Bill requires IBCs to prove substantial economic presence locally
Commercial entities operating in The Bahamas now know what will be required of them to prove they have a substantial economic presence in The Bahamas – as is now required by international financial services watchdogs – and are not simply taking advantage of this country’s low tax regime to store funds. Yesterday the government tabled the Commercial Enterprises (Substance Requirements) Bill, 2018 in the House of Assembly.
Earlier this year the European Union (EU) called for proof of more “economic substance” in international business companies (IBCs) registered in The Bahamas. This came after The Bahamas ended up on a blacklist due to a misunderstanding. But the blacklist revelation led to the awakening of this country’s need to fully comply with the EU’s wishes and in the shortest time possible.
A move to place more pressure on international companies to have more of a physical presence in this jurisdiction could also come with additional and more stringent accounting and tax reporting obligations.
Deputy Prime Minister and Minister of Finance Peter Turnquest said back in April that “if done right”, this posture by the EU could present an opportunity to attract more locally domiciled IBCs.
Turnquest said yesterday that this bill and others tabled in the House of Assembly yesterday will deflect any further action by the EU.
The bill requires IBCs to have a “substantial economic presence in The Bahamas” by having relevant, income generating activities. They must also show management and control over the business entity locally.
According to the bill, an IBC would satisfy the requirement of income generating activity by having annual operating expenditure, full time employees, physical offices, levels of board management and control, and monitoring and controlling any outsourced activity.
The bill further states that core income generating activities can include, but are not limited to, banking, insurance, fund management, financing or leasing, headquarters, shipping and intellectual property activities.
In order to prove substantial economic presence, according to the bill, the IBC must show management and control of the entity in this jurisdiction by having an adequate number of board of director meetings locally, while meeting the quorum for that meeting, recording the strategic decisions made in that meeting, keep the records and minutes of that meeting locally, and ensuring that the board “has the necessary knowledge and expertise to discharge its duties”.
The bill also outlines how and when IBCs will be required to report its compliance with this act, and explains that those companies can at any time be audited.
If the rules set out in the act are not followed, it calls for penalties, one if which is the relevant authority exposing the IBC to its reportable jurisdiction, or calling for it to produce evidence of its compliance with its tax requirements. The bill also calls for administrative penalties, default penalties and summary convictions to be carried out in certain cases.
- Govt looking at overflight fees,aragonite contracts for revenue - May 29, 2020
- CIBC FirstCaribbean bracing for $37M net income decline amid COVID-19 - May 29, 2020
- Govt to borrow majority of funds in foreign currency - May 29, 2020