Are you a non-resident looking to sell goods or services into or invest in The Bahamas? Does your business pay import duties on goods brought into The Bahamas? Are you carrying on a business from within The Bahamas?
If you've answered yes to any of the questions above, you should ensure you have in place all the appropriate licenses, registrations and approvals with The Bahamas Government and pay the appropriate taxes and fees.
The Bahamas Government has many rules for non-residents that want to do business in this beautiful country. Some of these rules are complicated, and expert guidance is helpful. If you are considering doing business with or from within The Bahamas the following is a summary of the various approvals and registrations that must be addressed as a minimum. Note that while The Bahamas does not impose an Income Tax (either personal or corporate), there are many other forms of taxation that should be considered when doing business here and we've commented on some of these below. In addition, businesses operating in the Freeport, Grand Bahama area should ensure they consider the exemptions and tax incentives available under the Hawksbill Creek Act and Agreement.
The Bahamas Investment Authority (BIA) is responsible for approving all Foreign Direct Investment (FDI) in every sector of the Bahamian economy. It also acts as a ‘one-stop shop’ for foreign investors, as it liaises with other government agencies on behalf of those investors.
For the approval to be granted, the BIA must be satisfied that the proposed business activity will be beneficial to The Bahamas and not in a sector that has been reserved for Bahamians only (e.g. wholesale and retail, property management). Certain key components, such as financial capability, business plan, basic information about all proposed shareholders, total capital investment and the source of those funds as well as the reputations of the persons involved are all considered. Of particular interest are employment opportunities for Bahamians. Once a proposal receives the approval of the BIA, it goes before the National Economic Council (headed by the Prime Minister) for further review and decision.
The National Insurance program covers wages when employees are off sick or on maternity leave, as well as liability from job-related injuries, diseases and death and a small amount of income upon retirement. Nearly all persons who work within The Bahamas must make NIB contributions. Similar to other countries with social security programs, all companies or businesses, and self-employed persons, as well as employees must be registered. Once you have your BIA approval, you should register with the NIB.
Contributions for employed persons are paid at a rate of 9.8% of actual wages up to the insurable ceiling ($670/wk or $3,077/mo). Contributions are shared 5.9% for the employer, and 3.9% for the employee.
Following the BIA approval and NIB registration, you must apply to be licensed under the Business License Act. This requires completion of a Business License Application form which must be accompanied by all supporting documents and approvals from other agencies along with payment of BSD$100.
The Business License is an annual requirement (temporary business licences are available for short term projects). Currently businesses with a turnover of BSD$50,000 or less pay a business license tax of BSD$100. All permanent businesses regardless of turnover are required to file annual business tax returns which are due by January 31 and all taxes must be paid by March 31. Note that businesses with turnover greater than BSD$100,000 must submit financial results along with their business tax return and a statement certified by an independent professional accountant. Business License taxes vary based on the type of business and turn over and range from 1/2% to 3% of annual turnover (gross revenues). In limited cases, certain non-resident businesses may qualify for an annual fee of BSD$300.
Effective January 1, 2015, The Bahamas introduced a 7.5% Value Added Tax (VAT) which applies to nearly all supplies of goods and services in The Bahamas. The standard rate was increased to 12% effective July 1, 2018. VAT registration is required for any person who is carrying on business "from within" The Bahamas and has (or expects to have) annual turnover of BSD$100,000 or more. Special rules apply to non-resident businesses carrying on an e-commerce business with residents of The Bahamas. Determining whether you are carrying on business from within The Bahamas will vary from business to business and based on a multitude of factors. Note that having a Business License number is a requirement to obtain your VAT registration “TIN” (Tax identification Number) number.
Further complexities arise for businesses deemed non-resident for exchange control purposes. Often these businesses have a "presence" within The Bahamas but their customers are typically non-residents. This poses the question whether they are carrying on business "from within" The Bahamas. Additionally, a number of zero-rating provisions depend on the residency determination for Exchange Control purposes. Zero-rating generally allows
businesses to receive a refund of the VAT they pay on goods and services consumed in The Bahamas. Relying on these provisions requires appropriate supporting documentation and careful analysis. Thus, even though the VAT may not impose a significant "cost" or collection requirement for the non-resident business, the compliance requirements create additional reporting and management obligations and responsibilities. Failure to comply can result in penalties and interest.
If you obtain the required approvals to carry on your business activity here in The Bahamas you then get to enjoy the benefit of not having your profits subject to either personal or corporate income tax. Note however, the Stamp Act provides that “every bill of exchange, draft, money order, mail transfer of money, cable transfer of money, traveler’s cheque or letter of credit whereby funds of or over five hundred thousand dollars per annum are converted into foreign currency and are remitted or transferred out of The Bahamas to a related party as either dividends or profits or payments for services to be rendered by the related party” is subject to a stamp tax of 5% of the amount remitted or transferred outside of The Bahamas. All other remittances of funds outside The Bahamas are subject to a 1.5% stamp tax.
Stamp Tax also applies to the sale of a business (other than real property) (6%) and other banking transactions such as mortgages (1%), bank drafts (< $500,000) for amounts transferred out of The Bahamas (1.5%) and bank withdrawals ($0.40) with very few exemptions.
Real property tax is payable on real estate holdings. The rate of tax ranges between 0.75% and 2.0% of market value. Exemptions exist for many properties on the Family Islands, for certain properties below $250,000 market value and for certain commercial farm land, unimproved property, property owned by foreign governments, and certain charitable use properties amongst others.
Government revenue is mainly generated from customs duties with customs and excise taxes accounting for approximately 50% of tax revenues in The Bahamas. The Customs Department is responsible for valuing goods upon entry and determining the amount of duty owing (along with any VAT payable upon importation). In general, most imported items are subject to a 45% duty. However, duty rates range from being duty free (such as fine jewelry, perfume, cologne, watches and certain electronic devices) to a high of 220% (cigars).
Note that the Communications Sector, Banking sector, Insurance sector, Hotel sector, gaming sector etc. have sector specific licenses, taxes and/or fees in addition to the items listed above.
Foreign investors may qualify for waivers of customs duty, real property tax and VAT deferral under the Hotels Encouragement Act or Industries Encouragement Act depending on the nature of the new development and size of investment.
© 2021 KPMG Advisory Services Ltd., a Bahamian limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the authors only, and do not necessarily represent the views or professional advice of KPMG.