The Bahamas boasts banking bonanza
11 March 1998
Nicholas Ashton explains how The Bahamas stays one step ahead of the offshore competition - keeping foreign laws out while attracting investors from other jurisdictions. Nicholas Ashton is tax partner at Edge & Ellison in Birmingham.
This year The Bahamas celebrates its 25th year of self-government and independence from the British.
After a decline of almost 20 years under the auspices of its last government, The Bahamas is now enjoying a comeback and attracting greater inward investment, encouraged by the more outward-looking Free National Movement government which entered its second term of office in March this year.
The economy is relatively open, with low levels of taxation and regulation and no income, capital gains or inheritance tax. The country has no double taxation treaties and its trust law is not subject to the Hague Convention.
Furthermore, despite the fact that it has entered into a mutual legal assistance treaty with the US, that particular agreement is limited to exchange of information in respect of criminal activities such as money laundering and would not, for example, cover taxation matters.
The financial services sector is now growing even more quickly than the tourism industry, which employs more than 50,000 people. But why?
The favourable taxation climate is clearly a major factor. Additionally, the independence of The Bahamas gives it a potentially competitive edge over other offshore jurisdictions, whose laws are constantly under review by their respective mother countries.
The Bahamas has a strong, stable legal system which is based on common law. Appeals are heard by The Bahamas Court of Appeal with ultimate right of appeal to the Privy Council.
The independence of the judiciary is especially important in determining whether political pressure may be brought upon the courts to enforce the taxation or other laws of another nation. The Bahamas Court of Appeal is frequently on record as saying that its judiciary will not enforce those laws.
Other factors contributing to this growth include the fact that almost every major bank in North America and Europe now has a presence in The Bahamas. Tough secrecy laws underpin the banking system and these are rigorously enforced.
By the end of this year The Bahamas will have a new stock exchange which will, at least initially, concentrate on the country's 600 mutual funds, valued at $77bn. Before this can operate to full effectiveness, the Central Bank of The Bahamas recognises that it will have to abolish the exchange controls which currently exist. Local issues of shares are currently on the increase, with some large scale issues planned.
The Bahamas has new trust legislation, the Trustee Act 1998, which completely amends and updates its trust laws.
Among other things, the new legislation clarifies: the type of investments permitted by trustees; the powers which settlers can retain without risking invalidating their trusts; the types of information to which beneficiaries are entitled; and the types of actions which can be taken by protectors, without them running the risk of being found to be acting in a fiduciary capacity.
The Fraudulent Dispositions Act 1991 defines the rights of creditors who allege that dispositions are made fraudulently and to their detriment. This is the law which created asset protection trusts and, for a number of reasons, The Bahamas is still the favoured jurisdiction for anyone contemplating a settlement with the underlying motive of asset protection.
Other helpful legislation enables persons from jurisdictions where there are forced heirship laws to set up Bahamian trusts. There is no forced heirship in The Bahamas.
Bahamian company law has also made the offshore jurisdiction very competitive. Companies may be speedily incorporated, while different types and classes of shares may be issued in various currencies. Additionally, limited duration companies and exempt limited partnerships may be formed.
Of the special types of company the international business company (IBC) can be a useful tool in those elements of UK tax planning where an offshore company is required.
For instance it is well known that UK assets can be converted to non-UK assets by holding them through an offshore company, so that the assets in the immediate ownership of a non-domiciliary are company shares with non-UK situs.
The advantages of IBCs include: complete business privacy and confidentiality; no requirements to file annual returns or to register changes in directors and officers; and minimum capital requirements overall.
The Bahamas carries the advantage of cheaper formation and maintenance costs and a full range of ancillary financial products at a developed level.
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