Like many island nations in the West Atlantic Ocean, the Bahamas is known for its pristine white sand beaches, turquoise waters, and barrier reefs.
Nothing new there. What is less well-known is that the Bahamas also offers a zero-tax regime, making it an ideal location to set up an offshore company.
Part of the British Commonwealth, an international association of 56 member states – the vast majority of which are former British territories – the Bahamas is comprised of 700 islands, sixteen of which have significant economic activity.
With an average temperature of 26 degrees Celsius, the country boasts a favourable investment climate, a well-developed legal system and a tradition of democratic governance.
Of course, any discussion of the merits of the Bahamas, or otherwise, would be incomplete without mention of its tax-haven status. While this is a draw for individuals and businesses, it comes with a degree of reputational risk.
The level of risk depends on the type of business you establish, the kind of activity you’re engaged in and where your customers are. Interested parties should be clear on one thing though, the Bahamas is not a place where you can hide assets under the guise of attracting profits without actual economic activity.
That said, certain types of companies, based on the broader structure of a corporation, can be created as tax-efficient shell entities – but there must be a legitimate reason for them to exist. As in many other island nations in the area, the winds of financial change are blowing. Despite being blacklisted as a non-cooperative jurisdiction for tax purposes by the European Union (EU), the Bahamas is taking steps to adhere to more stringent financial reporting standards.
Offshore Advantages in the Bahamas
Given that the Bahamas does not impose corporate tax, withholding tax, payroll, or transfer tax levied on businesses, it’s fair to say it will remain an outlier. As most significant economies adopt a global minimum tax rate, there’s little sign that the Bahamas will abandon its tax-free regime.
Unlike other small island nations that rely solely on the income generated by their tax-free status, the Bahamas has a more rounded, stable economy. It’s also a well-established offshore banking jurisdiction with several international and Bahamian-owned commercial banks. The official language is English.
According to the World Bank, the Bahamas Gross Domestic Product (GDP) was worth US$12.9 billion in 2022. It has a Standard & Poor’s credit rating of B+ with a stable outlook and low inflation of 2% as of September 2023. Best of all, with around 570,000 tourist arrivals last year, it has the economic stability offered by being a prime tourist location.
In terms of transparency, according to the 2023 Corruption Perceptions Index, the Bahamas is among the 30 least corrupt nations out of the 180 countries ranked. So, despite being known for low taxes and financial secrecy, the Bahamas compares favourably to similar tax-haven jurisdictions.
Economic Substance Reporting Changes
Following a review by the Organisation for Economic Cooperation and Development (OECD) in 2023, the Bahamas changed its financial reporting regime.
Under economic substance reporting rules, corporate entities must report details of their economic presence in the Bahamas. The OECD and the EU found deficiencies in the original legislation governing such requirements and added the Bahamas to its list of non-cooperative tax jurisdictions.
This led to further legislation giving non-compliant entities 28 days to comply with substance requirements or face an audit or heavy fine.
Not satisfied, the OECD has requested further amendments focused on pure equity holding companies. Those entities in the scope of legislation:
- Must disclose gross income earned, the total expenditure incurred, and the amount spent in the Bahamas
- Must report the total number of employees and an address in the Bahamas
- Must provide board meeting details.
Based on these changes being made, the EU has committed to reviewing the Bahamas non-compliant listing in February 2024.
Setting up an Offshore Company in the Bahamas
The type of companies that can be registered in the Bahamas include a Bahamas International Business Company (IBC), the most common structure for offshore activities in the Bahamas.
An IBC is typically a private company limited by equity shares. Under the International Business Companies Act of 1990, a foreign company can conduct its business in the Bahamas with complete privacy.
Even the names of the shareholders don’t have to be provided to the Corporate Registry. Companies also don’t have to comply with any annual reporting requirements.
It’s also possible to establish a Bahamas Asset Protection Trust that secures the wealth that an individual puts into his trust so it will be ring-fenced from international and civil legal actions. Find out more about establishing a Bahamas trust here.
Setting up a company here is straightforward, with minimal requirements and 100% foreign ownership permitted. Foreigners eager to do business in the Bahamas need approval from the Ministry of Finance’s Ministry (BIA), the key foreign investment regulator.
A detailed project proposal following BIA’s guidelines is required to gain this approval. Additionally, a minimum initial investment of BS$500,000 is necessary. As the Bahamian dollar is pegged to the US dollar, the value is equivalent to US$500,000.
Businesses require a licence to operate there, which is charged at either a flat rate of BS$100 or up to 3% of turnover, depending on the revenue generated.
From time to time, the Government of the Bahamas offers targeted investment incentives for particular types of projects focusing on industries open to foreign participation. Specific sectors like real estate and local media are restricted. Bahamas IBCs can only do local business activities with permission from the central bank.
Company formation takes around seven to ten days and there is no requirement to have local directors, with 100% foreign shareholders allowed. Under the Bahamas Multinational Entities Financial Reporting Act, companies with annual revenues less than BS$850 million do not need to file a yearly report with the Ministry of Finance.
Bahamas-incorporated companies enjoy no income, incorporation, capital gains, or wealth taxes, though they are subject to value-added tax.
The Bahamas Company Registration Process
The ability to apply for a business licence in the Bahamas depends on your residency status. If a foreign person is a permanent resident of the Bahamas, they may apply for a permanent business licence. Any Bahamian citizen or permanent resident can apply for a new business or as an existing business owner.
The first step is to collect the application form at a Business Licence Unit (BLU) Office or access it online. The first section must be completed to register your business name.
The application form should be completed and returned to any Business License Division office. The form can be returned to a Treasury Office or a Family Island Administrator where there are no Business License Division Offices. All approved trade names will be assessed a fee of BS$25 when the final Business Licence application has been processed.
If an identified business name is rejected, the applicant is advised to select from the remaining choices on the form. The following items must also be submitted along with the application:
- Proof of residence
- Appropriate registration fee
- Approval related to the selected business.
Public trading companies, limited liability partnerships, and limited liability companies are registered at the Registrar General Office, where they receive their certificate of incorporation. This is then presented at the BLU office to complete the business licensing process.
The supporting documents needed to register an offshore company are:
- Copy of a valid passport or original birth certificate as well as those of parents if one is born after July 1973 and national insurance card
- National Insurance ‘Letter of Good Standing’
- Business name
- Certificate of incorporation from the Registrar General’s Department
- Property tax must be settled if the applicant owns the property on which the business is located
- Necessary approvals – if the business operates a store or is involved in the sale of alcohol, approval must be sought.
Once all the document requirements are met and the name is approved, the application is then processed within seven working days. The BLU Office will then contact the applicant to inform them that they can collect their licence.
To the Bahamas and Beyond
With its proximity to North and South America, investment, and tax benefits, the Bahamas is well worth condensing as an offshore business location. While its effort to curb money laundering and international transparency issues have not gone unnoticed, there remains a question mark.
Compared to other zero-tax countries, the Bahamas has taken concrete steps to enhance its reputation. In addition to its stability, privacy, and relative ease of company incorporation, the nation is one of the foremost offshore hubs.
It has a solid economic backbone as an established and respected tourist destination. In recent years, efforts to move into new financial technologies have attracted big tech players and companies that utilise fintech and blockchain technology.
The Bahamas offers a versatile corporate structure for establishing various business entities. In many ways, it’s an ideal place to streamline the establishment of a tax-friendly offshore presence.
Many entrepreneurs are beginning to realise that they can run a business from anywhere in the world. Because businesses today can operate online where borders do not exist, you can ‘go where you’re treated best,’ take yourself and your business offshore and pay low or no taxes.
If you can realise the optimal mix of where to live, where to incorporate, and where to own assets, you can reap the benefits of legally reducing your taxes for good.
However, you will need to plan this carefully.
That’s where Nomad Capitalist comes in. We help seven- and eight-figure entrepreneurs and investors create a bespoke strategy using our uniquely successful methods. We’ll help you keep more money, create new wealth faster, and be protected from whatever happens in just three steps. Become a client today.
