Source: http://www.offshore-manual.com/taxhavens/Bahamas.html
Timestamp: 2017-11-24 03:24:14
Document Index: 541521851

Matched Legal Cases: ['§951', '§957', '§954', '§958', '§951', '§958', '§1291', '§532', '§551', '§541', '§958', '§1291', '§1291']

The Commonwealth of the Bahamas, as they are officially known, is made up of some 700 islands and 2,500 cays or islets scattered over 750 miles of the Atlantic Ocean. This 100,000 sq./mile archipelago begins about 50 miles due east of West Palm Beach, Florida, where Freeport on the island of Grand Bahama is located, and extends lazily some 500 miles sourtheastward, finally ending among the Turks & Caicos Islands [another Caribbean no-tax haven, geographically (but not politically) part of the Bahamas]. Only about 25 of the Bahama islands are inhabited, and three-fourths of the people reside on just two islands – New Providence (where Nassau the Capital is located) and Grand Bahama Island (Freeport).
Economic overview – Tourism and Banking
Tourism and banking form the backbone of the economy accounting for two thirds of the total gross domestic product (GDP) and representing the primary source of hard currency in the economy. Tourism alone accounts for 50% of the GDP and employs about half the Bahamian work force of about 140,000. In 1988, tourism earnings totaled about $1.14 billion dollars. About 80% of the tourists are Americans. Because the number of American tourists is large, the Bahamian economy is closely linked to the U.S. economy. A Bahamian $ is freely exchangeable into one U.S. $.
Bank and Financial Services Industry
One of the reasons Chase Manhattan, Bank of America and the Bank of Boston decided to sell their offshore retail banking centers probably had to do with the U.S.A.'s new sub-part F provisions brought on by the Tax Reform Act of 1986. Prior to the '86 Act, offshore U.S. subsidiary banks that were controlled by the U.S. parent could solicit customer deposits without the subsequent profits being categorized as sub-part F income. Sub-part F profits are imputed back to the U.S. shareholders (parent) and federal income taxes are due. Under pre-Tax Reform Act of 1986 law, there was no imputation of profits back to the parent company in the USA. Before 1986, offshore banking operations in any tax haven could be run tax-free.
Banks dealing with the public
Anthony J.R. Howorth is a banker-writer and British citizen. Formerly with NatWest International Trust Corporation (Bahamas), Ltd. Anthony has 25 years of banking and trust company experience. Educated at Oxford's New College, Howorth has lived in Barbados, the Cayman Islands, Panama and now the Bahamas.
The private banks tend to specialize in discretionary management of large funds for selected private clients.they make healthy returns for their owners and their clients. They retain the utmost confidence from their clients and give the highest forms of confidentiality and anonymity."
It's and $ trillion dollar market and taxes are a big obstacle
As in Switzerland, there is a Code of Ethics, which calls for bankers to know who they are dealing with – to prevent illegal activities. There is no such thing as a "secret" account. The bank client is known by bankers in charge of his or her account. Basically, one has a numbered account.
If you need more anonymity open a ciphered bank account in Panama or try a "chop" account in Hong Kong. A "chop" account comes with your own personal seal. Only when the seal appears on your drafts can a check be cashed.
International Business Companies (IBCs) of the Bahamas
Michael L. Barnett, president of the Bahamas Bar Association, said at the 1990 Eight Bahamas International Financial Conference. "new (banking) legislation, together with the traditional features of the Bahamas (no taxes), which has made it a registrar financial center, has caused much excitement. I commend the International Business Companies Act, 1989 to your favorable consideration."
The Bahamas Trusts (Choice of Governing Law) Act of 1989
"This act seeks to create a legislative basis where under persons who wish to create trusts in respect of property, whether such property is located in the Bahamas or elsewhere, may choose the laws of the Bahamas as the governing law of such trusts; whether or not they are resident in the Bahamas.
Its provisions include, inter alia, that:
(i) "A term if a trust expressly declaring that the laws of the Bahamas shall govern the trust is valid, effective and conclusive regardless of any other circumstances."
(ii) "All questions arising in regard to a trust which is governed by the laws of The Bahamas or in regard to any deposition or property upon trust thereof including. questions as to:
(a) The capacity of the Settlor;
(b) any aspect of the validity of the trust or disposition or the interpretation or effect thereof;
(c) T he administration of the trust.. Shall be determined in accordance with the laws of The Bahamas without reference to the laws of any other jurisdiction with which the trust or disposition may be connected."
It must be recognized that this new law does not validate, inter alia, the disposition of property, which is not owned by the Settlor.
(iii) "No trust governed by the laws of The Bahamas and no disposition of property to be held on trust that is valid under the laws of the Bahamas is void, voidable liable to be set aside or defective in any manner by reference to a foreign law; nor is the accuracy of the Settlor to be questioned by reason that:
(a) the laws of any foreign jurisdiction prohibits or do not recognize the concept or a trust; or
(b) the trust of disposition avoids or defeats rights, claims or interest conferred by foreign law upon any person by reason of a personal relationship to the settlor or y way of heir ship rights."
Bahamas Fraudulent Dispositions Act, 1991
Following the Bahamas Trust (Choice of Governing Law) Act, 1989, the Parliament of the Bahamas Trust (Choice of Governing Law) Act, 1989; the Parliament of the Bahamas enacted into law an Act to Amend the Law Relating to Dispositions made with an Intent to Defraud. The new law is now officially called the Fraudulent Dispositions Act, 1991.
There are 238,000 acres of prime agriculture land, which remains uncultivated. The Bahamian Department of Agriculture has identified the following areas of potentially the most profitable for investors:
beef cattle production and processing,
pork production and processing,
tree food crops,
dairy production and processing,
winter vegetable crops,
Aquaculture and mari culture.
One of the Biggest No Tax Havens in Terms of Size
Bank Secrecy Code in the The Bahamas
Government – Political Stability
From Blackbeard to Donald Trump, the Bahamas have a Colorful History
After the American Revolution some 3,000 American loyalists and their slaves settled in the Bahamas. When slavery was done away with in 1834, the islands declined into economic recession, and many people moved away. During the American Civil War the blockade-runners gave new life to the economy. Later, during Prohibition, many rumrunners gave new life to the economy. Later, during Prohibition, many rumrunners set up headquarters in the Bahamas, using speedboats to deliver their contraband liquor to the Atlantic States.
We left Ft. Lauderdale at 2:15 on a Friday afternoon on a Delta airline flight. Forty-five minutes later our plane touched down in Nassau – one of several zero tax havens in the Caribbean. I'm a tax planner specializing in the use of tax havens. My journey to Nassau was a career move – to experience first hand. The fact that Nassau in the Bahamas is a tourism Mecca in a tropical paradise surrounded by some of the most beautiful beaches in the world was only a secondary inducement to my trip. The fact that the Bahamas were once ranked third in the world as a financial center, behind New York and London, and the fact that companies New York and London, and the fact that companies can be registered here for around $1,000 and companies can trade stock exchanges free from capital gains taxes – that's enough to whet anyone's appetite.
One cannot discount the magnificent beauty of these tropical islands surrounded by Shallow Seas – called Baja Mar in Spanish. When the astronauts were asked what was the most beautiful view on earth from outer space, they chose the emerald, blue, topaz and mauve Baja Mar encircling the Bahamas. And it's no wonder. From your plane window the Bahamas look like nothing you have seen before. Fascinating, breathtaking, unforgettable.
Freeport began as the brainchild of Wallace Groves, an American businessman who dreamed of building a planned community from the pine forests of Grand Bahamas. After realizing Grand Bahamas potential, he signed the Hawksbill Creek Agreement with the Bahamas government and the British Crown in 1955 wherein a company, The Grand Bahamas Port Authority, agreed to develop a large area of Grand Bahamas Island for industrial an commercial use, dredge a deep water harbor an construct an airport, build schools and hospitals and other basis community needs. In return, the Government granted the Grand Bahamas Port Authority 150,000 acres of land (230 square miles – twice the land area of the Cayman Islands) known as the Port area, and gave it exclusive rights to grant and administer business licenses.
Management Trustee Companies – Offshore Quarterbacks
Taking a cab from the Nassau International Airport you pass through the famous Cable Beach area. Further on down West Bay Street, on the right hand side, you'll come upon Coutts building, a most impressive layout – covering 10 acres or more of prime real estate. Housed in this office building, which looks more like an upstate New York's socialites mansion than an office building, are the books and records of thousands upon thousands of offshore companies and trusts belonging to wealthy clients from all around the globe. Coutt's clients come from Saudi Arabia, the United States, Great Britain, France, West Germany, Canada, Mexico, Columbia, Argentina, Brazil – anywhere there are high taxes. Coutts also have clients from other tax havens like the Cayman Islands, Channel Islands, Panama, Gibraltar, Bermuda, Hong Kong and Singapore.
Typically bank and trustee companies in the Bahamas provide the following services:
Company formation and management,
Personal trustee and executor ship services,
Mutual funds and unit trusts,
Estate planning/personal wills,
Custodian and safekeeping,
Registered office facility,
Accounting and administrativeservices,
Offshore Bank Management
Nominee, attorney and agency services,
Bond and stock trading facilities,
Ship registration services,
Foreign sales corporation services,
Multi-currency time deposits.
Tax Planning, not Tax Evasion, Should Be Your Goal
Since the IRS has no jurisdiction in the Bahamas or any other tax haven, it cannot direct its questions to Coutts or any other Bahamian based lawyer, bank or management trustee company. In their information gathering the IRS seeks to:
Establish whether the offshore company is a Controlled Foreign Corporation (CFC). If it is not, no tax liability generally exists for the U.S. taxpayer (shareholders), and he is free to go about his business.
Establish whether a U.S. person owns 10% or more of the voting stock in the offshore company. If no U.S. person owns the requisite 10% voting stock, no U.S. tax liability can result under CFC provisions. The U.S. taxpayer is free to go on with his affairs (untaxed!).
Determine whether the offshore company has Sub-part F income (i.e. passive incomes such as capital gains, interest from foreign bank accounts, dividends, royalties) for the current fiscal year, or prior fiscal years. For the IRS to make a proper determination, it must have access to the books and records of the foreign corporation.
It takes good tax planning and a talented offshore team to make a plan work. You should contact the Tax Haven Reporter at the address below in the Bahamas if you need to recruit competent managers. Many management trustee companies and lawyers do not possess adequate in-house tax planners conversant with the U.S. tax laws. It's often up to you to see that it's done right.
I Currently work with a Bahamian law firm, an accounting firm and two reputable banks here in Nassau. The law firm and accounting firm have over 30 years of experience. Accountants, lawyers and trust companies typically charge about $1,200 or more to register an IBC (no trusts & no tax planning).
If a client wants to form a company through the mail in 24 hours he should UPS a Cashiers Check to my address here in Nassau. I'll then forward the company memorandums, company seal and appropriate fees to my attorneys for their approval. Two memorandums will then be sent to the Government Registrar, without the client even coming to Nassau. When the client is ready he should contact me at 242-327-7359 and I'll tell you exactly how to send the money. I formed more than 500 IBCs within the last 5 years.
You will be able to open a bank and security account for your IBC so you alone have signature authority over the accounts – if that's the way you want it. I have business agreements with two of Nassau's major banks. These Bahamian banks have been in operation here in Nassau for over 30 years. These banks have subsidiaries in all the other tax havens, including the Caymans, Hong Kong, Monaco, Zurich, Gibraltar, the British Virgin Islands and Jersey in the Channel Islands. One is a giant British bank – like Chase Manhattan – with more than 2,000 offices worldwide. One of the banks has no offices inside the United States. You can choose whichever bank you want. With either of these banks clients can open broker's accounts anywhere in the world and trade under the guise of the bank's name. The client's IBC does not appear on the stock certificates, and his anonymity is totally preserved.
Masking a client's Stock Market Trades is a traditional way of doing business here in the Bahamas and in the other tax havens. It's done by most all the major bank and trust companies. Banks in the Bahamas do not have to file tax returns with the IRS.
The costs to form an IBC (International Business Company) range from $1,950 to $2,950.
Working with the Controlled Foreign Corporation & the "New" PFIC Provisions
It's nice to dream about tax havens and no taxes (one of God's original gifts to mankind!), but U.S. citizens should study their Federal tax laws before jumping in feet first. If a U.S. Shareholder [as defined under IRC §951 (b)] owns shares in a Bahamian company that is a Controlled Foreign Corporation [as defined under IRC §957(a)], the Sub-part F income (as defined under IRC §954) of that Bahamian CFC will be imputed to the U.S. taxpayer. When sub-part F income of a Bahamian CFC is imputed to the U.S. shareholder, the shareholder must include it on his tax return and pay taxes on it. Sub-part F incomes include dividends, interests, capital gains, and a host of other types of incomes, but exclude "rents and royalties" from the active conduct of a trade or business in the haven.
There are constructive ownership rules under IRC §958 that can make a U.S. shareholder own shares directly and indirectly through other foreign corporations, trusts and partnerships. In the example below, if a U.S. shareholder owned 25% of the shares in Z, and Z owned 100% of the shares in Y, then the U.S. shareholder would be considered to indirectly own 35% of the shares of Y by virtue of Z's 100% stock ownership in Y.
The CFC provisions under IRC §951 to §958 account for most of the U.S. tax planner's problems, but four other sections of the Internal Revenue Code can lead to other adverse tax problems. Without going into a full discussion, these other provisions include (1) the "new" Passive Foreign Investment Company provisions (IRC §1291-97); (2) Accumulated Earnings Tax (IRC §532); (3) the Foreign Personal Holding Company provisions (IRC §551); and the Personal Holding Company provisions (IRC §541).
Example #1: Twenty U.S. Investors own all the shares of Bahamian CFC Z. Z owns a Bahamian hotel costing $10,000,000 that has after expense profits of $1,500,000 from rentals (rents are not sub-part F income) in 1989. Company Z also owns 29% of the shares in a 2nd Bahamian company Y which owns $5,000,000 in U.S. stocks and Treasury bonds issued after July 18, 1984. Y's interest income from bonds was $1,000,000 (passive interest is Sub-Part F income)
For purposes of determining the U.S. taxpayer's tax liability, only U.S. shareholders (persons that own 10% or more of Z's voting stock) are subject to imputation of Z's sub-part F income. However, if Z does not have any Sub-part F income, no imputation of offshore profits can happen.
But what about the sub-part F income of Bahamian investment company Y? Because all of Y's 1,000 shares of voting stock are owned by Bahamian Trust X, there will be no U.S. Shareholders of company Y. Sub-part F income of Y will not be imputed to the U.S. shareholders of X, because with respect to Y, there are no U.S. shareholders. Only U.S. shareholders that own 10% or more of the voting stock of Y [directly or indirectly through the stock ownership rules of IRC §958(a) & (b)] can have sub-part F income imputed to them under the CFC provisions. Consequently, Y's $1,000,000 in passive profits can be accumulated tax-free offshore.
The Tax Reform Act of 1986 added the "new" Passive Foreign Investment Company (PFIC) provisions to U.S. tax code. IRC §1291-97 can subject the U.S. shareholder of an offshore company to a special "penalty tax rate" and "add-on interest penalty" under IRC §1291 if the offshore company is a PFIC. A company is a PFIC if more than 50% of its assets are passive in nature or more than 75% of its income is passive income. Again, attribution rules through other foreign entities are applied to make the PFIC determination.
In the above example, Bahamian Company Y is a PFIC because more than 75% of its income is passive (i.e. from interest, dividends or capital gains). Bahamian Company Z is not a PFIC because less than 50% of all Z's assets (which include Z's proportionate share of Y's assets) are passive type assets (29% of Y's $ 5,000,000/$11,450,000 or 12,7%), and less than 75% of Z's income is derived from passive investments (29% of Y's passive income of $1,000,000 belongs to Z for purposes of determining Z's total income ($1,500,000 [rents] + $290,000 from Y). Z's percentage of passive income is 16,2%. Since this is below the 75% allowed under the U.S. regulations, Z is not a PFIC.
In the example above, Y's passive income might actually have amounted to $20,000,000 before Z's proportionate share of Y's income would cause Z to exceed the 75% passive income limit. (i.e. 29% of $20,000,000 = $5,800,000 attributed to Z makes Z's passive income ratio $5.8 mill/$7.3 (total income = $5.8 Y income + $1.5 Z rents = $7.3 mill.) or 79.5%.
Latest (November 07, 2003): Bahamas FATF compliant.