In order to comply with the requirements of the European Union’s inter-governmental Code of Conduct Group (Business Taxation) guidance for determining substance when considering whether a tax measure is harmful or ‘fair’ and the Organization for Economic Co-Operation and Development’s Base Erosion Profit Shifting (BEPS) Project, the Parliament of the Commonwealth of The Bahamas enacted the following Acts of Parliament (the “Acts”) in 2018:
(1) Commercial Entities (Substance Requirements) Act, 2018;
(2) Removal of Preferential Exemptions Act, 2018;
(3) Register of Beneficial Ownership Act, 2018; and
(4) Multinational Entities Financial Reporting Act, 2018.
The Acts are significant pieces of legislation that introduce changes to the legal landscape in The Bahamas and may have important ramifications for how you do business or structure your affairs. We have therefore prepared this notice to bring to your attention the key features of the Acts. We have also included links to the complimentary bulletins summarizing the Acts.
Commercial Entities (Substance Requirements) Act, 2018
- An entity incorporated, registered or continued under the Companies Act (the “CA”) or the International Business Companies Act (the “IBCA”) that carries on or has a subsidiary that carries on certain types of business activity must demonstrate that it has a substantial economic presence in The Bahamas.
- Substantial economic presence in The Bahamas is demonstrated by conducting core income generating activities in The Bahamas and localising management and control in The Bahamas. Additional requirements are imposed for entities that carry on intellectual property related activities.
- Passive holding entities incorporated, registered or continued under the CA or the IBCA must have strategic decisions made in The Bahamas by persons with the necessary knowledge and expertise to make such decisions.
- Every entity incorporated, registered or continued under the CA or the IBCA must file prescribed information with the Minister of Finance within 9 months of the end of their fiscal year.
Removal of Preferential Exemptions Act, 2018
- With effect from 31 December, 2018, companies and entities incorporated, registered or continued in accordance with (a) the IBCA; (b) the Exempted Limited Partnership Act; (c) the Investment Condominium Act, 2014; and (d) the Executive Entities Act, 2011 are no longer entitled to preferential exemptions from taxes such as business licence fees, stamp tax, income tax, corporation tax, capital gains tax, estate or inheritance tax, succession tax or gift tax. However, companies and entities incorporated, registered or continued under the IBCA, the CA or the Investment Condominium Act that were in existence prior to 31 December, 2018 will continue to enjoy the preferential exemptions from taxes that they would have otherwise been entitled to until 31 December, 2021.
Register of Beneficial Ownership Act, 2018
- Every legal entity incorporated, registered or continued under the CA or the IBCA that is not an exempt person must identify its beneficial owners and its registrable legal entities and notify its registered agent of the same.
- Registered agents must take reasonable steps to verify the identity of the beneficial owners and registrable legal entities of every legal entity for which they act as registered agent.
- Registered agents are required to establish and maintain a database that is accessible by the Attorney General of The Bahamas’ secure search system. Registered agents must enter certain particulars about the legal entities for which they act, including certain particulars about their beneficial owners, into this database. Registered agents must comply by 20 December, 2019.
- The secure search system is highly confidential. It is not accessible by the public. It is only accessible by persons designated by the Minister of Legal Affairs and only then from a designated secure location in The Bahamas.
Multinational Entities Financial Reporting Act, 2018
- Entities incorporated or resident within The Bahamas that are part of a multinational entities group that is not excluded by virtue of having a total consolidated group revenue of less than US$850,000,000.00 (as reflected in consolidated financial statements) during the fiscal year immediately preceding the relevant reporting fiscal year are required to either file a country-by-country report of profit or losses attributed to the multinational entities group or to notify the Minister of Finance of the entity in the multinational entities group responsible for filing the country-by-country report in its tax jurisdiction.
We understand that the Acts are complex pieces of legislation and that you may have questions or concerns about how they affect your particular situation. Accordingly, should you wish to discuss the changes outlined in this notice or the bulletins, or the impacts of the Acts on you personally, please do not hesitate to contact Zarina Fitzgerald or Christel Sands-Feaste.