The Bahamas Cuts Taxes to Attract Investors

In these economically turbulent times, the government of the Bahamas is taking proactive steps to attract further investor interest in the country of more than 700 islands. During …

In these economically turbulent times, the government of the Bahamas is taking proactive steps to attract further investor interest in the country of more than 700 islands. During its 2008-2009 budget communication at the end of May, the government announced a series of tax cuts, some of which are designed as an incentive to stimulate investment in the country. The tax cuts went into effect July 1.

The Bahamas: the basics

The Bahamas is a chain of 700 islands and nearly 2,500 little islets. Located between the southern tip of Florida and the northern tip of Haiti, these islands are scattered across approximately 100,000 square miles of the Atlantic Ocean.
The Bahamian population of almost 300,000 people inhabits only 30 of the islands. Nassau, the capital city, is located on New Providence; Freeport, the second-most populous city, is located on Grand Bahamas Island.

Tax cuts for investments in the city of Nassau

Among the announced incentives is the City of Nassau Revitalization Act, a bill to entice potential investors to the nation’s capital through tax concessions over a five-year period.

The city, particularly the downtown area, suffers from disrepair and urban blight that is unattractive to local residents and tourists alike. According to The Nassau Guardian, Prime Minister Hubert Ingraham said during his introduction of the proposed tax incentive that many buildings in the city center are in a state of disrepair. He also talked about the city’s lack of vibrancy, which is a result of factors such as shortage of upscale restaurants and quality entertainment places.

Free $100k Forex demo accountAlexander Alexiou, owner of Nassau-based Lows Realty, which been in the property business since 1967, also mentioned several problems affecting Nassau including businesses moving out of the downtown area because of a lack of shopper traffic from cruise ships and hotel guests. He said he believes two of the main reasons for this are the poor condition of many properties in the area and a lack of parking spaces.

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The tax cut will exempt from custom and excise duties all materials imported, purchased or taken out of bond for capital investment purposes of any structure in the city of Nassau, according to The Bahamas Journal.  Property taxes on investment buildings will also be exempted for up to five years.

“[The City of Nassau Revitalization Act] would give incentives to building owners to update and revitalize their buildings which have gone untouched for years,” Alexiou said. “With these incentives the owners would be more willing to spend some money upgrading their buildings and making them more attractive.”

Another problem the tax bill may help solve is the short supply of residential property in the city, according to Alexiou. He said that if more people actually lived in the city, then more restaurants and bars will remain open for business for longer hours. This, in turn, would encourage more customer traffic, creating the vibrancy which Ingraham said the city lacks.

Tax cuts for investments in family islands

In addition to the Nassau tax bill, the government also announced another similar tax cut targeting what are commonly known in the Bahamas as the “family islands” or “out islands,” according to The Bahamas Journal.

For those who invest in the specified islands, the Family Island Development Encouragement Act will offer duty and excise tax free import on construction materials that will be used to build new structures or to work on existing buildings. The bill will also give similar tax breaks for those who import machinery to be used for farming or construction activities on these islands.

A number of investors are looking to develop the Family Islands and the tax incentive would further encourage more investors to begin paying attention to these lesser-known islands, according to Alexiou. San Salvador, for example, is one of the islands covered by the tax cut. It has only one large scale development—Club Med Columbus, which was completed in 1992—though the island has room for more. The island already enjoys weekly direct flights from Florida and Paris, Alexiou said, and “…hopefully [the tax incentive would] stimulate some growth in these out islands which are ready, able and willing to grow.”

Tax profile

According to the 2008 Index of Economic Freedom, put together by The Wall Street Journal and The Heritage Foundation, The Bahamas ranks as the 24th freest economy out of 162 countries around the world, and 5th out of 29 countries in the Americas. The nation’s economy scores 96.2 percent free on the Fiscal Freedom scale, part of the index that rates tax burdens, compared to the United States at 68.3 percent.

Its stable political system, high income and attractive private investment atmosphere make the Bahamas one of the richest countries in the Caribbean.

According to the index, one of the reasons why the country ranks so high is that it has one of the lowest tax burdens in the world. The Bahamas has no taxes on capital gains, corporate profits, personal income, sales, inheritance or dividends.

Most of the country’s tax revenue comes from tariffs levied on imports. The announced tax cuts means the government is willing to forego a part of its main source of income in order to create an even more investor-friendly environment.


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