The government set the stage yesterday to become fully compliant with the international financial sector watchdogs’ rules on how international business companies (IBCs) should operate when outside of the home jurisdiction of their beneficial owners, by tabling a number of bills that will change the model of the “offshore financial center” designation forever. Two of those bills, the Removal of Preferential Exemptions Bill, 2018 and the Register of Beneficial Ownership Bill, 2018, respectively strip IBC owners of certain preferential tax treatment in The Bahamas, and removes any anonymity they enjoyed holding assets in this jurisdiction.
The Removal of Preferential Exemptions Bill was tabled in the House of Assembly by Deputy Prime Minister and Minister of Finance Peter Turnquest and removes “practices that in essence, establishes in law, preferential tax regimes for certain categories of companies or entities”.
The bill clearly states its purpose with regard to the big financial watchdogs, namely the Organization for Economic Development and Cooperation (OECD) and European Union (EU), explaining that by the enactment of the bill, “The Bahamas is demonstrating its international and global commitment to aiding in the fight against harmful tax practices”.
When the act is passed, every IBC will be subject to “the payment of any tax which is non-nominal, meaning that it is not equal to zero or almost zero”.
According to the bill: “Any provision of any of the acts specified in the first column of the first schedule, which grants exemption from any tax to a company or entity which is preferential to those accorded to any other company or entity, the operations of which are carried out in The Bahamas, shall have no force or effect from the date of commencement of this act.”
The bill states that where some companies with exemptions and with expiration dates stipulated by their memorandum of association exist, they will continue to enjoy them until the expiration date.
When the Register of Beneficial Ownership Bill, 2018 is passed, IBC owners of any make-up will have to concede their anonymity. The bill will allow for the “competent authority to establish and maintain a secure search system to assess beneficial ownership details for all legal entities registered in The Bahamas, and to permit the use of the secure search system by a designated person upon the request of specified authorities designated in the bill”.
The Register of Beneficial Ownership Bill explains that a beneficial owner is a natural person who ultimately owns or controls a legal entity and includes, though is not restricted to: “In the case of a legal person other than a legal entity whose securities are listed on a securities exchange, a natural person who ultimately owns or controls, whether directly or indirectly, twenty-five or more percent of the shares or voting rights in the legal person; in the case of a legal person, a natural person who otherwise exercises control over the management of the legal person; in the case of a legal entity which is in insolvent liquidation, administration or receivership proceedings in accordance with any law providing for the same; the natural person or entity who is appointed as a liquidator, administrator or receiver of the legal entity; in the case of a receiver being appointed over twenty-five or more percent of the shares or voting rights in a legal entity, the creditor who appoints the receiver; or in the case of a shareholder in the legal entity who would otherwise be a beneficial owner under this subsection but is deceased, the natural person acting as an executor a personal representative of the deceased’s estate.”
The Register of Beneficial Ownership Bill also explains that a legal entity can be a subsidiary of another legal entity.
Should any information on a beneficial owner be falsified, the Register of Beneficial Ownership Bill allows for owners or legal entities to be subject to fines from $5,000 or six months in prison to fines of $250,0000 or five years in prison.
“Where any legal entity is convicted of an offense in this section, every director and every officer concerned in the management of the body corporate is guilty of the offense,” the bill explains.
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