Corporate Income Tax for The Bahamas

On 21 February 2024, the Prime Minister of The Bahamas, during the Government’s Mid-Year 2023/2024 Budget Statement to Parliament  announced plans to forge ahead with the legislative enactment and implementation of a Qualified Domestic Minimum Top-Up Tax (“QDMTT”), part of the OECD Pillar Two tax framework during 2024.

This pronouncement came on the back of a Green Paper on Corporate Income Tax Strategies for The Bahamas (“Green Paper”) which was released for public consultation on 18 May 2023 by the Ministry of Finance.  The Green Paper, amongst other things, laid out options for transitioning away from the existing business license tax (BLT) regime which is presently calculated based on a business’ revenue (i.e., gross turnover regardless of profit margins/loss by business) instead of its profits or ability to pay. It is  limited in its scope and focused only on the potential effects of a broad corporate income tax system design features.

What businesses/entities will be captured under Pillar Two QDMTT?

According to Prime Minister Davis, Pillar Two QDMTT is expected to impact multinational enterprises (MNEs) earning more than 750 million Euros/US$850 million annually.  Clarifying that it is not anticipated that Corporate Income Tax (“CIT”) will impact domestic companies, Prime Minister Davis indicated that  addressing only Pillar two multinational enterprises is the “proper approach”. He further noted that “Any consideration of a wider business income tax would only happen if it is a more equitable approach for Bahamian businesses, and would only be done after proper consultation, with considerable lead time in order for Bahamian businesses to properly prepare”.

What are the implications to domestic MNEs currently captured under the Business License Act in The Bahamas?

While  there was no  indication of further changes to the new Business License Act and Business License Regulations 2023 which came into force on 1 July 2023 to repeal and replace the Business Licence Act, 2010, it is widely anticipated that MNEs that will be subject to CIT Pillar Two QDMTT regime, will no longer be subject to the Business license tax.

The Business License Act and Business License Regulations 2023 introduced both new reporting requirements and expanded the scope of entities covered under the business license regime. Presently, all companies conducting business in or from within The Bahamas are required to obtain a business license.  An investment fund regulated under the Investment Funds Act, 2019 and a pure equity holding entity¹ are not deemed to be a business² for the purposes of the Act.

Prime Minister Davis, in his statement, noted that the new Business Licence Act 2023 “introduces new fees for International Businesses Companies (IBCs) for the first time.  We have not forecasted any major uplift as IBCs by their very nature are mobile”.

Subject to certain business activities which are exempted under section 10 of the Business License Act, all entities which are incorporated or registered under the Companies Act or under the IBC Act of The Bahamas, that carry on business in or from within The Bahamas, are required to have a business license and pay a business license tax annually based on turnover for the preceding calendar year, and at prescribed rates. 

See further our publication on The new Business Licence Act, 2023 - Impact on International Business Companies.

When are legislation and guidance notes expected to be passed?

According to Prime Minister Davis, The Bahamas Government will prepare draft legislation by the end of May 2024 for presentation during the budget proposals for the upcoming 2024/25 Fiscal Year. The draft will be circulated for public consultation over the summer months, and then move to be finalized for submission to Parliament after the summer recess. 

While the effective date has not been disclosed, Prime Minister Davis indicated that his government is “reviewing options that would entail Pillar Two multinationals accruing those taxes for 2024 in The Bahamas”.

CIT may affect MNEs operating in The Bahamas as early as the next fiscal cycle, which commences on 1 July 2024 but this could be retroactive as earlier as January 2024. 

_{¹ “pure equity holding entity” means a commercial entity that only holds equity participations in other entities and only earns dividends and capital gains.}

_{²“business“ includes inter alia a trade, profession, vocation, venture or undertaking and the provision of personal services, or technical and managerial skills, and any adventure or concern in the nature of trade that does not include employment, and which purpose is to create turnover.}