Bahamas: Investment In The Bahamas

Tourism in the Bahamas now accounts for approximately 40% of a GDP of US$3.5bn with over 3.4 million visitors annually. The banking industry is the second most important industry and financial services are estimated to contribute about 20% of the GDP. The four core types of business are discussed below.

The development of The Bahamas as an international banking centre is the direct result of deliberate government policy together with responsive legislation to provide for sound supervision by The Central Bank of The Bahamas. This has resulted in over 400 banking licences being issued.

There are several types of banking institution which are categorised as follows:

An authorised dealer is a bank which has been authorised by the Central Bank to deal in gold and all foreign currencies, and for this purpose can open and maintain accounts in such currencies, within the limits laid down in Exchange Control Notices issued by the Central Bank. Under authority delegated by the Central Bank, an authorised dealer can approve certain applications for foreign currency within specified currency and specified limits.

An authorised agent is a bank or trust company authorised by the Central Bank to deal in Bahamian and foreign currency securities and to receive securities into deposits (ie to act as custodians) in accordance with the terms of Exchange Control Regulations Act and Exchange Control Notices issued by the Central Bank.

A resident status allows a bank and/or trust company to deal only in Bahamian dollars, but operations in foreign currencies require Exchange Control Authorisation. Trust companies with resident status are allowed to deal in foreign currency securities on behalf of non-resident customers.

A non-resident designation permits a bank and/or trust company to operate freely in foreign currencies, but Exchange Control approval is necessary to operate a Bahamian dollar account to pay local expenses.

A public bank and/or trust company is one which is permitted to carry on banking and/ or trust business with members of the public.

A restricted bank and/or trust company is one which is allowed to carry on business for certain specified persons which are usually named in the licence.

A nominee company is a restricted licensee which holds securities and other assets in its name on behalf of clients of its parent bank or trust company, but carries on no other trust business.

A non-active company is one which is either in voluntary liquidation or wishes to keep the word bank or trust in the company's name even though it is not carrying on any banking or trust business.

One of the principal attractions of The Bahamas as the location for banking and/or trust activities has been, and remains, the existence of legislation providing for the preservation of secrecy, in addition to the common law requirement of confidentiality.

A trust or settlement under Bahamian law is a legal arrangement under the terms of which certain assets are placed under the control of the trustee who must deal with them in accordance with the wishes of the settlor as expressed in the trust documentation.

A Bahamian trust may be created by a non-resident settlor for non-resident beneficiaries. In addition, there is no necessity for the trust property to be situated in The Bahamas. There are numerous trust companies, which may be appointed to act as trustees, as an alternative to personally selected individuals.

The new Trustee Act 1998, increases trustee investment powers, provides for special purpose trusts and indemnity protection and enhances the existing trust law in The Bahamas.

An IBC is a flexible form of corporate vehicle governed by the International Business Companies Act, 1989. The use of IBCs is subject to a small number of important restrictions, namely it may not:

• carry on banking, trust or insurance business;
• carry on the business of providing the registered office for companies;
• carry on business with persons resident in The Bahamas; or
• hold Bahamian real property.

Some principal features of an IBC include:

• an exemption from the Exchange Control Regulation Act;
• an exemption for both the company and its shareholders from any taxes arising from any transaction to which the company or shareholder is a party;
• an exemption from stamp duty in respect of all transactions involving transfers of property to or by an IBC, and also in respect of shares, debt obligations and other securities and transactions of an IBC;
• an exemption from income taxes, stamp duties and death duties by estates of deceased shareholders for a period of 20 years from registration;
• an exemption from public or government reporting requirements. The names of directors, officers, attorneys-in-fact and shareholders are not registered;
• provision for meetings of directors and shareholders to be held by telephone or by any other electronic means either within or outside The Bahamas;
• special powers to protect the interests of the company, its creditors and shareholders;
• an ability to change domicile to another jurisdiction by registering and continuing in that jurisdiction;
• the ability to be incorporated for any object or purpose provided that it is not prohibited by any law in The Bahamas; and
• the ability to issue a variety of shares and may purchase, redeem or otherwise acquire and hold its own shares.

An IBC must have a registered office and a registered agent in The Bahamas at all times.

The Bahamas is a leading centre for the operation of offshore mutual funds, which have increased from approximately 300 funds with net assets of US$20bn in 1993 to 600 funds with US$90bn currently.

The Mutual Funds Act of 1995 sought to regulate the mutual fund industry in The Bahamas through supervision by a securities commission and licensed mutual fund administrators. Mutual funds with a connection to The Bahamas and local mutual fund administrators are required to hold a license in order to carry on business.

The act does not however aim to regulate what are in essence private investment companies and accordingly, entities with not more than 15 investors, the majority of whom are capable of appointing or removing the operator, are exempted from compliance with the act.

The Act also aims to minimise the compliance requirements for mutual funds established for sophisticated investors (an authorised fund), where the fund is listed on a stock exchange or requires a minimum subscription level of US$50,000.

Funds whose administrator is also a licensed bank or trust company in The Bahamas are exempted from compliance with a number of the regulations.

A large number of insurance companies are registered to do business in or from within The Bahamas. The Government of The Bahamas has expressly stated its support for further development of The Bahamas as a centre for external risk insurance business (including captive insurance).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to iofch@mondaq.com