Bahamas

GENERAL INFORMATION

Location

The Bahamas are a group of 700 islands and 2,000 cays which extend in a 600 mile arc, beginning about 40 miles east of Palm Beach, Florida, to just north of Haiti. The capital is Nassau, which is on New Providence Island. The city of Freeport is on Grand Bahama Island just 30 miles from Miami.

Government

The Bahamas became an independent country within the British Commonwealth in 1973, with the British Monarch retained as the Head of State and responsible for defense and most international matters, and internal security aspects. The Bahamas have a representative form of government, headed by an elected Prime Minister. The Legislature has a House of Assembly with 49 members, and a 16-member Senate. The official language is English.

Infrastructure

The Bahamas have excellent communications to the United States, Great Britain and Canada, as well as other Caribbean destinations. The Islands popularity is enhanced by the fact that it is less than 30 minutes by jet service to Miami, and under three hours to New York City.

The Bahamas are within the U.S. direct dialing area (via underground cable to Florida), have an excellent postal system, and are served by all major courier services, such as DHL, Federal Express, UPS, etc.

Legal System

The Bahamas legal system is based on the English common-law model, but is significantly augmented by statute. The highest court is the Supreme Court, but the ultimate appellate court is the Privy Council of the United Kingdom.

The 1973 Constitution proclaims the Bahamas to be a sovereign democratic state and guarantees fundamental rights to the people, such as to assemble and speak, to privacy, and to due process of law.

Currency & Exchange

The Bahamas Dollar is traded at par with the U.S. Dollar. Bahamas residents are subject to Exchange Control, but International Business Companies, as defined by the IBC Act, are not.

Banking & Finance

The Bahamas is one of the "Big Three" offshore financial centers for the United States, along with Bermuda and the Cayman Islands. Virtually all major banks have a branch in the Bahamas, and several have their worldwide headquarters there.

Total offshore assets currently exceed US$300 Billion, positioning the Bahamas comfortably within the top-10 financial centers of the world. There are more than 400 banks which are licensed under the Banks & Trust Companies Regulations Act of 1965. Nearly 200 banks have an actual physical presence in the Bahamas, and more than 60% of all the licensed banks are also licensed to perform trust management services.

The Bahamas government actively promotes the Bahamas as an offshore financial center, and can be expected to regularly update its statutes to keep near the forefront of offshore jurisdictions. The Central Bank manages the Bahamas’ monetary system, with the assistance of the Bahamas Institute of Bankers. Bahamas Banks follow the rigid Code of Conduct of the Association of International Banks & Trust Companies.

The Bahamas also have a well-rounded and available cadre of attorneys, accountants, insurance specialists and financial managers.

Further information on the Bahamas financial community can be obtained from: The Central Bank of The Bahamas, Banks Supervision Department, Frederick Street, P.O. Box N4868, Nassau, N.P., The Bahamas, (242) 322-2193, Fax: (242) 322-4321.

Bahamas Secrecy and Confidentiality

The Bahamas have no tax treaties or agreements relating to the exchange of information, except upon evidence of narcotics trafficking. The English common law duty of confidentiality binds all banks, attorneys, and other professionals and government officials from disclosing private information.

Bahamas Taxation

The Bahamas is a true tax haven: There are no income taxes, estate or inheritance taxes, gift taxes, or any other taxes of any type. There are also no withholding taxes on dividends, royalty or payroll. The government is financed largely by customs duties and import taxes, and licensing fees.

The Bahamas is not a party to any double taxation agreements.

The Bahamas have an information-sharing treaty with the United States relating to information involving tax crimes.

Fraudulent Conveyances

The Bahamas do not recognize any foreign judgments (including U.S. judgments). While the Bahamas courts will set aside fraudulent conveyances, a creditor must first prove the specific intent to defraud that creditor on that creditor’s particular claim.

Moreover, the Fraudulent Dispositions Act in 1991 protects those assets which are placed in a trust more than two years prior to the inception of litigation in the Bahamas.

BAHAMAS TRUSTS

Statutes

Bahamas trust law relates back to the Trustee Act of 1893, which initially described the duties of trustees and the administration of trusts.

Types of Trusts

There are, essentially, three types of trusts:

• The Standard Trust a/k/a "Asset Protection Trust" or "APT". This type of trust may either be revocable or irrevocable, discretionary or non-discretionary.

• The Testamentary Trust, which becomes active only upon the death of the Settlor.

• The Charitable Trust, which has only genuine charities as defined by statute as its beneficiaries.

Formation

A Bahamas trust is formed by private agreement between the Settlor and the Trustees, and there is no requirement of filing with the Bahamas government or other public disclosure. There are no governmental fees for forming a Bahamas trust. However, upon formation, the trust must be designated as either a "resident" trust or a "non-resident" trust for Exchange control purposes.

Trust Document

The Bahamas Trust Act implies that the trust document must state all of the trustees’ powers, although those powers can be broadly defined.

Choice of Law

The Trust Act of 1989 a/k/a the "Choice of Governing Law Act" permits the Settlor to expressly designate the laws of the Bahamas to govern the trust, irrespective of other any other circumstances. The law specifically allows Bahamas courts to ignore the forced heirship provisions and community property laws of other jurisdictions, and allows for the provisions of foreign law in whole or in part, as to specifics of the Bahamas Trust or in its entirety.

Fraudulent Conveyances

The Fraudulent Disposition Act of 1991 specifically sets a two year limitations period for challenging a particular transfer or disposition, which period begins to run from the time the transaction occurs. Moreover, the burden of proving that the transfer or disposition was made with the intent to defraud a particular creditor is on that creditor.

BAHAMAS CORPORATIONS

Generally

In 1989 the Bahamas passed the International Business Companies Act to give persons forming a Bahamas corporation complete flexibility in the formation and operation of their company. These IBCs have become very popular: approximately 40,000 have been created since the Act was passed. Modernized procedures typically allow these companies to be formed within a day.

Types of Companies

There are basically two types of corporations available in the Bahamas:

• First, there are domestic corporation which are formed under the Corporations Act of 1866. These corporations are mainly used by residents for carrying on a business in the Bahamas, and, as such, will not be discussed further herein.

• Second, and more importantly for our purposes, there are corporations which are formed under the International Business Companies Act of 1989, and which are commonly referred to as "IBCs". These companies have certain advantages, such as they are not taxed, but they also carry certain restrictions.

Name

An IBC can be incorporated with just about any name, so long as it does not imply a connection to either the Royal Family or the Bahamas Government, or a business that the corporation is not licensed to conduct (such as banking or insurance). The name cannot also be the same or similar to an existing name.

Names can be in any language which uses the Latin alphabet, and are not required to make sense — i.e., "X5X Corp." would be an appropriate name.

The IBC name must have a suffix which denotes limited liability, commonly: Limited, Corporation, Incorporated, Sociedad Anonima, Gesellschaft mit beschraenkter Haftung, and like terms.

The following suffixes cannot be used without permission: Bank, Assurance, Building Society, Chamber of Commerce, Chartered, Cooperative, Imperial, Insurance, Municipal, Royal, Trust, and the like.

Formation

A Bahamas IBC is formed by the filing of, essentially, two documents: A Memorandum of Association and the Articles of Association. These documents may be drafted in Spanish, so long as an English translation is provided.

The Memorandum of Association is the Bahamanian equivalent of most U.S. corporations’ Articles of Incorporation. The Memorandum must include at least the following information:

• The full name of the corporation;

• The name and address of the Bahamanian registered agent;

• The total authorized share capital and a designation of the currency in which the share capital will be issued;

• A description of the classes of shares, including the number of shares which are to be issued in registered or bearer form (including a notice provision for the latter). If some types of shares can be exchanged for other types, this should be specified; and

• The powers and purposes of the corporations, which can be broadly defined (i.e., "all such activities as are allowed by law").

At least two persons must subscribe to the Memorandum of Association. These subscribers can be nominees.

Certain acts will require that either the Memorandum of Association or Articles of Association, or both be amended. This is done by resolution of the shareholders and directors, and the filing of the amended document with the Registrar.

Once the Memorandum of Association is filed, the Registrar issues a Certificate of Incorporation which evidences the incorporation. The Articles of Association can either be filed at the time of incorporation, or within 30 days afterwards.

The Articles of Association are the equivalent of most U.S. corporations’ Bylaws. The Articles govern the internal affairs of the corporation, such as the number and terms of directors and officers, places and times of meetings, etc.

Each corporation must have a Seal, and an imprint of the Seal must be sent to the Registrar and kept at the registered office.

Registered Office and Agents

Every IBC must have a Registered Agent and a Registered Office in the Bahamas. The Registered Agent must be qualified to act as such, such as a Lawyer, licensed Management Company, etc.

Directors and Officers

An IBC is managed by its Board of Directors, which directors are initially appointed by the Subscribers to the Memorandum and Articles of Incorporation. The appointment of directors and the terms of their service on the Board of Directors are specified in the IBC Act, but may be changed by the shareholders by amendment to the corporation’s governing documents.

The IBC must have at least one director, which can either be an individual or another corporation. Directors can be of any nationality or residence, and need not also be shareholders. It is possible to appoint specific alternate directors and officers in the event of the death, resignation, or inability to act of an existing director or officer.

A list of directors must be maintained at the registered office. The names of directors and officers are not made public; however, the Bahamas Registry may require the information in some circumstances, such as if an official certificate is required. Changes in directors or officers need not be registered or reported.

There is no requirement that annual meetings, or meetings of any frequency, be held. Directors meetings are not required to be held in the Bahamas, but can be held anywhere in the world, and may be held by telephone, fax, etc. A director may appoint an "alternate" to take his or her place in lieu of an absence. Nominee directors and officers are allowed.

While the IBC Act does not specifically refer to a corporate secretary, one is typically appointed to sign on behalf of the corporation.

Equity and Shareholders

An IBC must have at least one shareholder, but can have an unlimited number of shareholders, who can be of any type and nationality. Shareholder meetings need not be held in the Bahamas, but may be held anywhere in the world, and by telephone, fax, etc., as allowed by the Articles of Association.

A list of shareholders (or at least outstanding shares in the event of bearer shares) must be kept at the IBC’s registered office in the Bahamas; however, this information is not publicly available.

There is a nominal minimum capital requirement of two shares, which can be of either par or no par value. Typically, an IBC will be formed with authorized capital of US$5,000, which is the maximum authorized capital which can be issued for the minimum duty of US$100. If the authorized capital exceeds US$5,000 then there is an initial and annual duty of US$300, and US$1,000 with share capital in excess of US$50,000. Annual registration fees are due by July 31 of each year, and failure to pay these fees will result in the striking of the company from the Registrar.

Shares may be issued with or without par value, and in nominative, and registered form. Share Capital can be issued in any currency. However, all issued shares must be fully paid for. Fractional shares and shares of different classes are permitted, such as preferred stock or redeemable shares, and shares with or without voting rights. The Bahamas have abolished bearer shares.

An IBC may purchase, redeem or otherwise acquire and hold its own shares, so long as this is done in exchange for new shares or out of surplus.

Taxes, Accounts and Returns

There are no income taxes, capital gains taxes, or any other taxes placed by the Bahamas government on IBCs, so long as the income is derived from non-Bahamanian sources. An IBC is guaranteed to be exempt from all Bahamas taxes for a period of at least 20 years from its date of incorporation.

IBCs are exempt from the Bahamas Exchange Control Regulations, and do not require a license to conduct business under the Business License Act.

As mentioned, the only fee the corporation will pay is either US$100, if the share capital does not exceed US$5,000, or US$300 if the share capital is greater than US$5,000, and US$1,000 with share capital in excess of US$50,000.

There is no requirement that any financial statements or annual returns be filed by the corporation.

Secrecy and Confidentiality

The Bahamas do not have a specific secrecy law, but there are English common-law provisions requiring professionals to keep the affairs of their clients confidential.

There is no requirement that the beneficial owners of the corporation by disclosed, which means that the use of nominees will provide an excellent degree of confidentiality with regard to company ownership.

Restrictions on an IBC

A Bahamas International Business Corporation cannot engage in the following conduct:

• Conduct business with Bahamas residents except as allowed by statute;

• Own or lease real property in the Bahamas;

• Act as a bank, trust company or insurance company; or

• Act as a commercial registered agent company (providing registered agent services to other companies for a fee).

An IBC may lease such real property in the Bahamas as is necessary to maintain a registered office there.

An IBC can conduct certain business activities in the Bahamas, such as maintaining its records and having meetings there, and it can keep bank accounts and non-realty investments there – including investments in other Bahamas companies.

Mergers & Consolidations

IBCs can merge and consolidate with each other. This is accomplished by the directors of each company approving a written plan containing the following:

• The names of each company and the name of the consolidated company;

• Designation of the number and types of shares which will remain, and the voting privileges for shares;

• The terms and conditions of the merger or consolidation; and

• The Memorandum of Association or Articles of Association of the consolidated company.

Essentially the same type of plan must be adopted where an IBC merges with one of its subsidiaries.

In the event of a merger or consolidation, the following information must be provided to the Registrar:

• An agreement to honor claims and debts and to protect the rights of shareholders;

• Designation of irrevocable power to the Registrar to act as agent to protect creditors and shareholders; and

• A Certificate or Merger or Consolidation issued by the non-Bahamas jurisdiction of incorporation (if applicable).

Limited Duration Companies

The IBC Act allows for the formation of Limited Duration Companies, and for Exempted Limited Liability Partnerships.

Foreign Corporations

A company formed in another jurisdiction may continue as an IBC in the Bahamas upon the filing of Articles of Continuation with the Registrar, containing the name of the IBC, the date it was incorporated, and the other information which is required of all companies to be filed in the Memorandum of Association and Articles of Association.

Office of the Registrar General

Inquiries regarding Bahamas IBC formation should be addressed to: The Department of the Registrar General, Registry of Companies, Rodney E. Bain Building, Shirley & Parliament Streets, P.O. Box N-532, Nassau, N.P., Bahamas, (242) 322-7160, Fax: (242) 322-5553, or more practically to our page co-sponsors at the address shown below.

TAX WARNING FOR U.S. CITIZENS

U.S. citizens are taxed on their taxable income from wherever it is derived, anywhere in the world. U.S. citizens are also taxed on investments indirectly made through foreign trusts and foreign corporations, including offshore trusts and IBCs. Thus, the fact that an offshore jurisdiction may have low or no taxes does not mean that if a U.S. citizen does business there that he or she will enjoy only low or no taxes on the personal income made. There are simply NO personal income tax advantages, at all, for U.S. citizens to use offshore structures, and anyone who tells you differently is probably telling you a falsehood. Any discussion we make of an offshore jurisdiction's tax laws should be construed only according to the foregoing warning.

BEWARE OF OFFSHORE SERVICE PROVIDERS: There are some offshore service providers who will make wild claims about saving you personal income taxes, so as to convince you to set up an offshore structure. Most of these people don't know the first thing about U.S. tax law, and their representations to you will not help you, at all, if you are caught with an unreported trust, corporation, or bank account. All they really want is your money, and even if you commit tax evasion they are not subject to U.S. law, and so couldn't care less. See Hiding Money Offshore