This guide provides an overview of the relevant laws and regulatory requirements for non-Bahamians seeking to establish a business in The Bahamas.
The relevant laws and requirements fall within the following categories:
- Bahamas Investments Authority (BIA)
- Investment Incentives
- The Central Bank of The Bahamas
- Business Licence
- Immigration and Employment
All non-Bahamians or Permanent Residents seeking to do business in The Bahamas must obtain prior approval from the Bahamas Investment Authority (BIA).
The BIA operates from the Office of the Prime Minister, and is the administrative arm of the National Economic Council and the Investments Board, which are divisions of the Ministry of Finance. The BIA is the gatekeeper of foreign direct investment in The Bahamas.
The application for BIA approval must be in the form of a comprehensive Project Proposal. The application must include all of the requirements set forth in the Project Proposal Guidelines issued by the BIA. Bahamian legal counsel usually submits the formal application to the BIA along with the required supporting documents.
A minimum capital investment of BS$500,000 is required and the proposed investment must not be in an area reserved for 100% Bahamian participation.
As part of its “National Investment Policy” the BIA has designated certain types of businesses that, as a general rule, they seek to protect for Bahamian citizens and those which they consider to be targeted for foreign direct investment.
The following areas of business are targeted for foreign investment:
- Touristic Resorts.
- Upscale Condominium, Time share and Second Home Development.
- Information and Data Processing Services.
- Assembly Industries.
- High-Tech Services.
- Ship Repair and other services.
- Light Manufacturing for export.
- Food Processing.
- Banking and other Financial Services.
- Captive Insurance.
- Aircraft Services.
- Pharmaceutical manufacture.
- Off-shore Medical Centres.
The following areas of business are expressly reserved for Bahamians:
- Wholesale and Retail Operations;
- Commission agencies engaged in the import / export trade;
- Real estate and domestic property management agencies;
- Domestic newspapers and magazine publications;
- Domestic advertising and public relations firms;
- Nightclubs and restaurants, except specialty, gourmet and ethnic restaurants, restaurants operating in a hotel, resort complex or tourist attraction;
- Security services;
- Domestic distribution of building supplies;
- Construction companies, except for special structures for which international expertise is required;
- Personal cosmetic / beauty establishments;
- Shallow water scale-fish, crustacea, mollusks and sponge-fishing operations;
- Auto and appliance service operations; and
- Public transportation.
International investors may engage in the wholesale distribution of any product produced locally.
The application process is as follows:
- 1. Submit the Project Proposal, along with supporting documents to the BIA.
- 2. The BIA will process the application and submit the same to the National Economic Council for a determination. The NEC is comprised of a group of Government ministers including the Prime Minister who is also the Minister of Finance.
- 3. Depending on the nature of the proposed business activity, the relevant Government Ministry or Agency would be consulted for input:
- i. Ministry of the Environment.
- ii. Ministry of Works and Transport.
- iii. Ministry of Housing.
- iv. Respective Family Island Local Government
- v. Bahamas Environment Science and Technology Commission (“BEST”)
- 4. Once a determination has been made, the BIA will communicate to the applicant in writing. If the determination is favorable, the BIA will issue a “project approval in principle”, subject to any stipulated conditions and to satisfying the requirements of the relevant government agencies.
Also note that the BIA approval attaches to the investors, and not to the project, and therefore is not assignable without the BIA’s express written consent.
To further encourage and facilitate business investment, there are a number of legislative incentives and concessions available to qualifying investors, upon application. The following is an overview:
The Hotels Encouragement Act
Provides duty free entry of approved construction materials, furnishings and fixtures for hotel development as well as provides for exemption or concession from real property tax for the first twenty years of operation of a hotel or resort.
The Industries Encouragement Act
Provides custom duty exemption or concession for the importation of machinery, raw materials and building supplies for manufacturing entities as well as provides for exemption or concession from real property tax for a fifteen year period. Customs duty exemption for applicants is valid for the first five years of operation. Thereafter, applicants would be required to pay a reduced rate of duty (10%) on all approved materials and equipment imported.
The Bahamas Vacation Plan and Time Sharing Act
Provides customs duty concessions for building supplies for the construction of timeshare facilities.
The Hawksbill Creek Agreement Act
Provides the Port Area, that is the free trade zone of Freeport, Grand Bahama, freedom from excise taxes, stamp duties and most customs duties until 2054.
The Tariff Act
Allows for customs duty exemptions on specified raw materials, supplies and equipment for Agriculture, Floriculture, Horticulture, Fisheries, Forestry, Cottage and Light Industries, and Commercial Printing.
The Export Manufacturing Industries Encouragement Act, The Agricultural Manufactories Act, The Spirits and Beer Manufacture Act
Investment incentives under these acts include exemption from the payment of customs duties on building materials, equipment and approved raw materials and real property taxes for periods up to 20 years.
The City Of Nassau Revitalization Act
Provides incentives and duty concessions in connection with the restoration, repair and upgrade of buildings, commercial and residential, in the City of Nassau.
The Family Island Development Encouragement Act
Provides customs duty concessions on the importation of building materials, equipment and supplies for commercial and/or residential developments on specified Family Islands. This legislation is temporary and subject to renewal every few years.
In addition to the legislative incentives, the recent infrastructure development in New Providence is attractive to prospective investors. Among the improvements are the airport redevelopment, together with highway reconstruction and expansion, a new international cargo shipment port opened in Nassau, and Nassau Harbour has been dredged to accommodate the world’s largest passenger vessels.
There are several options for foreign investors looking to establish a business in the Bahamas. A new company may be incorporated in The Bahamas, or an existing foreign company may be registered locally as a Foreign Company.
There are two types of companies in The Bahamas: (i) companies incorporated under the Companies Act, 1992 (“a Domestic Company”) and (ii) companies incorporated under the International Business Companies Act, 2000 (“an IBC”).
i. Domestic Company
Companies formed under the Companies Act 1992 can be private companies limited by shares or by guarantee, or can be public companies. A Memorandum and Articles of Association must be filed at the Companies Registry, there must be a minimum of two shareholders and two directors, and there must be a registered office in the Bahamas.
Domestic Companies are required to hold Annual General Meetings and they must file an Annual Statement listing the names of registered shareholders and incumbent directors.
In the case where it is intended that a Domestic Company will be a wholly owned subsidiary of another entity, one share in the Domestic Company must be registered in the name of a nominee, who then executes a Declaration of Trust in favour of the Parent; and the remainder of the authorised shares are issued directly to the parent company.
ii. International Business Company (IBC)
IBCs are frequently employed because the requirements are minimal. They are primarily used for offshore entities conducting business offshore with no ties in the Bahamas.
An IBC may have just one shareholder and one director; Annual General Meetings are not required, and there is no obligation to file an Annual Statement, although IBCs must at all times maintain a current filing of incumbent officers and directors.
An IBC must be designated resident by the Central Bank if it will be conducting business within The Bahamas. This designation would in turn subject the IBC to regulation by Exchange Control and would therefore require the IBC to obtain permission to operate foreign currency accounts.
In the case of both a Domestic Company and an IBC, a parent company’s liability to its subsidiary will be limited to the parent’s contribution to the subsidiary company.
Registration as a Foreign Company
A foreign company may operate a branch in the Bahamas with no registration requirements, but once the entity is deemed to be operating an “undertaking” in the Bahamas, it must register with the Registrar-General as a registered foreign company. The Companies Act defines an “undertaking” as follows:
- the keeping of a place of business;
- the holding of a licence (or the requirement to hold one) for specified business;
- the holding of a licence (or the requirement to hold one) for selling securities; or
- having a local telephone listing.
To register, the Company must file, inter alia, a copy of the company’s Memorandum and Articles of Association and details of the directors and officers. A Certificate of Registration is issued, and the company then has the same position as a Bahamian incorporated company.
The Central Bank of The Bahamas – Exchange Control
Exchange Control is a division of the Central Bank of the Bahamas and is governed by the Exchange Control Act and its corresponding Regulations. These Exchange Controls govern all foreign currency transactions between residents of The Bahamas and residents of foreign countries, referred to as non-residents, for the purpose of maintaining the foreign reserves.
Resident individuals and companies need consent from the Central Bank to conduct operations in foreign currencies and hold foreign currency accounts. Non-resident or offshore companies, who are free to deal in foreign currencies, require Central Bank consent to deal in Bahamian dollars.
The designation “Resident” includes Bahamian nationals, companies beneficially owned by Bahamian nationals, and companies whether Bahamian or foreign-owned operating within the Bahamas. Foreign nationals with work permits who live in the Bahamas are also normally considered to be resident.
The designation “Non-resident” includes foreign nationals living abroad, or, if living in the Bahamas, without the right to work there; and foreign companies and foreign-owned Bahamian companies doing business exclusively outside the Bahamas. Note that if one proposes to work in The Bahamas for a “Non-resident” designated company, such person would still require a work permit.
For foreign investors seeking to establish and carry on business in The Bahamas, the business entity would need to be designated “Resident” by the Exchange Control Department of the Central Bank of The Bahamas. This application is usually made after BIA approval is granted.
The application for the resident designation of the entity is typically handled by the investors’ Bahamian legal counsel. The application is in the form of a letter to Exchange Control, and would include information on the company and how the shares are to be issued. When formally designating the entity as resident, the Central Bank will approve the requested shareholding and authorize the entity to open a Bahamian dollar account, but subject to, inter alia, the following restrictions:
- That no borrowing shall take place without the prior approval of the Central Bank;
- That the entity shall not be permitted to transfer any shares without the prior approval of the Central Bank;
- That the entity shall not make any further capital investments (other than the approved investment) in The Bahamas without Central Bank approval;
- That it will be required to open Bahamian Dollar accounts and convert operating income into Bahamian dollars.
- That the prior permission of the Central Bank will need to be sought before remitting any profits to its shareholders by way of dividend or otherwise.
If the entity is a subsidiary of a non-Bahamian owned “parent” company, the Central Bank will also grant the Parent “approved investment status” with respect to its investment in the shares of the subsidiary. The granting of “approved investment status” will permit the subsidiary (upon application being made and approved by the Central Bank) to remit profits to the Parent by way of dividend or otherwise. Permission is required to purchase US dollars due to the fact that the Bahamian dollar is not a freely convertible currency.
While these rules may seem rather onerous, the process of obtaining Exchange Control approvals is primarily administrative in nature. Every non-Bahamian owned business in The Bahamas operates under the same conditions and applications are typically approved in due course.
The Bahamas is committed to a tax neutral platform upon which non-Bahamians receive the same tax benefits as Bahamians. This includes:
- No income, capital gains and inheritance taxes for all who conduct business or reside in The Bahamas.
- Value Added Tax (VAT) of 7.5% on certain goods and services.
- A modest business licence tax for companies carrying on business in The Bahamas.
- A 10% Government tax (Stamp Duty plus VAT) on the purchase of a new home.
- Real property taxes between ⅝ % and 1.5 % of the property value.
- National insurance contributions
The Bahamas has no restrictions on current account transactions, nor any restrictions on the repatriation of profits.
National Insurance Contributions
While there is no income tax in the Bahamas, National Insurance is mandatory under the National Insurance Act, and administered by the National Insurance Board (NIB). All employers and employees (including the self-employed) must register with NIB and pay national insurance contributions. This is, effectively, The Bahamas’ social security programme.
The contributions are deducted from the employee’s salary and must be remitted to NIB by the employer on a monthly basis. The deduction is mandatory even for non-resident employees. The amount is a percentage of the employee’s salary.
The law currently provides for a contribution in the amount of 5.9% of the employee’s weekly salary, with the employer contributing 2% and the employee contributing 3.9%. The weekly ceiling total contribution is $600 and the monthly ceiling contribution is $2,600.
Under the Business Licence Act, businesses operating in the Bahamas are required to obtain an annual business licence and pay annual licence fees. Once the BIA approval is obtained and the requisite entity is formed, the company must apply for the requisite business licence from the Business Licence Unit (BLU).
The Business Licence Unit is a division of the Ministry of Finance. It works in conjunction with the BIA, and uses the same guidelines in terms of which areas are reserved for Bahamians. The BLU will be guided by the BIA approval.
The BLU requires each business licence to state the “nature of business”. If the entity intends to conduct business in several different areas, (e.g. hotel operation, landscaping, restaurant etc.) the BLU requires that the entity submit a separate application for each proposed “area of business”, and the entity will receive a distinct licence for each area.
There is a $100.00 application fee for each licence and the applicant must provide requires proof of incorporation, national insurance registration and possibly other documents depending on the nature of business.
Once established the entity will pay annual business licence fees according to its “Turnover”. Turnover is defined as being:
“total revenues in money and money’s worth accruing to a person from his business activities in The Bahamas during the preceding year or in such other accounting period as the Financial Secretary may allow, including all cash and credit sales and commissions without any deductions whatsoever…”
Business licences must be renewed annually and an annual licence tax must be paid. The deadline for filing for renewal is 31st January, and the deadline for paying the licence tax is 31st March. As of 1st July, 2015, businesses with turnover in excess of $100,000 must submit financial statements certified by a qualified accountant in support of the renewal application. The financial statements must be with respect to the preceding calendar year, regardless of the accounting period of the business. As of 1st January, 2016, the renewal application may be filed online.
Effective 1st January, 2016, the following fines and penalties have been imposed:
- $100 for late filing and for late notification of inactivation or cessation of business
- 10% of the tax liability for late payment
The current tax rates are as follows:
- New business – $100.00;
- Business with turnover greater than $50,000 per annum but not exceeding $500,000 per annum – 0.5%;
- Business with turnover greater than $500,000 per annum but not exceeding $5 million per annum – 0.75%;
- Business with turnover greater than $5 million per annum but not exceeding $50 million per annum – 1.25%;
- Business with turnover greater than $50 million per annum – 1.5% of turnover.
Effective 1st July 2015, businesses falling within the category of agricultural and animal husbandry/mixed farming; fishing/fish farms; and food/meat/food processing are taxed at a flat rate of 0.75%.
Immigration and Work Permits
Non-Bahamians seeking to work in The Bahamas must obtain permission from the Department of Immigration, in the form of a work permit.
As part of the BIA application process, the prospective investor must provide a projection of how many Bahamian jobs will be created, and how many work permits will be needed for non-Bahamians. The ratio of foreign to local staff that the BIA will approve, will depend on the level of work and experience required. The general rule in relation to the issuance of work permits is that a work permit should only be issued in the case where there is not a suitably qualified Bahamian citizen available to do the job.
In addition, the while the BIA may approve the grant of a certain number of work permits from the outset, it may also require that Bahamian citizens be trained to fill some of those positions after a stated period of time.
The BIA approval is typically viewed as an approval in principle for the non-Bahamian work permits.
Once the BIA approval is obtained, applications must be made to the Department of Immigration for the requisite work permits. The application process for the key personnel on an approved project is fairly routine. However, the process for non-key employees can take longer.
Given that the Government is reluctant to grant work permits for jobs which can be performed by Bahamians, in the instance of non-key employees, the Department usually requires the employer to advertise and interview locally, to determine whether there is a qualified Bahamian resident available for the job.
A separate work permit application must be submitted for each prospective employee, and the work permit attaches to that specific person and position and is not assignable.
The employer of each person granted a work permit may be required to place a bond of up to $1,000.00 to repatriate the employee and his/her dependents. In addition there are fees associated with each work permit. The fees depend on the nature of employment and other factors set forth in the regulations to the Immigration Act. The fees range from $650 to $12,500.00.
To establish a business in The Bahamas, as a foreign investor, the threshold issue is the BIA approval. Once the approval is obtained, concessions may be negotiated with the Government, depending on the nature of the project. Thereafter the formation of the appropriate entities, and obtaining the necessary licences and work permits is more administrative in nature. Local counsel may be of assistance with making the applications and providing advice throughout the process.
For non-Bahamian purchasers there are regulatory applications to be made either before or after completion of the purchase, depending on the nature of the purchase. The Bahamas Investment Authority, which is a department in the Ministry of Finance, monitors all non-Bahamian investment in real estate in the Bahamas, and there are related regulatory attendances.
The following is an overview of a local real estate transaction:
- CONTRACT (locally referred to as the “Agreement for Sale”) – The terms are agreed and the Deposit must be provided to the Vendor’s attorney when the Agreement for Sale is executed by the Purchaser.
- TITLE SEARCH – This is a review of the legal title to the property to determine whether the title to the property is good and marketable. Alexiou, Knowles & Co., has an in-house microfiche library which we use for our title searches.
- REGULATORY APPROVALS – Non-Bahamian purchasers of real estate are subject to certain regulatory approvals. In certain circumstances these approvals are required as a condition precedent to completion of the purchase. In other circumstances, the regulatory approvals would be obtained post-completion.
- REQUISITIONS – During the title review period the Purchaser’s attorney is entitled to raise requisitions in connection with the title to the property. The Vendor’s attorney has a window of time in which to respond to the requisitions.
- DOCUMENTATION – The Purchaser’s attorney will prepare a legal opinion on title, and request that the Vendor’s attorney provides the deed of conveyance for execution.
- COMPLETION – The funds are provided by the Purchaser and the legal title is transferred.
- POST-COMPLETION – The Purchaser’s attorney attends to paying the requisite taxes on the deed of conveyance, recording the conveyance in the Registry of Records, and making applicable regulatory applications.
The primary completion costs associated with real estate purchases and sales (in addition to purchase price) are stamp duty, Value Added Tax (VAT), legal fees, and the realtor’s commission.
Typically the Vendor and the Purchaser each pay for a part of these costs. This is referred to as a “gross” sale. In a gross sale, the Vendor pays the realtor’s commission, half of the VAT/stamp duty, and his own legal fees. The Purchaser pays half of the VAT/stamp duty, and his own legal fees.
In a “net” sale, the Purchaser pays all of the completion costs, i.e., the entire VAT/stamp duty, the realtor’s commission, and legal fees for both the Vendor and the Purchaser.
The legal fees for real estate transactions are typically a percentage of the value of the real estate. The Bahamas Bar Association suggested scale fee for acting for one side in a transaction is 2.5% plus VAT. For higher priced property this percentage may be reduced.
The realtor’s commission is typically 6% of the sale price in the case of developed property, and 10% of the sale price in the case of vacant land, plus VAT.
In addition to the above-mentioned costs, there are costs for recording documents, for obtaining appraisals (which are frequently required) and application fees for any regulatory applications. These costs are relatively nominal.
BAHAMAS STAMP DUTY RATES
All real estate transactions in the Bahamas are subject to the payment of Government Stamp Duty pursuant to the Stamp Act, as amended from time to time.
At present the stamp duty is 2.5% of the purchase price of the property.
The stamp duty rate is traditionally calculated based on the purchase price of the property. Purchasers are frequently asked to provide a current appraisal at the time the conveyance is presented for payment of stamp duty, to support the valuation of the property, and the Public Treasury has the discretion to adjust the amount of stamp duty payable if they determine the market value of the property to be different than the stated amount.
VALUE ADDED TAX
Value Added Tax was introduced in The Commonwealth of The Bahamas on 1st January, 2015. VAT is charged on goods and services at a rate of 7.5%. Legal fees are taxable, and real property transfers are also taxable.
Every transfer of real estate valued over $100,000, is exigible to VAT at a rate of 7.5% of the purchase price.
Effectively, sellers and purchasers of property must be prepared to pay taxes in the amount of 10% total on the purchase price, or appraised value of the property. There are certain exemptions available, which are granted at the discretion of the Public Treasury upon application.
Real property taxes can also have a big impact on real estate transactions in The Bahamas as unpaid taxes are a statutory first charge on the property. Click here to learn more about real property tax.
The information provided herein is not comprehensive and is not intended to be a substitute for legal advice and services. Please contact one of our real estate attorneys for legal assistance.