June 2024

Moving The Bahamas Forward
The Bahamas has been a well-established destination from the 1950s and continues to enjoy a stable government and a parliamentary democracy based on the Westminster model. Investors rely on a seasoned and experienced legal infrastructure underpinned by a well-regarded court system with ultimate appeal to the Privy Council in the UK. World-class housing, internationally accredited education and medical facilities, and easy accessibility to the United States make it an attractive destination for Ultra High Net Worth Homeowners and investors. Immigration and residency options include permanent residence and annual residence. For business owners, the Commercial Enterprises Act facilitates expedited approvals for a variety of entrepreneurial ventures that can be operated both within and outside of The Bahamas.

The economy of The Bahamas has been remarkably resilient in the wake of the COVID-19 pandemic. The volume of visitor arrivals has continued to increase along with greater spending in the economy

On 29 May, 2024 the Prime Minister of The Bahamas, the Hon. Philip Davis KC, tabled “Budget 2024: Changing the Status Quo, Changing Lives Communication to Parliament” in the House of Assembly. The Government’s Budget Communication has made it clear that the Government continues strengthen National Security, Economic Security and the Livelihoods of the people of The Bahamas by seeking to reduce the cost of living, create safter communities, support entrepreneurs, strengthen the borders and build an more inclusive economy by challenging the status quo.

The Government seeks to achieve these results by adjusting tax rates in some instances; increasing fees (primarily fees related to immigration applications); placing greater emphasis on collecting the taxes that are owed and enforcing collections against individuals and entities deemed to be avoiding and/or delinquent in the payment of the same; and introducing the Qualified Domestic Minimum Tax-Top up for in-scope Pillar two multinational entities operating within The Bahamas.

The government’s prioritisation of enhancing collection and enforcement systems was evident from the previous budget cycle. Considerable efforts have been and continue to be undertaken with the certain tax assessment and collection initiatives. Current and potential investors should be aware of the rate changes and enhanced scrutiny and collection.

Real Property Investments
Property investment/development is a particularly robust pillar of foreign direct investment in The Bahamas. All non-Bahamians acquiring an interest (directly or indirectly) are required to be approved by the Investments Board or to register their purchase with that department pursuant to the International Persons Landholding Act. The government has taken some significant steps to improve the ease with which such applications are made (now through online applications and fee payment processing) and to improve the efficiency of handling such matters – roughly halving the previous timelines typically experienced.

Similarly, all real property is (unless specially exempted) subject to annual Real Property Tax and the government has carried- out various initiatives (primarily the adoption of electronic portals and payment methods) improved the options and methods by which property owners may monitor their property’s annual tax and remit payment, with the former system of hardcopy mailing and ‘over- the- counter’ payment largely falling away.

Property transactions valued under BSD1 million are currently subject to the payment of VAT on an ascending scale up to 10% of the assessed value of the property. In an effort to shore up the country’s finances, all real property purchases by non-Bahamians are now charged VAT at 10% of the assessed value of the property. Whilst this rate change was expected to impact investors who traditionally sought to acquire properties worth less than BSD1 million the market has not shown a significant decrease in activity or a slowdown attributable to the rate change.

The government has announced a policy change with respect to the requirement to qualify for economic permanent residency status. Currently, real estate investments of a minimum of $750,000.00 qualified the investor for economic permanent residency status. The government has indicated that the minimum investment will increase to $1M and the route to obtain such status will include either an investment in real estate or the purchase of Zero Coupon Bonds from the Central Bank of The Bahamas. In both cases the investment must be held for a minimum of 10 years. The legislative amendments to effect the policy change have yet to be implemented; however, the government has indicated that the changes are to take effect on 1 January, 2025.

Condo-Hotel Tax
Previously, properties not owned by a hotel that form a part of a hotel’s bedroom inventory (condo-hotels) were exempt from paying Real Property Taxes, as they enjoyed the same benefit of various concessions and exemptions granted to the hotel or resort developer pursuant to the Hotels Encouragement Act. Effective as of 1 January 2023, a Condo-Hotel Tax at the rate of 75% of the residential property rate set under the Real Property Tax Act is payable on a unit if it does not report net VAT in excess of the Condo-Hotel Tax. The maximum annual Condo-Hotel Tax payable is currently BSD150,000 per annum.

Corporate Income Tax
There are currently no corporate, withholding, payroll, or transfer taxes paid by companies incorporated and/or doing business within The Bahamas. Rather, a business operator requires a business licence to operate a business within The Bahamas. Business licence fees are, generally, calculated based on gross turnover. Small businesses, ie, those whose turnover is less than BSD50,000, pay a flat rate of BSD100 per annum. A rate of 0.50% is charged on turnovers of BSD500,000 to BSD5 million and a rate of 1.25% is charged on each turnover in excess of BSD5 million.

The government has signalled that the implementation of an International Business Income Tax (QDMTT) for large multinational corporations will take effect this year and this will necessitate changes to the current Business Licence and Stamp Tax regimes. It is not intended for a business to be subject to both taxes and the Stamp Tax will be amended to convert the 5% tax on dividends into withholding tax to avoid a potential double taxation.

The government also intends to amend the Business Licence Act which amendments will focus on/impact companies with revenues of $5 million or more per annum.

The Business Licence Act has been amended to reflect that financial services entities, international business companies, proprietary trading entities and family offices with turnover of $100,000 and less are not exempt from paying Business Licence fees.

Enforcement
The implementation of a corporate income tax will represent a sea-change in tax law in The Bahamas and will depend on effective tax collection (of new and current taxes) to ensure that the government’s objectives can be met. The government has stated that it will be particularly focused on improving tax compliance and enforcement by:

  • establishing a unit which will be responsible for improving compliance and revenue collection from businesses;
  • using technology to identify anomalies in revenue reporting;
  • improving revenue collection in the Bahamian Family Islands (where many investment properties are located); and
  • implementing updated fees for the registration of pleasure crafts.

Authors:

Graham Thompson has been one of the pre-eminent law firms in The Bahamas since 1950. The firm operates four offices conveniently located throughout The Bahamas. The firm is well regarded for its work with high net worth private clients. The firm’s key practice areas include: private clients, trusts, and estates (estate and trust structuring, foundations, trust company licensing, and private trust companies); banking and finance (real estate financing, asset leasing and financing, corporate finance, restructuring, financial services law and regulation, loans, debentures and mortgages, and receivership); corporate, commercial, and securities (capital markets, M&A, pension schemes, private equity funds, unit trusts, investment funds, and IPOs); property and development (hotels, resorts and mixed-use developments, condominiums and timeshares, government approvals and exchange control, private and commercial mortgages, real property taxes, subdivision planning and structuring, second-home acquisitions and sales, and title insurance and opinions); and insurance (captive insurance, and domestic and external insurance).

Aliya Allen is a partner in Graham Thompson’s Financial Services, Private Client, and Trusts and Estates practice groups. She focuses primarily on banking, investment funds, securities, securitisation and capital markets, technology, fintech, blockchain and digital assets, and regulatory matters such as FATCA, CRS, and AML/CFT. She has played a leading role in the development and revision of industry-defining legislation including the Investment Funds Act 2019 and the Investment Condominium (ICON) Act, and in crafting and promoting policy initiatives concerning fintech, blockchain, and digital assets. A recognised thought-leader in the digital assets business sector in The Bahamas, Aliya was appointed by The Bahamas government to the country’s Digital Asset Advisory Panel.

Alistair Chisnall is a partner in Graham Thompson’s Commercial and Property practice group, and specialises in real estate, sales, and structuring for high-end private client matters and large commercial transactions. His practice covers mortgage-backed financing and loans, title due diligence and opinions, title insurance, subdivision and development planning, resort development and operation, commercial and residential leases, and related tax and regulatory matters. He represents owners and operators, ranging from family businesses and boutique resorts to the largest commercial enterprises, local banks, and hotel and casino operators in The Bahamas, including Atlantis Resort Paradise Island and Baha Mar Resort & Casino. Alistair is a government-appointed member of the National Land Reform Committee.

Michaela Sumner-Budhi is a partner at Graham Thompson, with extensive experience in transactional and litigation practices. Her work for Graham Thompson has spanned the firm’s litigation, employment & labour, property, commercial, and financial services practice areas. Her specialisations include risk management, medical ethics, medical, medical malpractice, commercial, and labour law. She has served on the Hospitals and Health Care Facilities Licensing Board as Chairman, the Compliance Sub-Committee of the National Stem Cell Ethics Committee, and the National Medical Ethics Committee for the COVID-19 Pandemic.