Kevin A. C. Moree, partner at McKinney Bancroft & Hughes, discusses the residency rules governing entities' qualification to be registered in The Bahamas.

The Commercial Entities (Substance Requirements) Act

As in many other jurisdictions, The Bahamas now has substance requirements legislation in the form of the Commercial Entities (Substance Requirements) Act ("CESRA") which came into force on 31 December, 2018. The general purpose of substance requirements legislation is to ensure that entities are engaged in real economic activity in the jurisdiction they are deemed to be resident for tax purposes.

Under CESRA, all Bahamian entities incorporated, registered or continued under the Companies Act (including foreign entities which have been registered under that Act), International Business Companies Act, Partnership Act, Partnership Limited Liability Act and Exempted Partnership Act are required to submit annual substance reports to the Minister of Finance to demonstrate that they are either tax compliant in the relevant jurisdiction if they claim to be tax resident in a jurisdiction other than The Bahamas or, if not tax resident outside The Bahamas, compliant with the requisite substance requirements, if any, in The Bahamas.

Where an entity existing pursuant to one of the statutes listed in the paragraph above is engaged in the activity of banking, insurance, fund management, financing and leasing, headquartering, distribution and service centres, shipping, the commercial use of intellectual property or is a holding company that has a subsidiary engaged in any of the aforementioned activities (collectively defined in CESRA as "relevant activities"), that entity is required to have substantial economic presence in The Bahamas. To satisfy that requirement, the entity must conduct all of its core income generating activities in The Bahamas and be centrally managed and controlled there.

However, an entity is not required to have substantial economic presence in The Bahamas where it is i) wholly owned, either directly or indirectly, by one or more persons who are either a) ordinarily resident and domiciled in The Bahamas or b) an annual or permanent resident of The Bahamas and physically resides there for at least three months cumulatively each calendar year; and ii) conducts its core income generating activities in The Bahamas.

Whether an entity has substantial economic presence in a jurisdiction can be challenging to ascertain in certain circumstances because of the qualitative nature of the test. Consequently, individuals may prefer to avoid that uncertainty by becoming a permanent resident in The Bahamas and qualifying under the exception detailed in the paragraph above. This is a particularly attractive option where the ultimate beneficial owner of an entity also conducts the core income generating activities (e.g. consultancy and certain technology businesses, etc.)

Economic permanent residency

Individuals who invest at least $750,000 in The Bahamas are entitled to apply for a certificate of permanent residency. Where the amount invested is $1.5m or greater, the application is expedited. The most common form of investment associated with applications for economic permanent residency is the purchase of a residential property to be used as either a primary or secondary home.

Economic permanent residency is not a citizenship by investment programme and no such programme exists in The Bahamas. Rather, permanent residency status provides individuals who have invested a significant amount of money in The Bahamas with certainty that they will have the right to enter the jurisdiction as they please without having time restrictions (which apply to those who enter as tourists) or needing to make yearly applications for renewal (which annual residency holders are required to do).

It is important to note that where an individual intends to work in The Bahamas, application can be made to have the certificate of permanent residency endorsed with the right to work or a work permit will be required. Further, where an entity that is owned by a non-Bahamian intends to conduct business in The Bahamas, approval from the Bahamas Investment Authority/National Economic Council and a business licence may be required.

To view this feature in The Bahamas Special Report ezine, click here.