Bahamas

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Find legal, tax and practice information for the Bahamas, and search for branches and members in the jurisdiction. If you have any comments on the report please contact [email protected]
*Updated July 2020*
Editorial Board
- Timothy J Colclough TEP (lead editor), JP Morgan Trust Company (Bahamas), Nassau, New Providence, the Bahamas
- Sharmon Y Ingraham TEP, Higgs & Johnson, Nassau, New Providence, the Bahamas
Important new developments
- The Bahamas continues to implement measures to comply with international standards. To this end, the Bahamas has enacted various statutes to address concerns raised by the EU and the OECD.
- The Commercial Entities (Substance Requirements) Act became law on 31 December 2018 and requires certain entities to demonstrate economic substance in the jurisdiction. Similarly the Multinational Entities Financial Reporting Act, which became effective on 1 January 2018, impacts certain entities and is directed at concerns regarding business taxation and the OECD's Base Erosion Profit Shifting initiative. The Removal of Preferential Exemptions Act was enacted on 31 December 2018 and seeks to address 'ring-fencing' tax practices.
- The Register of Beneficial Ownership Act came into force on 20 December 2018 and implements a secure search system by the Attorney General of the Bahamas. The legislation does not create a public register of beneficial ownership.
Quick links
- 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.
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
IF THE PERSON DIES LEAVING |
REAL AND PERSONAL ESTATE (for example, land and money) |
Spouse, no children |
Whole estate to the spouse |
Spouse and one child |
Extends to a surviving spouse a right to ownership of one-half of the estate of a deceased spouse and the remaining one-half to the child |
Spouse and children |
One-half to spouse, remainder to the children to be shared equally |
Children, no spouse |
Whole estate to the children to be shared equally |
One child, no spouse |
Whole estate to the child |
No spouse and no children |
Whole estate to the grandchildren, if any, to be shared equally |
No spouse, no children, no grandchildren |
Whole estate to the mother and father in equal shares or whole estate to the survivor of them |
No spouse, no children, no grandchildren, |
In order of priority: 1. Whole estate to brothers and sisters to be shared equally 2. Whole estate to nephews and nieces to be shared equally 3. Whole estate to grandparents to be shared equally 4. Whole estate to uncles and aunts (brothers and sisters of intestate’s parents) to be shared equally 5. Whole estate to children of uncles and aunts to be shared equally |
If a person dies leaving none of the above |
Whole estate to the closest living relative of the deceased |
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.
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
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.
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.
Firms in the Bahamas
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Members in the Bahamas
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