Bahamas works to exit EU blacklist with tax reform

The days of a zero corporate tax rate in the Bahamas are coming to an end with pending legislative reforms, as the country takes steps towards removal from the EU blacklist of tax havens.

The development comes on the heels of the Bahamas' March 13 addition to the EU's list of non-cooperative tax jurisdictions, along with fellow Caribbean territories St Kitts and Nevis and the US Virgin Islands.

As Bahamas law currently stands, multinational corporations operating in the country end up paying an effective tax rate of between 5% and 15% depending on market cap.

The proposed Multinational Entities Financial Reporting Bill (MEFRB) 2018, a copy of which was obtained by Bahamas news outlet Tribune, repeals and amends numerous financial services-related laws to allow for the introduction of corporate tax "of any nature" on international business companies (IBCs); foundations; executive entities; exempted limited partnerships; and investment condominiums (ICONs).

Deputy prime minister and finance minster K. Peter Turnquest, addressing a financial services industry briefing, said he and Brent Symonette, the minister of financial services, left Brussels last week with the understanding they had presented everything necessary to demonstrate Bahamas' compliance with the EU's anti-tax avoidance blacklist, as reported by Tribune.

Stressing that the ball is in the EU's court, Turnquest confirmed that the government was reviewing the proposed legislation and other laws to ensure the Bahamas meets the 28-nation bloc's demands by a December deadline.

Turnquest, nevertheless, said he believed the nation would be taken off the blacklist by May at the latest.

Attorney general Carl Bethel explained to the newspaper that the MEFRB law would draw on expert advice and give the finance minister "flexibility" in setting rates for corporations. It also includes a new section on taxation, which would designate corporations as resident or non-resident.

The bill tackles another EU concern by eliminating 'ring fencing', or the existence of preferential tax regimes for foreigners/non-resident entities, by enabling IBCs and the other corporate entities to conduct business in the domestic Bahamian economy as well as internationally.

"In the act, we give with respect to each entity the power for the minister of finance to prescribe any tax," said Bethel. "We're not specifying the type of taxation. That will be based on what the experts tell us. I wanted to give him complete flexibility."

Bethel added that whatever form of corporate taxation was selected, it cannot be a "nil or nominal rate" given that this would run afoul of the OECD's BEPS initiative.

"A week or so before this blacklisting came up, we had already [engaged] a private consulting firm to give advice on how to structure this issue of taxation, bearing in mind the BEPS requirement," he told Tribune.