Definitive Guide To Starting a Company In the Bahamas | Taxes, Privacy & More

At Moola Financial Group we’re determined to help borderless entrepreneurs discover the best tax and residency programs and jurisdictions for their offshore company. Today we explore the the Bahamas as a possible offshore company jurisdiction. Before we dive into tax talk, take 10 minutes and watch the video below which showcases the beauty of this island archipelago. 

The Bahamas are a collection of around 700 islands in the Caribbean located in the Lucayan Archipelago. The Bahamas is substantially larger than other offshore jurisdictions in the region. The British Virgin Islands for example, is a collection of about 60 islands and takes up an area of around 59 square miles. According to the 2018 census, the population of BVI is just over 31,000 people. Now compare that with this Bahamas which is an island archipelago in the Caribbean, which is made up of around 700 islands. The Bahamas takes up an area of 100,000 square miles and has a population of just over 400,000 people. 

The Bahamas has a heavy reliance on the tourism industry due to it’s lack of natural resources. They do export fruit, fish, forestry products and salt, but they are not known as a nation which with natural resources. It is believed that the Bahamas has vast amounts of oil below the surface of its waters, but oil exploration is not an industry is not yet a major contributing factor towards the regions GDP ($12.16 billion dollars with a GDP per capita of around  $30,762 USD). 

What the Bahamas lacks in natural resources, they make up in two other industries.

First, due to its incredible natural beauty, the Bahamas has become a top destination for tourists from around the world. The region bring in more tourists each year than there are inhabitants on these islands. In fact, it’s estimated that the country brings in 3.2 million visitors each year which helps contribute to 70% of the government’s tax revenue. It’s estimated that tourists spend around $1.3 billion dollars each year in the region, which helps keep their tourism industry alive (half of the labor force in the Bahamas is supported by the tourism industry). 

You’ve probably guessed the second biggest source of government revenue within the Bahamas. The financial service industry (i.e. offshore companies, offshore banking etc) help contribute approximately 15% – 17% towards the country’s GDP. 

The Bahamas has become world famous as an IFC (International Financial Center) and is home to over 100,000 IBC (International Business Company) type companies operating in the region. These offshore companies benefit from being domiciled in the Bahamas due to the fact that the Bahamas has no income tax, capital gains tax, wealth tax or corporate taxes. Therefore companies can enjoy a zero percent corporate tax rate, and individuals enjoy zero tax on their income. 

Bahamas Company Formation

Anyone can setup a company in the Bahamas. Individuals and companies can be the beneficial owners of IBCs, and beneficial owners can be from any foreign jurisdiction. Offshore companies are governed primarily by the International Business Companies Act 2000. 

Company name check: The first step in setting up a company in the Bahamas is to conduct a name search to ensure the company name you want to use is available.

Description of business activities: Next, you will need to briefly describe your business activities to the government. You’ll also need this short description to setup banking in the Bahamas as well. This brief description should outline your company’s overall focus and give sufficient insight into your business activities in order to allow authorities and banks to better understand your company’s objectives and day to day activities. 

Directors: Bahama IBCs allow for foreign directors. A minimum of one director is required. The details of the directors of an IBC are publicly available. Nominee directors are allowed.  

Shareholders: One shareholder is required. An IBC company shareholder can be the same person as the director. The personal details of shareholders are not publicly disclosed. IBC business owners are also permitted to use nominee shareholders. 

Company secretary: A company secretary is an optional additional. The company secretary can be the same person as the shareholder and director. 

Paid up capital: There is virtually no minimum paid up capital requirement. Paid up capital of $1 USD is required. 

Annual General Meeting (AGM): Annual meetings are not mandatory and if you hold an AGM it is not required to be held in the Bahamas. AGMs can be help anywhere in the world. 

Address: A registered address within the Bahamas is required. Most business registration companies will provide this to you at a cost of around $200 to $400 / year.

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Bahamas Corporate Taxes on Local and Foreign Earned Income

The centerpiece of the Bahamas taxation plan is that there is no distinction between local earned and foreign earned income and the government levies no taxes on corporate or personal income. Therefore companies and individuals pay zero tax on their global income. Similarly, IBCs  benefit from a straightforward and easy to understand tax code. 

As mentioned above, the Bahamas has a zero percent corporate tax rate. However, The Bahamas offers more than just no taxes on corporate income. The Bahamas has the following tax rates

– No corporate tax

– No income tax

– No wealth tax

– No capital gains tax

– Payroll taxes (3.9 paid by employee / 5.9% paid by employer)

– Sales tax (12%)

Bahamas Company Formation Costs & Timeline

Working through a third party company registration service will likely cost you between $1000 to $2000 to setup an IBC in the Bahamas. Registration is generally very quick and usually only takes 3- 5 days. 

Benefits & Use Cases of an IBC in the Bahamas

Businesses come to the Bahamas to setup companies for with a variety of use-cases. One of the more popular business types in the region however is an IBC which acts as a sort of investment pool for international investors and joint partners. This makes the Bahamas a popular jurisdiction of choice for VC’s and hedge funds. 

The Bahamas offers companies who manage investment portfolios a unique opportunity due to the fact that it’s a no tax environment. This allows investment funds to amalgamate investments from all over the world while without having to worry about the double taxation of its investors and join partners. When companies deal with international funds, those funds will be linked to a complex network of tax treaties and tax credits. In the absence of an appropriate tax treaty, an investor runs the risk of having profits taxed in two jurisdictions. Setting up an investment fund in the Bahamas eliminates this risk due to the fact that the Bahamas has a zero percent corporate tax rate and no taxes on income. Therefore, investors can be sure they will only be taxed one time on any money they repatriate back to their home jurisdiction. 

This helps reduce headaches associated with tax treaty shopping and allows the investing partners to focus on the task at hand. By having a centralized pool in a no tax jurisdiction, those funds can then leave and enter other foreign markets for investment opportunities. This allows investors from a wide range of countries to come together and pool funds in the Bahamas. Investors or partners from China, Australia, Canada, the UK, the US and Switzerland can all come together without having to worry about how their income will be treated by the host country. Once the money is pools, management can then exit the funds for investment opportunities in places like Africa, Europe or Asia and the partners won’t need to worry about tax tries in those regions, because their relationship is strictly with the IBC in the Bahamas. 

This helps keep portfolio management easy while at the same time mitigating risk for partners and investors. 

However, the Bahamas isn’t only home to VC firms and hedge funds. IBC companies can be used for a wide assortment of businesses ranging from real estate companies, intellectual Property (IP) holding companies, service centers, import / export companies, asset holding companies, procurement companies and of course any company with strong ties to the digital economy that primarily sells services and products online. 

Company & Banking Secrecy In the Bahamas

There is a lot of outdated information online about how companies in the Bahamas benefit from incredibly high levels of secrecy. However, this simply is not the case any longer. The Bahamas has actively worked to remove itself from international black lists that classify the jurisdiction is a ‘”tax haven”. In an effort to clean up it’s reputation is has worked closely with international groups such as the OECD and the World Bank in order to update it’s compliance standards to a global norm. 

The Bahamas ash signed Tax Information Exchange Agreements (TIEA), updated it’s Know Your Customer (KYC) laws and has engaged in financial reform which has allowed the jurisdiction to clean up its reputation. The problem is, that while government seek to squeeze the funding of illegal activities, they do so at the cost of legitimate businesses. 

A New Requirement For Economic Substance

There are growing demands from international organizations, such as the OECD, for the requirement of “economic substance” within jurisdictions classified as offshore tax havens.

Recently the Bahamas, in a quest to avoid being put on the European Union’s blacklist of uncooperative countries, negotiated with the EU and has since enacted the (Substance Requirements) Act, 2018 (“CESA”) 

This new legislation creates the requirement for IBCs in the Bahamas to have economic substance within the Bahamas. This means that its core income generating activities (“CIGA”) take place locally. Essentially this puts pressure on IBCs to create presence within the Bahamas. 

The idea is to force companies to create structures that have value creation linked to the Bahamas in a very real and tangible way. This way value creation is not divorced from the jurisdiction, but rather strongly tied to it. 

Substance can be created in many different ways ranging from having employees located in the region, having operational office space, ensuring meetings taking place in the Bahamas, and ensure key decisions are made in the Bahamas. 

The problem with this new requirement, is that is puts unnecessary pressure to build an infrastructure where one might not be necessary. In our growing digital and global economy, the requirement for physical presence is challenged by technology that allows us to live and work anywhere. In today’s digital economy, it’s possible to have a fully distributed team. Even many onshore companies use the power of technology to remove their dependence on physical jurisdiction. Assets can now be hosted on a cloud servers, teams are distributed around the world, central management can be in a constant state of movement (Spain this week, Peru the next), and most recently we can now even hold funds using decentralized technology that essentially allow funds to exist nowhere and everywhere at the same time.

To force centralization is a step backwards and creates expensive infrastructure where that infrastructure is not necessarily required for the proper functioning of a company. In many cases, this logic is counterproductive and creates an unwelcoming business environment for the very companies and entrepreneurs who’s business models don’t require heavy local investment in any one jurisdiction.

These economic substance rules in offshore jurisdictions, will end up pushing many SMEs who can’t afford to satisfy these new economic substance rules out.

The Bahamas has already singed up to OECDs Base Erosion and Profit Shifting BEPS initiative. By agreeing to join the requirement for economic substance, the Bahamas will undoubtedly be pushing out many SMEs that simply can’t satisfy the requirement, not because they are doing anything illegal, but because their modern and global business model, is in friction with a narrowly defined concept of “economic substance”.

The Bahamas For an Offshore / International Company?

Nevertheless, the Bahamas is one of the best offshore jurisdictions from a corporate tax savings standpoint. You can’t get lower than a zero percent corporate tax rate. Combine this with an English speaking jurisdiction that has a stable government, respected rule of law, a high per capita GDP and a beautiful climate and you have a recipe for an ideal offshore company jurisdiction.

Is the Bahamas right for you? Well, it really depends on your circumstances and company needs. If you’d like to learn more about international corporate tax planning, then consider enrolling in our comprehensive 6 hour offshore tax planning course.

 

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(*Learn how to dramatically reduce your corporate taxes by using the various restructuring blueprints that we’ll provide you in our FREE offshore tax planning and training mini-course.)

Access Our FREE Quick Start Offshore Tax Planning & Training

(*Learn how to dramatically reduce your corporate taxes by using the various restructuring blueprints that we’ll provide you in our FREE offshore tax planning and training mini-course.)

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