From:TheBahamasWeekly.com
Bahamas Investment Climate Statement Released by U.S. Department of State
Jun 12, 2015 - 12:17:43 PM
The U.S. Department of State Bureau of Economic and Business Affairs have released the May 2015 Investment Climate Statements
"Investment Climate Statements provide country-specific information and assessments prepared by U.S. embassies and diplomatic missions abroad on investment laws and practices in those countries. "
The Bahamas maintains a relatively stable environment for investment
and demonstrates a long tradition of parliamentary democracy, respect
for the rule of law and a well-developed legal system, and security of
life and personal property. It aggressively promotes its liberal tax
environment and freedom from many types of taxes, including capital
gains, inheritance, and corporate or personal income taxes. U.S.
companies find that The Bahamas' proximity to the United States, common
English language, and the exposure to U.S. media and culture contribute
to Bahamian consumers having general familiarity and positive attitudes
towards U.S. products. The Bahamas conducts approximately 80% of its
international trade with the United States.
The Bahamian economy remains heavily dependent on tourism and
financial services, although the government has made efforts to
encourage diversification, particularly in agriculture. The Bahamas
relies primarily on imports from the United States to satisfy its food
needs for local and tourist consumption.
On January 1, 2015, the Government of the Commonwealth of The Bahamas
(GCOB) introduced a 7.5% Value Added Tax (VAT) levied on most goods and
services, a measure designed to strengthen the fiscal balance sheet.
Implementation of the new tax has gone relatively smoothly and the
government continues to refine its VAT rules and procedures.
The Bahamas continues to attract significant foreign direct
investment (FDI) from various parts of the world. However, there remain
significant challenges to investing in the country, including the cost
and reliability of electricity, high unemployment combined with a lack
of skilled labor, and cumbersome administrative requirements. U.S. and
Bahamian companies alike report that the resolution of business disputes
often takes years, and the approval process for foreign investments is
cumbersome and often time-consuming. The Bahamian government asserts,
however, that the majority of foreign investment applications are
processed quickly and without significant issues. Some U.S. and Bahamian
companies also complain that the tender process for public contracts is
not consistent or transparent.
On September 2, 2014, Moody’s Investor Service (https://www.moodys.com)
downgraded the Bahamas’ issuer and senior unsecured ratings to Baa2
from Baa1 and changed the outlook from stable to negative, citing
continued deterioration of the government’s balance sheet and subdued
economic growth. In a credit opinion issued on March 9, 2015, Moody's
predicted that the government would overshoot its fiscal deficit
projections, but maintained the rating and outlook. Standard and Poor’s (http://standardandpoors.com)
affirmed a BBB/A-2 rating with a negative outlook on November 6, 2014,
noting that The Bahamas’ credit profile remains under pressure amid a
stagnant economy and weak fiscal performance, while acknowledging that
VAT revenues would be a key driver in future ratings.
The Bahamian government continues to assert that long
awaited-benefits from foreign investment-led activities are imminent,
particularly in the tourism and construction sectors. The USD 3.5
billion Baha Mar mega-resort in Nassau is expected to open in 2015. The
International Monetary Fund (IMF) in its March 2015 Article IV
consultations predicted 2.8 percent growth for the country in 2016,
supported in part by a strenthened economy in the United States. (http://www.imf.org/external/np/sec/pr/2015/pr15143.htm).
The Bahamas remains the only country in the Western Hemisphere that
has not acceded to the World Trade Organization (WTO). The government
has committed to accelerating its efforts to acquire full membership,
which will require it to remove barriers to international trade and take
further steps to facilitate foreign investment and bolster intellectual
property rights. These goals are commendable and vital to economic
growth, but the government likely will face continued internal and
external challenges to their successful implementation.
1. Openness To, and Restrictions Upon, Foreign Investment
Attitude toward Foreign Direct Investment
With the exception of certain sectors highlighted below, the GCOB
does not give preferential treatment to investors based on nationality,
and investors have equal access to incentives which include land grants,
tax concessions, and direct marketing and budgetary support. The
government provides guidelines for investments through its National
Investment Policy (NIP), which is administered by The Bahamas Investment
Authority (BIA) in the Office of the Prime Minister.
Other Investment Policy Reviews
The Bahamas dropped from 84th in 2014 to 97th in terms of the ease of
doing business in the 2015 World Bank Doing Business Report (http://doingbusiness.org/rankings).
The report reflected a significant decline in the ease of starting a
business and underscored historically problematic issues related to
property registration and contract enforcement. On the positive side, it
highlighted significant improvement in the area of tax collection.
Laws/Regulations of Foreign Direct Investment
The Bahamian Investment Authority (BIA) acts as a first point of
contact for foreign investors and serves to channel and facilitate
investment approvals. The agency is mandated to act as a “one-stop shop”
for foreign investors, and works to assist them in navigating what can
be a cumbersome approval process. The BIA works to direct investment to
specific sectors in the economy through its management of the National
Investment Policy (NIP), which provides policy guidance to decision
makers on investment issues, but is not codified in legislation. The
BIA's Project Proposal Guidelines (www.bahamas.gov.bs/bia) lists the
type of information and documentation that investors should provide when
submitting proposals. The government generally views more favorably
those proposals that demonstrate adequate financing, and benefits to
local employment or economic development.
Industrial Promotion
The National Investment Policy encourages and, for certain
industries, provides incentives for foreign direct investment in the
following priority sectors: tourist resorts, amenities and attractions;
condominiums; time share and second home developments; marinas,
information and data processing services; assembly industries; high-tech
services; shipping; ship repair and other services; light manufacturing
for export; agro-industries; food processing; aquaculture; banking and
other financial services; captive insurance; aircraft and yachting
services; pharmaceuticals; petro-chemicals; mining; and offshore medical
centers. The GCOB has also recently indicated strong interest in
attracting FDI to non-traditional sectors, including alternative energy,
telecommunications, and agriculture. Areas targeted for foreign
investment are available at www.bahamas.gov.bs/bia.
Limits on Foreign Control
The National Investment Policy explicitly reserves certain sectors of
the economy exclusively for Bahamian investors. These sectors are
listed on the BIA website at www.bahamas.gov.bs/bia.
The government has granted exceptions to this policy on a case-by-case
basis. In 2011, the government increased the minimum investment required
by international investors to USD 500,000. International investors are
permitted to engage in the wholesale distribution of any product they
produce locally.
Privatization Program
In recent years, the government has generally prefered to grant
management contracts for state owned enterprises over equity interests.
It continues to entertain proposals for upgrading services. Foreign
companies and investors have generally been permitted to participate in
privatization programs and to bid on management contracts.
Screening of FDI
Decision-making in The Bahamas is highly centralized, and all
investments by foreign nationals are subject to approval by the National
Economic Council (NEC) or the full Cabinet. Investment proposals must
include economic and environmental impact assessments. NEC or Cabinet
decisions are final, although it is sometimes possible for an investor
to request reconsideration of a denial, particularly in cases where a
proposal has been revised and strengthened. The government asserts that
the vast majority of investment applications are processed quickly and
without undue delay. However, some U.S. companies have reported that the
review and approval process is cumbersome and time-consuming, and that
often pending decisions linger for long periods, making it difficult to
make investment decisions.
Competition Law
There are no regulations governing competition and antitrust policy.
Exclusive rights to provide services have been granted by contract in
some areas.
Investment Trends
The Bahamas is experiencing growth in the investment fund sector, and
has seen significant increases in investments from Brazil in
particular. Acording to the Bahamian Securities Commission, the increase
is due to the development and approval of SMART Funds -- risk-adjusted,
low-cost investment structures. The Bahamas was recently designated a
Status A signatory of the International Organization of Securities
Commissions (IOSCO) Multilateral Memorandum of Understanding.
Sources of portfolio investment are not known to be tax havens;
however, the BIA actively promotes The Bahamas' tax-free environment for
investors.
Table 1
2. Conversion and Transfer Policies
Foreign Exchange
Individuals and corporations resident in The Bahamas are subject to
capital or exchange controls. These controls and the related regulations
govern all foreign currency transactions between residents of The
Bahamas and residents of foreign countries. The legal basis for the
policy is in the Exchange Control Act of 1974 and the Exchange Control
Regulations. The Bahamas maintains a fixed exchange rate policy (i.e.
consisting of a fixed one-to-one peg with the U.S. dollar), which
necessitates some level of exchange controls to maintain the country's
foreign currency reserves and to assist in its balance of payments.
However, non-resident investors who finance their projects substantially
from foreign currency transferred into The Bahamas are permitted to
convert and repatriate profits and capital gains freely. The existence
of the controls is not generally considered an impediment to investment.
In the administration of exchange controls, the Central Bank does not
withhold approval for legitimate foreign exchange purchases for
currency transactions and, in the interest of facilitating international
trade, generally delegates this authority to major commercial banks and
selected trust companies.
The current system allows international and local commercial banks to
be registered by the Central Bank as ‘Authorized Dealers.’ This
designation confers the authority to administer and conduct foreign
currency transactions with residents of The Bahamas. Similarly, private
banks and trust companies can be designated as ‘Authorized Agents’ and
are permitted to act as depositories for foreign securities of residents
and to conduct securities transactions for non-resident companies under
their management.
Non-resident investors in The Bahamas must register with the Central
Bank. If their projects are financed substantially by foreign currency
transferred into The Bahamas, they will be given “approved status,”
meaning that profits and capital gains can be converted into foreign
currency and repatriated. In practice, this has been done with minimal
bureaucratic formalities and without limitations on the inflows or
outflows of funds.
Foreign exchange transactions that fall outside of the delegated
authority are approved directly by the Central Bank and include loans,
dividends, issues and transfer of shares, travel facilities, and
investment currency. These are generally routine and addressed at the
Exchange Control Counter at the Central Bank or facilitated by
correspondence with the Governor of the Central Bank.
Investment in The Bahamas will likely remain subject to exchange
controls as policy makers maintain that this is an effective tool to
preserve the country’s external reserves, safeguard its capacity to meet
its balance of payments, and maintain dollar parity with the United
States.
Remittance Policies
There are no restrictions on investment remittances. Foreign
investors who receive a Central Bank desgnation as a non-resident may
open foreign curency-denominated bank accounts and repatriate those
funds freely. In addition, with Central Bank approval, a foreign
investor may open an account denominated in Bahamian currency to be used
in paying local expenses. The Bahamas is a member of the Caribbean
Financial Action Task Force (CFATF). Its most recent peer review
evaluation can be found at https://www.cfatf-gafic.org/index.php/documents/cfatf-mutual-evaluation-reports/the-bahamas-1.
3. Expropriation and Compensation
Property rights are protected under Article 27 of The Bahamian
Constitution, which prohibits the deprivation of property without prompt
and adequate compensation. There have been compulsory acquisitions of
property for public use, but in all instances reported there was
satisfactory compensation at fair market value. There is no evidence
that the GCOB has ever expropriated a business, and it remains unlikely
that this will be an instrument of government policy.
4. Dispute Settlement
Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts
The Bahamian legal system is based on English common law and foreign
nationals are afforded full rights in Bahamian legal proceedings.
Contracts are legally enforced through the courts; there is no written
contract or commercial law.
The judiciary is independent and evidence of government interference
with the system is rare. The judiciary is appointed by the
Governor-General, and the Attorney General is the government's chief
legal advisor and has responsibility for public prosecutions. The
Bahamas is a member of the British Commonwealth and uses the Privy
Council in London as the final court of appeal. The country also
contributes financially to the operations of the Caribbean Court of
Justice, and recently announced its intention to develop itself as a
center for international arbitration.
Judgments by British Courts and selected Commonwealth countries can
be registered and enforced in The Bahamas under the Reciprocal
Enforcement of Judgments Act. Court judgments from other countries,
including those of the United States, must be litigated in the local
courts and are subject to all Bahamian legal requirements.
The Industrial Tribunal comprises three members appointed by the
Governor-General acting on the advice of the Judicial and Legal Service
Commission. The Tribunal has the power to hear and determine trade
disputes, register industrial agreements, hear and determine matters
relating to the registration of such agreements, make orders or awards,
and award compensation on complaints brought and proved before the
Tribunal.
Complaints made to the Embassy about local attorneys have primarily
involved real estate transactions. Property disputes can be challenging,
sometimes lasting several years in the Bahamian court system. Some
purchasers have reported problems obtaining clear title to property,
either because the seller had no legal right to convey, or due to claims
to ownership that arose after a purchase was made.
Additional information on the Bahamian Court System is available at http://nassau.usembassy.gov/bahamianlegaloverview2.html.
Bankruptcy
Personal bankruptcy laws are antiquated and rarely used. Companies
are regularly liquidated (voluntarily or involuntarily) according to the
Companies Act. Liquidations are routinely published in accordance with
the legislation. Creditors of bankrupt debtors and liquidated companies
participate in the distribution of the bankrupt debtor’s or liquidated
company’s assets according to statute.
Investment Disputes
Significant investment disputes in The Bahamas that directly involve
the Bahamian government are rare. Contractual and other disputes between
private Bahamians and foreign investors or exporters are common. The
Bahamas is not a signatory to an international trade agreement with a
developed dispute settlement mechanism and, therefore, disputes must be
settled within the judicial system or international arbitration.
International Arbitration
The Bahamas has been a member of the International Center for the
Settlement of Investment Disputes since 1995 and is also a member of the
Multilateral Investment Guarantee Agency. This agency insures investors
against current transfer restrictions, expropriation, war and civil
disturbances, and breach of contract by member countries.
Order 66 of the Rules of the Bahamian Supreme Court provides rules
for arbitration proceedings. The 1958 United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards entered into
force for The Bahamas on March 20, 2007. This convention also provides
for the enforcement of agreements for commercial disputes. Under the
convention, courts of a contracting state can enforce such an agreement
by referring the parties to arbitration. There are no restrictions on
foreign investors negotiating arbitration provisions in private
agreements. The government has announced its intention to establish The
Bahamas as a center for international arbitration cases, but a body has
yet to be formally established.
ICSID Convention and New York Convention
The Bahamas is a member of both the International Center for
Settlement of Investment Disputes (ICSID) Convention (adopted 1965) and
the New York Convention (adopted 1958). The Arbitration Act of 2009
enacted the New York Convention and provides a legal framework.
Duration of Dispute Resolution
Judicial courts in The Bahamas face a persistent backlog of cases.
Civil cases, on average, take five years to resolve. Foreign investors
have frequently complained that local defendants are able to delay
payment on Bahamian civil judgments in dispute cases due to the lengthy
judicial process, which often involve multiple levels of appeal. The
Attorney General of The Bahamas has implemented a “swift justice”
program that aims to improve the judicial system by utilizing
video-conferencing technology to minimize delays related to court
testimony by non-residents, as well as by creating additional courts.
Corporate plaintiffs must generally engage a resident attorney to
represent their interests in court. The 2015 World Bank Report on Ease
of Doing Business (www.doingbusiness.org) notes that The Bahamas has
made enforcing contracts easier by streamlining and simplifying court
proceedings
5. Performance Requirements and Investment Incentives
WTO/TRIMS
The Bahamas is an observer in the WTO and is not a party to the
agreement on Trade Related Investment Measures (TRIMS). It has signed an
Economic Partnership Agreement (EPA) with the countries of the Forum of
the Caribbean Group of African, Caribbean, and Pacific States
(CARIFORUM) and the European Union (EU).
Compliance with the terms of the EPA has resulted in reductions to
both the range and rate of tariffs applied to goods originating from
countries party to the agreement. While there is no specific
discrimination based on rules of origin and, at the moment, no rules of
origin regime in the country over the long term, the agreement could
have implications for U.S. investment. The reciprocal agreement requires
that The Bahamas eliminate duties on 87 percent of its tariff headings
in five, ten, and fifteen year baskets. Provided that a trade agreement
is not finalized between the United States and The Bahamas, and that The
Bahamas does not accede to the WTO, the EPA could result in an
advantage to EU and/or CARIFORUM producers over the long term.
Investment Incentives
Tax relief is the most significant investment incentive in The
Bahamas. Currently the GCOB does not impose taxes on income, estates, or
inheritances in the country, but instead raises revenue from real
property tax, import duties, a value added tax, and various permit and
license fees. Other incentives for investment include concessions on
import duties, property tax abatement, and, in some cases, land grants
for private development.
Industry and region-specific incentives are offered to any qualifying
individual and available under various legislation. Details of these
laws are available at http://www.bahamas.gov.bs.
There is no policy of forced localization or a requirement for
technology transfers, but there is official encouragement to direct
benefits to local producers and the transfer of skills to the local
labor market. This engagement is a part of the negotiations with
government and it is not uncommon for an investor to gain greater
concessions where there is direct benefit to local business, job
creation, or an investment in economically depressed regions.
Work permits are generally facilitated for key foreign employees as
part of the investment approval process, but government policy generally
favors the employment of Bahamian nationals. Fees for work permits have
developed as a revenue measure and, depending on the category of
employee, can cost up to USD 12,500 annually. Work permits for less
senior employees and those without specialized skills are generally more
difficult to obtain. Work permits, like requests for approval on
investment projects, are sometimes subject to an extensive and lengthy
review process, and may require Cabinet approval.
Research and Development
Foreign firms are not restricted from participating in government subsidized research and development programs.
Performance Requirements
The Bahamas maintains formal performance requirements for
investments, including proof of adequate and legitimate sources of
funding and economic and environmental impact assessments. Such
requirements are negotiated on a project-by-project basis, and,
particularly in the case of larger developments, are written into “heads
of agreement,” between the government and the investor. It is
noteworthy that these heads also include government obligations to the
investor.
Data Storage
There is no policy of forced localization, requirements for access to
source codes, or a requirement for local data storage. There are only
limited significant data storage facilities in The Bahamas.
6. Right to Private Ownership and Establishment
Beyond the areas reserved for Bahamian participation in the NIP,
rights to private ownership and establishment are maintained and
respected. With the assistance of a local attorney, investors can create
the following types of businesses: sole proprietorship, limited or
general partnership, joint stock company, or a subsidiary of a foreign
company. However, the most popular all-purpose vehicles for foreign
investors are the International Business Company (IBC) and the Limited
Duration Company (LDC). Both benefit from income, capital gains, gift,
estate, inheritance, and succession tax exemptions.
The right of establishment is subject to licensing and approval by
the relevant authorities, but generally foreign and domestic private
entities may engage in all forms of remunerative activity. They may also
freely establish, acquire, and dispose of interests in their business
enterprises. However, any foreign investment is subject to review and
approval by the BIA.
7. Protection of Property Rights
Real Property
The Bahamas’ score for ease of “registering property” in the World Bank’s 2015 Doing Business Report (http://doingbusiness.org/rankings)
is 179 out of 189 countries, an improvement of three slots from its
2014 ranking. The government supports and encourages joint venture and
partnership investments in some sectors of the economy (see National
Investment Policy) and allows 100 percent foreign ownership of an
enterprise in selected sectors. All international investments are
subject to review by the National Economic Council/Bahamas Investment
Authority and can benefit from the incentives legislated by the
government.
The various forms of land ownership in The Bahamas have their
beginnings in English law and can include crown land, commonage land,
and generational land. The legal system facilitates the investor’s
secured interest in both mobile and immobile property and is recognized
and enforced in law. Mortgages in real property and security interests
in personal property are recorded with the Registrar General of The
Bahamas. The government reduced stamp taxes in the country in 2014,
making it easier to register property. The tax now ranges between 4-10
percent of the value of conveyances.
The Embassy has received reports of problems obtaining clear title to
property, either because the seller had no legal right to convey, or
due to claims to ownership that arose after a purchase was made.
Intellectual Property Rights
The Bahamian government is taking positive steps to strengthen
Intellectual Property Rights (IPR) protection as part of its WTO
accession process. The Bahamas is a member of the World Intellectual
Property Organization (WIPO) but has not ratified the WIPO Internet
treaties. There is no legislation relating to geographical indications,
rules of origin, or technological protection measures, and there are
recognized shortcomings in the current industrial design and patents
legislation. To this end, the GCOB has implemented a “Plan of Action,”
which includes proposed legislative amendments to address gaps in the
current IPR legislation. The goal of the proposed amendments is to
provide greater IPR protections and more stringent penalties for
violations. The new legislation would bring The Bahamas into compliance
with the terms of the WTO’s Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) Agreement of the WTO as well as its
obligations under the Economic Partnership Agreement.
The Bahamas is signatory to the following intellectual property conventions and agreements:
-
Berne Convention for the Protection of Literary and Artistic Works
-
Paris Convention for the Protection of Industrial Property
-
Universal Copyright Convention (UCC)
-
Convention establishing the World Intellectual Property Organization (WIPO)
-
Convention on the means of prohibiting and preventing the illicit
import, export and transfer of ownership of cultural property
The Bahamas is not listed as a country of concern in the U.S. Trade Representative (USTR)’s 2014 Special 301 Report.
For additional information about treaty obligations and points of
contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
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