The foremost incentive for establishment in the Bahamas is the country's tax-haven status, since no income, capital gains, wealth, inheritance, gift, or withholding taxes are levied.
On the other hand, no capital grants; loans at reduced interest rates; or subsidies toward start-up, training, relocation, or other costs are available from the Bahamian government to either foreign or Bahamian investors. Although low-interest loans may sometimes be available from the international lending agencies such as the World Bank, they are normally offered only for public works projects. Loan and risk insurance may, however, be available from these agencies.
Other incentives are available for approved projects, as described below. As mentioned at `Government Attitude Toward Foreign Investment', the government favors projects that provide employment for Bahamian nationals or increase exports.
IMPORT DUTY CONCESSIONS
The Tariff Act 1996 came into effect on 1 July 1996, and the Tariff Act 1975 was repealed. The 1996 act creates a new harmonized classification system of customs duties, under which the number of customs rates has been reduced to 29 from 123. Exemptions from or refunds of customs duties and taxes on imports are provided for by a variety of laws (see Table 2).
TABLE 2 - Principal Import Duty Incentives And The Laws Under Which They Are Provided
LAW INCENTIVE
Industries Encouragement Exemption from duty on machinery,
Act 1970 equipment and raw materials to be
(revised in 1975 and 1981) used for manufacturing purposes.
Hotels Encouragement Exemption from duty on materials,
Act 1954 equipment, and furniture required
for the construction of hotels.
Construction machinery and equipment
can be imported into the Bahamas
under bond, but these items must be
re-exported when construction is
complete. To qualify, a new hotel
located in New Providence must have
a minimum of 20 to 50 bedrooms,
depending on location. A new hotel
located elsewhere must have a
minimum of 20 bedrooms and may be
owned only by Bahamians.
Agricultural Exemption for agricultural
Manufactories Act 1975 factories from duties on
agricultural imports and machinery
necessary for food production.
Spirit and Beer Exemption for producers of beer or
Manufacture Act 1963 distilled spirits from duties on
imported raw materials, machinery,
tools, equipment and supplies used
in production.
Tariff Act 1996 Onetime relief from duties in
imports of selected products deemed
to be of national interest.
INCENTIVES FOR EXPORTS
In 1990, the Export Manufacturing Industries Encouragement Act was passed. Incentives are available under this act to manufacturers of approved products provided that one-fourth of these products are exported. Such manufacturers are exempt for twenty-five years from customs duties and from stamp duties on exports. A registration fee must be paid annually. The amount payable varies according to the market value of the manufacturer's premises, from nil if the value is no more than B$5 million to B$300,000 if it is over B$20 million.
In addition, the Bahamas is a party to various international agreements under which other countries offer concessional treatment to Bahamian exports. Some further details are given at `Exports'. Under the Caribbean Basin Initiative, approved products manufactured in the Bahamas qualify for entrance into the United States free of duty. The Canadian government offers a similar incentive to trade under its CARIBCAN program. The result of these programs is to make the Bahamian-manufactured goods concerned competitive in the North American market. The recent North American Free Trade Agreement has not affected these arrangements. Under the Lome IV Convention, a wide range of goods manufactured in the Bahamas may be imported free of duty into the European Union. Japan also offers concessions for Bahamian exports.
FAVORABLE REGIME FOR MERCHANT SHIPPING
The Merchant Shipping Act 1976 (as amended) applies to all Bahamian-registered ships, regardless of whether the owners are Bahamian residents. The Bahamas Maritime Authority Act 1995 establishes a corporate body whose functions are to promote, facilitate, and encourage the development of ship registration and to regulate, control, and administer all matters related to merchant shipping.
Foreign-owned ships may be registered if they are less than twelve years old at the time of first registry and are vessels of more than 1,600 net registered tons engaged in foreign-going trade. However, exemptions are permitted under certain circumstances. Registration fees are the greater of B$1.20 per ton or B$2,400 on ships of 5,000 tons or less, B$1.10 per ton on ships between 5,001 and 24,999 tons, and B$27,500 for ships of 25,000 tons or over. The annual fee is 10% of the registration fee plus B$1,500. There are no taxes on owner profits from operating ships.
Bahamian legislation does not impose minimum wage standards or nationality rules on its ships, but the government of the Bahamas is a member of the Intergovernmental Maritime Organization and is a party to its principal conventions.
TAX INCENTIVES
Tax benefits in the general sense are not a feature of the Bahamian economy. However, in accordance with its official investment policy, the government has announced its intention not to impose real property tax on property used for tourism, manufacturing, or industrial purposes and will defer tax on development projects. Furthermore, the Industries Encouragement Act exempts premises approved by the Ministry of Finance and Planning under that act from real property tax and stamp duties for fifteen years; approved companies are also exempted from any export tax that may be levied in the future, as well as from import duties as already described. The Hotels Encouragement Act exempts approved hotels from real property tax and stamp duties for ten years, from any income tax that may be levied in the future for twenty years, and from import duties as already described. Freedom from any future income tax is also granted in the free trade zones, as described in `Part 5, Foreign Trade - Free Trade Zones'.
OTHER INCENTIVES
The Petroleum Act 1971 provides for the exploration for and exploitation and security of petroleum resources within the Bahamas' territorial limits. It allows foreigners to apply for exploration permits in specified areas of the Bahamas; if they find petroleum, the foreigners are then entitled to apply for exploitation leases on terms and conditions to be determined at that time.
Commercial sites are available for the construction of industrial plants, and residential property is available in both Nassau and Freeport.
APPLYING FOR THE INCENTIVES
Applications for benefits under the various incentive acts must be made to the ministries or authorities concerned. For benefits under the Industries Encouragement Act, applications should be addressed to the Ministry of Industry; applications for benefits under the Hotels Encouragement Act should be addressed to the Ministry of Tourism and the Ministry of Finance and Planning; free trade zone benefits are approved by the BIA; establishment in Freeport is approved by the Grand Bahama Development Company; and for the introduction of banking, insurance, and allied services, the BIA should be contacted.
Professional advisers, such as well-established accountants or lawyers, should be consulted when applying for investment incentives. Applications can take up to three months to process as they generally require ministerial approval and publication in the Official Gazette, a section of the Nassau morning newspaper. No official fees are payable to secure incentives, and no continuing outlays need be incurred at this time.
BANKING AND FINANCING
The Central Bank of the Bahamas was established in 1974. Its functions are to promote monetary stability and to ensure that a high standard is maintained throughout the banking system. As well as issuing notes and coins, the Central Bank administers government securities and exchange controls.
There are several clearing (commercial) banks, all but two of which belong to major American, British, or Canadian bank groups. These banks handle most of the wholesale and retail banking business within the Bahamas.
Some 400 other registered banks and trust companies operate under various types of licenses; all are supervised by the Central Bank. Liberal corporation laws, exchange controls, and banking regulations and the almost complete absence of direct taxation, together with the stable political climate, have made the Bahamas one of the world's most important international offshore banking, investment, and financial centers.
All types of financing normally provided in an advanced banking environment are available through the major banks in the Bahamas, subject to the exchange controls described in `Part 4, Exchange Controls'.
Banks are generally under a self-imposed duty to screen new customers carefully and obtain background information and references concerning new businesses taken on. However, bank secrecy laws are protective, and banks are prohibited from disclosing banking information to foreign authorities without first obtaining the sanction of the Bahamian Supreme Court.
Banks are obliged to report all large cash deposits to the Central Bank, and all professional or management companies handling foreign clients' funds must register with the Central Bank. The Bahamas and the United States have entered into a mutual legal assistance treaty to facilitate the prosecution of criminal activity as defined by Bahamian law.
The Bahamas Parliament has enacted legislation to combat the laundering of proceeds derived from illegal activities, including drug trafficking. Under the Money Laundering (Proceeds of Crime) Act 1995, the penalty for money laundering is imprisonment for up to ten years. Regulations to be written will prescribe the types of records and information to be kept and will place on anyone who comes by information in the course of his or her trade, profession, business, or employment the responsibility for reporting reasonable suspicions to the police.
There is no stock exchange in the Bahamas, although legislation is currently being promulgated that will govern and regulate any stock exchange that may be set up in the future. For now, some trust companies act as brokers for deals in public companies shares.
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.
