The Bahamas is the original tax haven and it still remains a favoured place for offshore funds, says Heather Thompson
The Bahamas is known as “the first tax haven” and has long been favoured by the wealthy for the establishment of trusts. Its oldest trust company, the Bahamas General Trust Company, was established in 1936 and it continues today as a principal offshore trust corporation under the name of Coutts & Co (Bahamas).
The Bahamas, lying just off the coast of Florida, is well connected by air to Miami and other US cities. With Miami, “the gateway to Latin America”, so close, many international trust companies find the Bahamas' capital city, Nassau, a convenient base for servicing this important market.
There will be direct access to Europe once British Airways resumes its service from London later this year.
Proximity to the US is enhanced by a telecomms network linked to North Amercia.
The Bahamas enjoys adequate professional support in the form of trust administrators and a number of commercial law firms. All the “big six” accounting firms are locally represented.
When disputes arise there is a long-established judicial system to deal with them. The court system is based on Britain's with a Supreme Court having general civil and criminal jurisdiction. Appeals lie ultimately with the judicial committee of the Privy Council in England.
A major attraction for establishing a Bahamian trust is the absence of taxation. Neither trusts nor their settlors or beneficiaries are subject to capital, income, withholding gains or estate taxes in the Bahamas.
Under the Banks & Trust Companies Regulation legislation, it is an offence for persons who have required information in their capacity as attorneys, accountants, bank employees and so on to divulge this information to a third party without the implied or express consent of the customer concerned.
The major exception to this provision is that a person will be obliged to disclose such information pursuant to a court order from a Bahamian court obtained upon evidence supporting criminal or other sufficient complaint.
The Bahamas has entered into mutual legal assistance treaties with the UK, US and Canada for criminal offences. There is no requirement in the Bahamas to register trusts, thus total privacy is ensured.
The Bahamian Trustee Act is based closely upon the United Kingdom 1893 Act, so careful drafting of trust instruments is required when dealing with a trustee's administrative and investment powers. Recent developments in trust legislation include the Fraudulent Dispositions Act 1989 and the Trusts Choice of Governing Law Act 1989.
The major purpose of the Fraudulent Dispositions Act is to clarify the circumstances under which gifts and settlements are set aside as a frame on creditors. Under this act, once a trust has been settled, a settlor's creditors must, if they are to succeed, attack the disposition within two years of it being made. This time period is shorter than that offered by the equivalent legislation in either countries. There has been much attention paid recently to the 'Asset Protection Trust' and the new act seeks to strike a fair balance between the protection of assets and the protection of creditors.
The Trusts Choice of Governing Law Act seeks to resolve the serious conflicts which can arise between competing common law and civil law jurisdictions. By choosing Bahamian law as the governing law of their trust, settlors are assured that the trust document will be interpreted only in accordance with the laws of the Bahamas. Such a trust cannot therefore be set aside on foreign law principles merely because it infringes the forced heirship laws of the country of domicile.
The operation of offshore trusts in the country is also helped by the introduction of International Business Companies (IBCs) into Bahamian legislation. Companies have traditionally been used to hold trust assets, and by using an IBC for this purpose, additional confidentiality is given, as well as possible tax and estate planning benefits.
IBCs are easy to administer and inexpensive. Reporting requirements are minimal and the names of officers and directors and shareholders are not held on public record.
The Bahamas continues to offer significant advantages for those wishing to set up trusts. The Government, in an effort to ensure that the country remains competitive with other jurisdictions, is conducting a review of trust legislation.
Proposals for modernising the Trustee Act are under consideration, so the Bahamas should provide an even more favourable environment soon.
Heather Thompson is a lawyer with Higgs & Johnson, Bahamas.