Why Is the Bahamas Considered a Tax Haven?

Tax- and business-friendly laws make the Commonwealth of the Bahamas a tax haven for foreign investors. Bahamian citizens and resident aliens pay no taxes on personal income, inheritance, gifts, or capital gains. To raise revenue, the government uses other forms of taxes instead, including value-added tax (VAT), property taxes, stamp taxes, import duties, and license fees.

The Bahamas, a parliamentary democracy since 1729, has a reputation for stability that attracts foreign financial institutions, making it an international center for banking. The Bahamas is also one of the wealthiest countries in the New World, with a per-capita GDP of $35,897 as of 2023. Its official language is English.

Understanding Tax Havens

A tax haven is a jurisdiction that offers favorable tax conditions to individuals and businesses. This involves providing low or no tax rates on income, capital gains, or other types of transactions.

Tax havens generally have certain characteristics in common, including political stability, economic opportunity, and tax treaties with other nations. The scope of illicit financial activities used to illegally evade taxes does not fall under the purview of tax havens.

Ease of International Transactions

More than 250 banks and trust companies representing 25 countries are licensed to do business in the Bahamas. Bahamian laws protect the right to privacy of bank clients. Strict Bahamian laws also prohibit any illicit financial activity, such as money laundering. The Central Bank of The Bahamas regulates foreign financial entities by providing a secure environment for banks specializing in private banking, mutual fund administration, and portfolio management.

Financial institutions doing business in the Bahamas include those of the United States, Canada, Switzerland, the United Kingdom, Brazil, and Japan. Major international accounting firms, including Deloitte & Touche, KPMG, and PricewaterhouseCoopers International Ltd have offices in Nassau.

Convenience of Creating Offshore Businesses

The Bahamas offers foreign companies seeking a tax haven the convenience of easily setting up a business entity. One example of business entities for foreign individuals and businesses is the international business company (IBC).

Bahamian IBCs do not have to pay corporate tax unless the revenue is derived locally. IBCs are also exempt from stamp and estate duties and other taxes for 20 years from their incorporation date. The benefits of IBCs established in the Bahamas also include exemptions from corporate reporting requirements and shareholder privacy. IBCs are required to list one director, and a copy of the register of directors and officers must be open to the public.

Flexibility in Legal Structure

Bahamian law allows foreign investors to establish businesses as sole proprietors as well. Investors need to obtain a business license and register their businesses. Foreign sole proprietors also enjoy the same tax exemptions as foreign individuals and business entities. Investors must get approval from the Bahamas Investment Authority for business ventures, as some business areas are reserved for Bahamian citizens.

Protection From Real Estate Taxes

Foreign investors can also buy property in the Bahamas without restrictions. The government levies a graduated stamp tax on all real estate transactions. The stamp tax is between 2.5 and 10%. The U.S. Department of State also flagged a number of economic incentives including “incentives for investment including…property tax abatement”.

No Capital Gains Taxes

The absence of capital gains tax in the Bahamas makes it an appealing destination for investors. Capital gains tax is typically levied on the profit made from the sale of assets such as stocks, real estate, or other investments. In the Bahamas, the government does not impose any tax on the capital gains realized from these transactions.

Strong Confidentiality and Privacy

The Bahamas has historically promoted confidentiality and privacy in financial matters. Strong legal measures have made it illegal for financial institutions to disclose client information without proper authorization, and corporate entities are offered a degree of anonymity for shareholders and directors. In many cases, entities can transact, invest, or shelter funds within Bahama’s financial structure in privacy without personally identifiable information (PII) being disclosed.

Note that there may be circumstances in which personal data may be released. For example, the Bahamas passed the Data Protection Act in 2003, though there is a list of exceptions where disclosure of personal data is warranted. Some of these exceptions include protecting the international relations of the Bahamas, protecting from injury or health of someone, or complying with the opinion of the Minister of National Security.

Political Stability

Investors are drawn to tax havens with political stability. Locations with unpredictable legislative tendencies or higher risk of geopolitical strife increase the risk an investor faces by putting their money into the hands of that country (and its government).

The Bahamas is a parliamentary democracy and a constitutional monarchy with a political system that closely resembles that of the United Kingdom. The country gained independence from British rule in 1973. The country has regular elections, a multi-party system, and a commitment to democratic principles. In all, it’s a low-risk environment ripe for investments.

The Bottom Line

The Bahamas is recognized as a tax haven because of its favorable financial environment. This includes the absence of corporate and personal income taxes, no capital gains tax, and a historically strong commitment to banking secrecy. The Bahamas is also known for being politically stable.