Bahamas: Country and Foreign Investment Regime

Bahamas Geography

The Bahamas comprise an archipelago of about 700 islands, roughly 50 miles south-east of Florida, in the Atlantic. About 30 of the islands are inhabited. The total land area is 5,360 sq m. The two largest islands are New Providence and Grand Bahama; smaller islands include Andros, Eleuthera and Great Abaco.

The climate is sub-tropical; winter temperatures average between 21 C and 24 C and summer temperatures between 27 C and 32 C.

The time zone is 5 hours behind GMT, ie US Eastern Standard Time. There are international airports in Nassau on New Providence and Freeport on Grand Bahama.

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Bahamas Population, Language and Culture

The population of the Bahamas is approximately 310,000 (July, 2009 est), mostly concentrated in Nassau, the capital, on New Providence Island, and Freeport. English is the official and everyday language, although Creole is also spoken.

Christopher Columbus landed on the Bahamian island San Salvador in 1492. After various attempts at settlement early in the 17th century, the islands were settled from South Carolina; they became an English colony in 1718. Much of the population, black and white, arrived by immigration from the Americas.

Nassau became a tourist resort late in the 19th century; Pan-Am began flights to Miami in 1929. In 1954 there were 32,000 visitors; now there are 4m annually.

In 1973 the Commonwealth of the Bahamas became an independent nation and a member of the Commonwealth; it is a member of the UN.

Bahamas Government

The Queen of England remains the head of state, represented by a Governor-General. The political system is on the Westminster model, with an elected House of Assembly. Elections are held every 5 years. There is a Prime Minister and a cabinet of eight ministers. Members of the Senate (upper house) are appointed by the Governor on the recommendation of the Prime Minister and the Leader of the Opposition.

In May 2007, voters brought back former Prime Minister Hubert Ingraham's Free National Movement Party, with 24 of the 41 House of Assembly seats. Prior to the election, which attracted a 90% turnout, the PLP, led by Perry Christie, had been in power since 3rd May, 2002.

There is an independent judiciary. English common law forms the basis of legislation, but many Bahamian statutes have been added over the years. The highest local court is the Supreme Court, and there is a Court of Appeal; final appeals can be made to the Privy Council in London.

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Bahamas Economy and Currency

The unit of currency is the Bahamian dollar which has parity against the US dollar; the US dollar is also accepted.

The Bahamian economy was weak in the years after the Second World War, but determined efforts to develop the tourist trade have been successful, so that it contributes more than 60% to GDP; more recently, the government has encouraged the financial services industry, particularly banking and insurance, which also represent substantial components of GDP.

The Bahamian economy is closely linked to that of the US, and inflation rates are comparable. Unemployment has been a continuing problem in the Bahamas, but fell below 10% in 2006. The Bahamas run a substantial trade deficit due to very high import levels. GDP was USD8.78bn in 2008 (est) at purchasing power parity, and GDP per head was about USD28,600 in 2008 (est) at PPP. This is above average for the region, but well behind the most successful (and smaller) jurisdictions such as the Cayman Islands and the British Virgin Islands. The economy has grown steadily since 2003 when GDP expanded by 1.9%. According to the IMF, the future for the country also looks bright.

However, in June 2009 The IMF concluded that the global economic downturn has put significant stress on the Bahamian economy because of its strong ties to the US economy, although the Bahamas’ low debt ratios provide scope to deal with the current difficult economic environment.

Since mid to late 2008, tourism began declining and a number of foreign direct investment projects were postponed or cancelled due to the downturn or financing difficulties. Real GDP contracted by 1.7% in 2008 after having grown 2.5% per year in 2006–07, and rising unemployment was fuelled by layoffs in the hotel and construction sectors. Inflation for the twelve months ending in March stood at 4.9%.

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Bahamas Entry and Residence

Tourist visas are of course granted readily; people wishing to stay for longer periods without working must obtain a residence permit from the Immigration Department. The International Persons Landholding Act 1993 reversed a previously deterrent stance and actively encourages the purchase of local residential property. Acquisition of a single family dwelling or up to 5 acres of vacant land for construction of a dwelling no longer needs an advance permit, but can be registered after purchase. Rule for inheritors of Bahamian properties have been similarly relaxed.

Home-owners can obtain an annually-renewable Home Owner's Residence Card which acts as a visa for entry and residence during its validity.

Major international investors and existing owners of properties worth more than $500,000 receive accelerated treatment of residence applications.

Work permits are necessary for non-Bahamians to be employed: key (senior or specially-skilled) people are issued permits; in other cases it is wise to discuss the possibility of a permit with the Bahamas Investment Authority in advance.

In early 2007, it emerged that the Bahamas financial services industry had developed an immigration framework designed to help the jurisdiction compete with other offshore financial centres for a finite pool of skilled workers.

The proposals were drawn up following discussions between the Bahamas Financial Services Board (BFSB), responsible for promoting the jurisdiction's finance industry internationally, and the Ministry of Immigration, Labour and Training (MILT). Two primary 'financial services industry' contacts have been appointed within the Department of Immigration, with the turnaround period for the processing of completed FSI work permit applications now pegged at 6 weeks.

The MILT will also consider a more flexible work permit system that reflects the availability of workers in certain occupations and may grant shorter work permits for employment in areas where there is an acute shortage of skills in just the Bahamas, and medium- to long-term permits for jobs where there is a worldwide shortage of qualified candidates.

Currently, when work permits are about to expire, employers must advertise the post locally before MILT will grant an extension. However, the Ministry said that it will review this process and may give favourable consideration where the position is for senior positions in an organisation. It will also expedite the processing of applications for temporary permits, which are valid for a period of up to three months.

It is anticipated that the framework will be updated continually to meet changes and developments taking place in the industry.

In November 2007, Minister of State for Immigration, Elma Campbell announced that the government’s comprehensive immigration policy was “well underway”, and was addressing the challenges facing the Department of Immigration in the areas of illegal migration and the processing of work permits.

Since the launching of the new immigration policy, the Immigration Board convenes weekly in New Providence and twice a month in Grand Bahama.

Campbell revealed that in August of that year, 1,650 work permits and 360 permits to reside were considered. In September, 1,100 work permits and 100 permits to reside were considered, and in October, 1,300 work permits and 90 permits to reside were considered. Of these, for the financial services sector there were 50 applicants in August, 140 in September and 60 in October.

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Bahamas Business Environment

In terms of business and communications infrastructure, the Bahamas are very well-developed. The business environment is particularly well-attuned to the finance sector as a result of the Bahamas' long-term policy of promoting itself as an international finance centre, accompanied by a well-developed regulatory structure; as the economy depends heavily on the offshore financial sector, the government tries hard to avoid use of the island for money laundering. An Economic Impact Assessment of the financial services industry commissioned by the Bahamas Financial Services Board (BFSB) found that the industry contributes about 20% to the Bahamian economy.

There is a wide range of professional services in the Bahamas, particularly for the insurance, trust management and mutual fund sectors. The Government has understood the importance of e-commerce for the future of international business and is making a determined attempt to become a centre of e-commerce development.

There is relatively little Government involvement in business in the Bahamas, particularly for offshore businesses. Onshore business activity requires a license under the Business Licenses Act 1980 and firms must register their business names under the Registration of Business Names Act 1989 ($50 to register).

There are detailed lists of those business activities for which the Government will, or will not, normally issue a license. The rules governing foreign investment (particularly the availability of incentives, for which see below) are complicated, and expert guidance is necessary. Some of the more important types of enterprise reserved for Bahamians are:

Larger-scale activities are often allowed only on a shared-equity basis, including local manufacturing, transportation and farming.

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Bahamas International Stock Exchange

In May 2000, the Bahamas' new, privately owned stock exchange (BISX) went live, originally with 2 established brokers. By December, 2005, it had 19 companies listed with a total of $2.6 billion in market capitalisation. Due to the exchange's losses of $2.3 in the two years up to June 2002, shareholders invested sums of $125,000 in order to keep the company afloat.

Former Minister of State for Finance, Senator James Smith then appointed a team of financial experts to investigate the exchange's financial needs. The BISX has an upgraded infrastructure from which remote trading across a secure private WAN and the launch of an international segment can take place.

In November, 2003, BISX gained affiliate membership of the International Organisation of Securities Commissions (IOSCO). Commenting on the achievement, Mr. Ian Fair, BISX's Chairman stated, "This is a significant achievement for BISX given that this is only our third year of operation. IOSCO sets the global standard for proper securities regulation, therefore, based on the fact that the Securities Commission of The Bahamas is already an Ordinary Member of IOSCO and the fact that BISX maintains Rules and operating procedures which are acceptable to IOSCO, speaks volumes for our place in the greater world community."

In November, 2004, shares in the Bank of Bahamas Limited began trading on the Bahamas International Stock Exchange, taking the total of listed issuers trading on the BISX to 19.

In February, 2005, the Securities Commission of the Bahamas announced its approval of an increase in the fee for a Domestic Primary Equity Listing on the Bahamas International Securities Exchange (BISX) from $2,500 to $5,000.

In January 2007, mutual fund management giant Fidelity listed its Fidelity Prime Income Fund Limited on the Bahamas International Securities Exchange (BISX), underscoring the growing popularity of the BISX's mutual fund listing facility. The Prime Income Fund was the second fund that Fidelity had listed with the BISX.

The following month, the BISX announced that Credit Suisse Wealth Management Limited had been approved as a BISX Sponsor Member for the listing of mutual funds on the exchange. Simultaneously with its application for Sponsor Membership, Credit Suisse submitted an application to list the Protection Strategy Fund Limited SAC and its three classes of shares on the BISX mutual fund listing facility. The Protection Strategy Fund Limited SAC became the twelfth mutual fund to list on BISX. An additional sponsor member, FG Capital Markets Limited, was added in March 2008, taking the total number of sponsor members at that time to 5.

The BISX ended 2007 on a high note in terms of new listings, announcing that four funds had listed in December as part of the Central Bank's Exchange Control Liberalization Program, which was designed to ease and enhance the international investment opportunities for Bahamian residents. The funds included: The Fidelity Bahamas International Investment Fund Class N-Series 1 (IIF-N1); The CFAL Global Bond Fund (GBF); The CFAL Global Equity Fund (GEF); and The CFAL High Grade Bond Fund (HGF).

Funds listed in 2008 included the RP Hedge Fund and the Royal Fidelity International Investment Fund Limited, Class A Equities Sub Fund. This latter fund, which also took place as a result of the Exchange Control Liberalization Program, was the 11th fund listing since December 2007.

For the year ending 31st December 2007, the BISX All Share Index closed up 390.56 points or 23.30% for the year, closing at 2066.75. During 2007, trading volumes decreased from the previous year's total, and the value of shares traded also decreased when compared to 2006. The total value of shares traded also decreased by more than 449,000 dollars to 28.26 million in 2007 compared with 2006 volumes.

In April 2007, the BISX announced the publication of its new draft rules for Listing and Continuing Obligations requirements for issuers listed on the Exchange. A four-week consultation with the finance industry on the new rules ended on May 11, 2007.

Commenting on the proposed changes, Keith Davies, BISX Chief Executive Officer, said: "This is the first major amendment to the BISX Rules since their approval and publication in 2000. It was important for us to address these rules first as they form the basis of our primary trading market, and it is an important step in the development of our market as a whole, as we try to keep pace with the changes that are taking place in our market."

In June 2008, the BISX announced the imminent launch of a new initiative with a targeted consortium of global financial services companies to create a new platform focused on opportunities in the international capital markets. The joint venture, named BISX Global, marries product development teams and investment product specialists from around the globe with one of the world's leading financial jurisdictions.

BISX Global promises to capitalize on the increased benefits of independently priced and listed products in an environment that delivers significant tax and regulatory advantages.

According to the exchange, BISX Global will provide the right expertise and support to transform the Bahamas International Securities Exchange from a primarily domestically focused exchange into a premier meeting place for global products and international capital.

BISX Global will be a joint initiative between the BISX and a number of international investment banks, the identities of which were to be revealed in the latter half of 2008.

In mid 2008, the BISX announced that Phoenix Four Inc. had successfully completed the BISX Mutual Fund Listing Process and had been added to the roster of funds listed on the exchange. Phoenix Four Inc became the 23rd mutual fund listing on the exchange and the third international listing since December 2007.

The BISX All Share Index closed 2008 at 1712.36, which represented a year to date decrease of 354.39 points or 17.15%. As at December 31, 2008 the market was comprised of 24 primary market listings with a market capitalization of USD3.03bn. The primary market securities traded over BISX include 19 common share listings, 1 preference share listing and 4 tranches of debt.

Trading volume in 2008 amounted to 9,623,219 shares for a value of USD71,553,200. This compares to 2007 when 4,770,270 shares changed hands for a trade value of USD28,255,500.

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Bahamas Import of Foreign Capital

The Bahamas' exchange controls apply only to the Bahamian dollar and to resident companies and individuals. There are no other capital or exchange controls applying to non-residents or to the various forms of offshore entity, which are allowed to import and export funds in all currencies. There are no taxes that apply to such transfers, and there is no withholding tax on interest, dividend or royalty payments. However, it is normal (and necessary) to apply to the Exchange Control Department before making any investment into the Bahamas; once the investment has been given 'approved investment' status, subsequent remittances out of the jurisdiction will be straightforward.

In February 2006 the Central Bank announced the relaxation of exchange controls relating to real estate investments, foreign currency transfers, mortgages, and debt and equity instruments.

Prior to the changes, residents purchasing securities or making real estate investments overseas had to do so through the Investment Currency Market (ICM), at a premium bid and offer rate of 25% and 20%, respectively. With immediate effect, these rates were reduced by half, to 12.5% and 10.0%, respectively.

In addition, equities of Bahamian Companies listed on BISX can be cross listed on principal CARICOM exchanges (i.e. Barbados, Jamaica, ECU and Trinidad & Tobago), within prescribed limits.

Foreign companies listed on principal CARICOM exchanges may list issued and outstanding equity securities on BISX.

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Bahamas Foreign Investment Regime

As mentioned above, the foreign investment regime in the Bahamas is complex, largely because of the variety of types of support and incentive that are offered, coupled with legislation protective of Bahamian interests and employment, and exchange controls. Only brief details of some of the salient points will be given here.

The following statutes, among others, incorporate significant incentive structures:

Freeport on Grand Bahama is a 200-sq-mile free trade zone, incorporating Freeport Harbour, a newly-built container trans-shipment port able to take the largest vessels. Freeport is a tax- and duty-free zone. There is a further, smaller free port on New Providence Island.

The Bahamas have a National Investment Policy vested in the National Economic Council; it is operated by the Bahamas Investment Authority, which is the first port-of-call for any intending inward investor.

Among the incentives that are available are exemption from customs duties, exemption from property taxes, subsidised land and buildings, support for training and retraining, freedom from licensing and permit rules. The Bahamas belong to a number of international preferential trade groupings which may assist in reducing tariffs on exports from the Bahamas to certain other markets:

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