The growth of our economy necessarily requires change, and change is never a comfortable endeavour. Some of the changes will inevitably call for reform and structural transformation, sometimes involving cultural shifts, technological upgrades, training and retooling as we strive to modernise our economy and position ourselves to take advantage of the abundance of opportunities fuelled by the global changes happening around us.
However, we cannot continue to do the same thing and expect a different result. An expanding, buoyant and competitive economy demands that we make some difficult but necessary changes. No matter how difficult those discussions may be, they must take place, as they are in the best interest of our country as a whole.
The question foremost on the minds of many Bahamians is how The Bahamas will respond to the rules of engagement by the international system in which we operate as a sovereign independent country. What will it mean for The Bahamas as a small developing country operating in that system and the implications for those areas for which I have ministerial responsibility, areas of particular concern and sensitivity for a small country such as ours?
For over 80 years, The Bahamas has maintained a successful track record of competing for Foreign Direct Investment and offering wealth management services. One of the key reasons for this success is The Bahamas’ position as an internationally recognised centre for the provision of financial services.
Globally, we are small in size although strong in the products and services we provide. This position is being challenged by the global consolidation of advancement in technology, regional economic weakness, competition from other financial centres both onshore and offshore, and global regulatory pressures which have strained national resources.
To maintain our success we have begun to lay the cornerstone for the strategic vision for financial services 2025.
This strategy has a clear vision for The Bahamas as a recognised location of choice for specialist international financial services, which builds on our strengths in local human resource talent, technological advancement, product and service innovation, established infrastructure, excellent client service, friendly investment policies and incentives, and flexible adaptability to change management in a well-regulated environment.
The Government believes that continued alliance between government and the private sector, as well as collaboration with regulators both domestically and internationally, is critical if we are to grow the industry while preserving jobs for the many Bahamians who work in the sector.
In years past, the word “offshore” conjured up negative imagery about financial centres. Unfortunately, the word still sometimes casts a shadow on the continuing success and tremendous growth of legitimate business in private banking and wealth management, particularly in well-regulated jurisdictions like The Bahamas. This jurisdiction has been, and remains, unwelcoming to those who attempt to engage in questionable, nefarious activities and financial crimes.
It is the Government’s belief that given the importance of the sector to our economy, it is imperative that we articulate our legitimacy as a responsible, well resourced, compliant international financial centre focused on real international business; a centre committed to the highest possible standards of service delivery, transparency and cooperation. This Government is committed to maintaining the integrity of the financial services sector and remains committed to ensuring full transparency with our international obligations while balancing the need for safety and confidentiality to our clients. This is the message we seek to articulate to our customers and international partners.
International Regulatory Initiatives
It is a known fact that the financial services industry has undergone many changes in recent years and that the global regulatory environment in which we operate continues to expand. The sector has experienced pressures to change and adapt to what is taking place internationally.
In response we strive to develop new products for our clients, revise policies, create and amend legislation all in an effort to remain current within the ever-changing global environment.
The Bahamas has been proactive in complying with international regulatory initiatives in the global fight to increase tax transparency for the avoidance or evasion of taxes, combatting money-laundering, the facilitation of terrorist financing. and the illicit use of our financial system.
We will not allow our financial services sector to be compromised. We remain committed to ensuring that The Bahamas continues to be a transparent, clean and compliant jurisdiction.
We have demonstrated our commitment to respond to these international regulatory initiatives developed by the OECD, EU and the FATF. We allocated human and monetary resources to ensure the enactment of the necessary legislation, the implementation of the policies and processes, and the enforcement of these actions.
These initiatives have included a compendium of domestic legislation passed by Parliament to align our laws with new and evolving international standards:
• The MULTINATIONAL ENTITIES FINANCIAL REPORTING ACT, which contains rules for country-by-country reporting in-line with the OECD’s Inclusive Framework for the Multilateral Base Erosion and Profit Shifting (BEPS) initiative.
• The AUTOMATIC EXCHANGE OF FINANCIAL ACCOUNT INFORMATION ACT, 2016 was implemented in accordance with the OECD’s Common Reporting Standard (CRS) beginning in September 2018 when the first 35 exchanges took place without any issues. Also, the signing of the Multilateral Competent Authority Agreement (MCAA) which is a multilateral framework agreement that provides a standardised and efficient mechanism to facilitate the automatic exchange of information in accordance with CRS.
• The COMMERCIAL ENTITIES (SUBSTANCE REQUIREMENTS) ACT, 2018 addresses the concerns of the EU Code of Conduct Group for business taxation, with respect to economic substance. Entities having relevant activities which include banking, insurance, fund management, financing and leasing, shipping, distribution, or service centre operations, headquarter operations, and holding companies with relevant activities will have to demonstrate to the authorities that they have substantial economic presence in The Bahamas and that they are engaged in real economic activity.
• The BENEFICIAL OWNERSHIP REGISTER ACT, 2018 provides for the establishment of a secure search system by the Attorney General that can scan database systems managed by registered agents which hold beneficial ownership information of entities incorporated, registered, continued or otherwise established in accordance with The Bahamas Companies Act or the International Business Companies Act.
• The REMOVAL OF PREFERENTIAL EXEMPTIONS ACT, 2018 addresses the harmful tax practice known as ‘ring-fencing’. This is the process where a taxing jurisdiction runs a preferential tax regime that is unavailable to certain groups of tax- payers. In essence, it removes tax exemptions that are offered to non-residents but not offered to residents.
By creating these laws, this Administration has sought to preserve The Bahamas’ position as a significant global financial services centre while ensuring that The Bahamas retains its reputation as a premier jurisdiction of choice for the conduct of quality financial services in compliance with international regulatory standards.
The Road Ahead “Financial Services Vision Strategy 2025”
The vision is “To strategically position The Bahamas as a distinctive niche service provider in global financial services” for long-term sustainability.
We know that current trends dictate a more technology- driven sector that is becoming increasingly knowledge driven. We must ready ourselves to adapt and cater to these changes through our products and services offering, while also leveraging our existing strengths as we seize other opportunities being created through new and emerging developments.
This calls for greater expertise and specialised professional skills and knowledge. Proper research and study. And the development of the proper infrastructural base with the requisite policies and processes that will allow the ease of transition and an atmosphere of entrepreneurial growth.
While there has been some effort in the advancement of these goals, there is a serious need for a more deliberate and strategic undertaking to achieve them.
The Ministry of Financial Services plans to undertake a study that will analyse the current state of job roles in the financial services sector and how they can be augmented as technologies are leveraged to enhance or improve the performance of these roles. The intent of the study will be to identify emerging job roles that would grow in demand with the adoption of fintech, data analytics, and automation in the financial services sector.
The purpose of this study will be to provide a compass for financial institutions and individuals to prepare themselves for the future of work as the use of data analytics and automation become pervasive in the financial services sector.
Business transformation alone is not enough. We also need workforce transformation. This study will help us uplift our workforce, harness the power of data analytics and automation, and make The Bahamas’ financial services sector more efficient and more competitive.
New Business- Friendly Immigration Policy
The Ministry of Financial Services, recognising the importance of a modern, progressive “national development-focused” immigration framework for the growth of the financial services sector has developed a three-year, tax residency programme which could serve as a gateway to more permanent residence options for HNWI investors.
There is no renewal for this programme. It entitles the successful applicant to the right to reside in The Bahamas for a period of up to three years and to be issued a certificate of tax residence in The Bahamas (the certificate is issued for only three years for transparency purposes and after that period, must prove criteria for eligibility still exists).
The Bahamas must be the main residence or home. One must show stability and permanence and/or at least 90 days and declare that less than 183 days is spent in any other single country or will otherwise be subject to the “substantial presence test”.
The Tax Residency Certificate will be issued with a special NIB TRC number. In order to be eligible for a tax residency certificate, the resident must pay the relevant fees and make an annual payment towards National Insurance at the rate and maximum wage ceiling for that particular year or be subject to another applicable tax.
Economic permanent residency remains at US$750,000.
The Ministry has also recognised that the issue of residency is an important matter, given global developments on tax transparency. The OECD released its Standard for Automatic Exchange of Financial Account Information which has, as the basis of information sharing, a self-certification process for establishing residency for tax purposes. In this regard, the concept of “residency”, and specifically “tax residency”, in The Bahamas has to be carefully defined, especially if The Bahamas is to remain progressive and ahead of the changing global dynamics in international financial services.
Together we will be able to respond to the challenges and maintain the soundness and stability of our financial services industry. There is still much work to be done. We will continue to strengthen this position to ensure that our financial services sector remains a key pillar of future economic growth.
Hon. Elsworth Nathaniel Johnson
Minister of Financial Services, Trade and Industry and Immigration