The Bahamas: Newly Enforced 2023 Regulatory Requirements

21 November 2023 - Over the past year, The Bahamas has taken proactive steps to strengthen its legislative framework to counter its re-insertion into the EU list of non-cooperative jurisdictions for tax purposes. Following the enactment of the Business Licence Act 2023 and the Commercial Entities (Substance Requirements) Act 2023 (‘CESRA 2023’), new regulatory requirements are now in force for those operating within the jurisdiction and Bahamian entities will need to take relevant action to remain in compliance.

Updates to Business Licence Tax

First presented in the 2023/24 Bahamas Budget, the Business Licence Act 2023 came into force on 1 July 2023 to replace the Business Licence Act 2010, and is now in force along with the ancillary Business Licence Regulations 2023 (together the ‘Regulations’).

Under the Regulations, a business licence is only required for entities and persons carrying on an active business in or from within The Bahamas, which includes the following activities:

• Business revenue recorded in the books and records of an international business company (‘IBC’) as having been earned from activity in or from within The Bahamas;
• Included entities (other than those that are pure equity holding entities) involved in relevant activities under CESRA 2023, which are required to have a substantial economic presence in The Bahamas;
• Significant operational mind and management decisions of a business being conducted in The Bahamas on an ongoing basis;
• The existence of operations at a permanent establishment/fixed place of business;
• Performance of personal services within The Bahamas;
• A financial services entity (i.e. a business that is subject to paying a licensing fee and regulated with the Central Bank of The Bahamas or the Securities Commission [‘SCB’], an insurer, a co-operative credit union, or a Carbon Credit Trading Act registrant).

Persons or entities that are only holding assets (of any kind) and are not operating a business within The Bahamas are not required to have a business licence or to pay business licence taxes.

However, a business licence is mandatory for all rental income of real estate located in The Bahamas and held by foreign persons and entities. Furthermore, the definition of ‘Turnover’ explicitly includes rental income and royalties.

Two precise types of operations specifically excluded from the definition of a ‘Business’ without the need of a business licence or payment of its associated taxes are:

1. Investment funds regulated by the SCB in accordance with the Investment Funds Act 2019. Fund Administrators and Managers, however, are involved in securities business and will be taxed; and
2. Pure equity holding entities, which are entities exclusively dedicated to holding participations in other entities, with their sole sources of income stemming from dividends and capital gains.

Impact on IBC’s

The percentage of Business Licence Tax applicable to IBC’s that have domestic taxable operations is as follows:

It is also important to note that, for the first time, Bahamas-domiciled IBC’s will be taxed on their overseas revenues. The revenue attributable to operations outside of The Bahamas is subject to either:

1. A tax of $2,500 where revenue from activities does not exceed $1m; or
2. A tax of 0.25% up to a maximum of $100,000 where the revenue from activities exceeds $1m.

The filing requirements have not changed under the updated Regulations; business licences expire on 31 December of each year and need to be renewed no later than 31 January of each year, with the applicable business licence tax being paid by 31 March. Penalties and surcharges apply to late payments.

In-scope entities will also be required to submit supporting information as part of the return. Audited financial statements must be in respect of The Bahamian tax year, going from 1 January to 31 December, irrespective of the year-end of the taxable entity.

Increased economic substance obligations

CESRA 2023, which came into force on 1 September 2023, repeals and replaces the Commercial Entities (Substance Requirements) Act 2018. It provides further clarifying provisions on what each relevant activity means and changes the manner in which entities report. CESRA 2023 is also aligned to the Business Licence Act 2023, which supports the split between the definitions of a 'holding business' and a 'commercial entity', with the latter excluding investment funds, foreign tax-resident and resident-owned entities.

As a result, corporate entities operating in The Bahamas now face increased obligations to demonstrate genuine economic presence in the jurisdiction and will be required to report increased economic substance information every fiscal year.

Economic substance declaration requirement

Economic substance declarations must be filed by an entity’s Registered Agent (RA) in the portal within nine months of the financial year-end. The system will allow RA's to search and view their own entities and declaration data. If the RA does not file an economic substance declaration within the specified period, then it will be considered overdue.

Failure to comply will trigger warning notices and if applicable, penalties. The Bahamas’ Ministry of Finance, as competent authority, can authorize an on-site inspection to verify an entity’s information filed on the electronic portal, or designate an approved auditor to conduct the inspection and submit a corresponding report.

Lastly, this new legislation applies retrospectively and calls for 2022 filings to be filed once again, in the newly implemented portal.

A further change on the horizon

Despite the wave of regulatory changes in 2023, there is more to come as the Bahamian government is modernizing the Companies Registry by implementing a new system in early 2024 that will give RA’s increased access and online capabilities. The objective is to improve response times and provide greater access to digital certificates, promoting increased transparency.

As experts in entity life cycle management, Citco Corporate Solutions companies pragmatically support clients in The Bahamas and around the world.