensed by, for example, the Central Bank, Securities Commission or Insurance Commission will be subject to certain reporting and audit requirements as set out by the relevant regulator.

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Other relevant information

Asset protection laws

The Fraudulent Dispositions Act, 1991 provides a two-year statute of limitations in connection with dispositions of property in a trust.

Foreign currency restrictions

Exchange control restricts the ability of citizens and certain classes of resident to hold foreign currency.  The Central Bank of the Bahamas has recently relaxed certain restrictions on citizens and residents and delegated certain levels of approvals to the commercial banks in the jurisdiction, thereby facilitating an ease in remittances and business transactions.

Foreign ownership restrictions

Generally no, however certain investments made by foreigners into the Bahamas are subject to approval by the Bahamas Investments Board.

AML/due diligence and other requirements and regulatory procedures for advisors

• To establish a trust.
• For incorporation of entities.
• To open a bank account

These requirements are governed by the Financial Transactions Reporting Act 2018 and applicable guidance notes issued by the relevant regulators of the Bahamas.

Other points of interest

Recent legislation in the Bahamas has been brought into force to address concerns of the EU regarding substance and the OECD's Base Erosion Profit Shifting initiative. Specifically, Tin the Companies (Amendment) Act, 2019 to increase the protection of minority shareholders and bring the legislation into alignment with international best practices.

Key resources for further information

Websites

• The Central Bank of the Bahamas: www.centralbankbahamas.com
• Bahamas Financial Services Board: www.bfsb-bahamas.com           
• Government of the Bahamas: www.bahamas.gov.bs
• The Securities Commission of the Bahamas: www.scb.gov.bs

STEP branches in the Bahamas

There is one STEP branch in the Bahamas, which forms part of STEP's Caribbean and Latin America region.

• STEP Bahamas

Firms in the Bahamas

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Members in the Bahamas

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