Two outstanding financial products offered by the Bahamas as an international offshore financial centre are the international business company and the asset protection trust.
1. The International Business Company (IBC)
IBCs are used for any number of practical purposes by the international businessperson, artist, trader, investor, financial or tax planner, professional, shipper, or insurer. They were previously limited to companies which did not carry on business with persons resident in The Bahamas, did not own or lease Bahamian real estate (other than for use as their offices), did not carry on banking or trust business and did not carry on insurance or reinsurance business. But, these limitations have largely been removed under the International Business Companies Act, 2000 (No. 45 of 2000) (the “Act”), as amended by the International Business Companies (Amendment) Act 2001 (No. 19 of 2001). The previous act was the International Business Companies Act, 1989 (No. 2 of 1990), which was repealed by section 194 of the Act (except for its Part X on fees and penalties).
An IBC may have as few as two subscribers (ss 3, 13(3) and 14(1)), must at all times have a registered agent in the Bahamas (s 38(1)) and need have only one director (ss 53 and 47(1), cf s 40) and one shareholder (s 53) who may be an individual or a company.
A high degree of confidentiality is provided consistent with Bahamian financial and anti money laundering laws. Particulars of an IBC’s shareholders are not filed with the Registrar of Companies in Nassau. A share register is kept at the registered office containing (a) the names and addresses of the persons who hold registered shares in the company; (b) the number of each class and series of registered shares held by each person; (c) the date on which the name of each person was entered in the share register; and (d) the date on which any person ceased to be a member (s 29). It is not open to inspection by the public. But, a copy of the register of directors and officers is filed with the Registrar and, unlike the share register, is open to inspection by members of the public (s 44(4)). Directors’ and members’ meetings may be held within or outside The Bahamas (ss 48(1) and 60(1)) and participation may be by telephone or by other electronic means (ss 48(2) and 60(3)).
An IBC may adopt pre-incorporation contracts within 90 days of their formation (s 70(2)). Bearer shares may not be issued (s 196(4)). Exchange control does not in any manner apply to a company the operations of which are or are intended to be exclusively overseas. Exemption from exchange control regulations means that IBCs may be incorporated, their shares may be issued and transferred and they may open and operate foreign currency bank accounts without first obtaining exchange control permission from The Central Bank of The Bahamas. But, to carry on business with persons resident in The Bahamas, that company must first obtain exchange control approval.
The Act foresees the registration of an IBC as a limited duration company (s 171). In that case, the duration of the company is 30 years or less (s 172(b)(i) and (c)(i)). IBCs may also be used inter alia as international trading, royalty licensing and franchising, investment, overseas property, professional service, asset holding, employment, shipping/yachting, and captive insurance companies.
Stamp duty is only payable by an IBC in relation to real property situate in The Bahamas which it owns, or which is owned by any company in which it holds shares or for which it holds a lease. The IBC has been described by Bahamian government officials as “the jewel in the crown of the current legislative programme for the financial services sector’.
2. The Asset Protection Trust (APT)
All trusts are designed to protect assets. But, APTs are even more rigorously tailor-made to achieve by careful drafting the settlor’s objectives in estate, tax and general financial planning.
They are also increasingly used to cover a professional’s exposure to malpractice suits. Trusts are a superior choice to high insurance premiums, which cut substantially into a professional’s income. While a transfer to a trust may be subject to gift taxes, and a trust in favour of a spouse is subject to the risk of divorce, the other risks associated with a trust have now been substantially reduced by virtue of the Fraudulent Dispositions Act (No. 1 of 1991) of the Bahamas, whose long title is “An Act to Amend the Law Relating to Dispositions made with an Intent to Defraud” (hereinafter “the 1991 Act”).
A trust may be set aside if it is made to defraud creditors. Such persons may claim that the transfer of assets to the trustee was void as a fraudulent conveyance.
The 1991 Act facilities the formation of APTs in the following ways:(1) the burden of proof under Bahamian law rests with the creditors; (2) the assets of the trust are safe as long as the cause of action against the trust arose after the trust was formed; (3) a judgment in a U.S. or other foreign court against the settlor is not enforceable against a Bahamian trustee; (4) the creditor must institute independent proceedings in the Supreme Court of the Bahamas; (5) the settlor is not protected against contingent creditors of which he was aware, but from future claimants.
While the 1991 Act clearly invalidates a trust which was set up with the intent to defraud, it also designates a period of two years in which a creditor can challenge the trust. After that period the assets are safe.
3. Conclusion
The IBC is inexpensive. Your IBC can be up and running within 48 hours at a cost of about $1500 (for a company with an authorized capital of $5,000) including government fees and legal costs. The APT costs $4000 and up depending on its complexity. Low pricing is necessarily only one factor in the choice of a financial vehicle. The Bahamas is otherwise a competitive and tax neutral environment. It has no personal or corporate income tax, sales tax, capital gains tax, withholding tax, business tax, estate tax, gift tax, inheritance tax, death duties, employment taxes, nor probate fees. Individuals, corporations (including nonresident-controlled Bahamian companies and IBCs), partnerships, trusts, and estates can all enjoy this immunity. With additional advantages of innovative financial products (including IBCs and APTs), political stability, excellent communications and a qualified and experienced corps of lawyers, accountants and other professionals, the Bahamas is very competitive as an international financial centre of choice.
*Dr. Peter D. Maynard
Peter D. Maynard & Co., Bay & Deveaux Streets.,
P. O. Box N-1000, Nassau, Bahamas
Tel. (242) 325-5335
Fax. (242) 325-5411 E. info@maynardlaw.com
www.maynardlaw.com
