IBC Trust Formation in Bahamas - Banking in the World

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IBC Trust Formation in Bahamas

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Forming A Bahamian Trust

There are several ways to form a Bahamian Trust. The trust document can vary in size, depending on its requirements and the complexity of the dispositive provisions. Any lawyer or competent individual can write up a trust document, However, to ensure compliance with Bahamian Trust law, and avoiding the document being ruled invalid by a court, the document should be reviewed and approved by a Bahamian attorney. Some institutions have standard trust documents in which certain items, such as dispositive provisions, are included in one of the schedules. Such standard documents should also be approved by a Bahamian attorney.To establish a Bahamian Trust, it is necessary for the attorney or trustee to know:
•who the beneficiaries are going to be;
•how and when the beneficiaries are going to receive their share of the trust's assets;
•if there is going to be a protector named in the trust document, who that person is;
•what powers the protector is going to have and how to appoint his/her successor.
(Note: A protector is not subject to the same degree of responsibility as the trustee, under law. There can be a "letter of wishes," in which the settlor states in detail what is to happen to the trust's assets during and after his/her lifetime.)

A Bahamian Trust is not exclusive to Bahamian beneficiaries. Upon establishment, the trust must be designated "resident" or "non-resident" for Exchange Control purposes.
Under normal circumstances, in order to establish a trust, the trustee will charge between US$1,000 and US$3,000. The trust law in The Bahamas implies that all the trustee's powers must be stated in the trust document. There is no section in the Trust Act which specifies general powers of the trustee and which can be referred to in the trust document. Thus, if the trust document does not allow for the compensation of the trustee, then the trustee cannot take a fee. In some cases, broad discretionary powers may be given to the trustee, or very strict rules may be laid down. Once the trust is set up, the annual trustee fee can either be based on a flat fee or on a percentage of the assets. If the former, the fee will range from US$1,000 to US$5,000 a year; if the latter, the fee will range from 0.25% to 1%. The range depends on the complexity of administration and the risks involved to the trust company.

Trust Laws
The laws governing trusts in The Bahamas are similar to those of Great Britain and other common law jurisdictions. The concept of the Trust is an integral part of Bahamian Law. The principal statutory instrument is the Trustee Act, 1893, which sets out the court's powers as to the administration of a trust and the regulation of trustees. Bahamian law allows for the establishment of three types of trusts:
•Standard Trust, also an asset protection trust. It can be either "revocable" or "irrevocable," "discretionary" or "non-discretionary."
•Testamentary Trust, which becomes active upon the death of the settlor and the assets are turned over to the estate.
•Charity Trust has the advantage of having no perpetuity period, which in The Bahamas is approximately 80 years. To qualify, beneficiaries have to be genuine charities as defined in law.

There are several new pieces of legislation specifically enacted to make the Bahamian Trust a more effective instrument for today's global financial market. They include:

The Trust (Choice of Governing Law) Act, 1989
This Act permits a settlor to expressly declare that Bahamian Law will be the governing law of the Trust, and such a declaration will be recognized by the Bahamian courts as valid and conclusive regardless of any other circumstances. The Act also recognizes provisions in a trust deed for the changing of the governing law to or from the laws of The Bahamas. The legislation addresses several other areas concerned with the administration validity and capacity of a settlor to a Bahamian Trust and is intended to eliminate many of the jurisdictions that may be at issue, such as concepts of forced heirship or community property.

The Fraudulent Disposition Act, 1991
This Act is known in many jurisdictions as "Asset Protection Trust" legislation. It provides that every disposition of property made with an intent to defraud and at an undervalue will be voidable and can be set aside by professional business persons who wish to insulate some of their assets from future claims not in existence at the date of the gift. The burden of establishing fraudulent intent falls on the claimant seeking to challenge the disposition, with the Statue of Limitations set at two years from the date of the disposition.

The Bahamian trust is considered a private agreement between the parties concerned, therefore, registration with a government agency is not required. No business license fees, filing fees, or registered office fees are payable. Professional service fees depend on the complexity of establishing the trust.

International Business Companies (IBCs) in The Bahamas
  
Since the enactment of the International Business Companies (IBC) Act, 1989, The Bahamas has experienced a phenomenal number of IBC registrations. There have been over 36,000 IBCs incorporated in The Bahamas since 1990. The International Business Companies Act (1989) was created and molded with the intention of producing a modern facility to provide for a natural person or group of persons to do through the vehicle of a corporate entity anything which an individual person may do or wish to do. Reservation of company names may be facilitated by facsimile transmission through a local agent (lawyer or accountant, or Trust Company). A Bahamian IBC may be incorporated within 24 hours; this must be done by the local agent, as required by relevant legislation.

IBCs are used for a variety of purposes, including formation of mutual funds, ship registration, conducting export/import trade, etc. The IBC Act also allows for the formation of Limited Duration Companies (LDCs), and there is legislation which makes provision for the establishment of Exempted Limited Liability Partnerships.

Benefits of an IBC
The many benefits which an IBC offers include the following:  
•There is no fixed limit on the amount of authorized capital.  
•A minimum of two subscribers can form an IBC.  
•The company can use fractional shares, registered shares, or bearer shares.  
•No public records are maintained as to the identity of shareholders or directors.  
•It may have at least one director, who may be individual or corporate and of any nationality.  
•Meetings may be held by telephone or another electronic means.  
•An existing company, whether incorporated locally or in another jurisdiction, may continue as an IBC.  
•The corporate domicile of an IBC may be changed from The Bahamas to another jurisdiction.  
•An IBC may merge or consolidate with another IBC or with an ordinary company under the Companies Act, provided that the surviving entity is an IBC.  
•An IBC may also merge with a foreign company.  
•Bahamian IBCs are exempt from all business license fees and do not require a license under the Business License Act.  
•Shareholders are exempt from all income taxes, capital gains taxes and corporate taxes. Further, there is an exemption from inheritance, succession and gift taxes, stamp duties in respect of transfers, and foreign exchange control regulations.  
•Bahamian IBCs may be registered within twenty-four hours.  

Requirements of Bahamian IBCs
An IBC is a company that does not:  
•Carry on business with persons residing in The Bahamas;  
•Own an interest in real property situated in The Bahamas or lease property for any other use than as an office;  
•Carry on banking, trust, or insurance business;  
•Provide a registered office for companies.  

An IBC is not considered engaged in business with persons residing in The Bahamas if it:  
•Makes or maintains deposits with a person carrying on business within The Bahamas.  
•Makes or maintains professional contact with counsel and attorneys, accountants, bookkeepers, trust companies, management companies, investment advisers or similar persons carrying on business within The Bahamas.  
•Prepares or maintains books and records within The Bahamas.  
•Holds meetings of its directors and members within The Bahamas.  
•Holds a lease of property for use as an office from which to communicate with members, or to prepare or maintain company books and records.  
•Holds shares, debt obligations and other securities in an IBC or an ordinary company.  
•Holds shares, debt obligations, or other securities which are owned by any person, IBC, or ordinary company resident in The Bahamas.  
While no financial reporting requirements exist, an IBC must keep certain documents, such as share register, minutes of meetings and resolutions at the company's registered office in The Bahamas.  

Powers
An IBC is allowed to do the following:  
•Transact foreign exchange business without Exchange Control restrictions.  
•Issue registered, bearer, voting and non-voting, no par value, unnumbered, common, preferred, or redeemable shares.  
•Issue shares that may have more or less than one vote per share; be voted only on certain matters or only upon the occurrence of certain events; be voted only when held by persons who meet specified requirements; or entitle participation only in certain assets.  
•Issue options, warrants or rights, or similar instruments.  
•Issue convertible securities.  
•Purchase, redeem, or otherwise acquire and hold its own shares.  
•Guarantee a liability or obligation of any person and to secure any of its obligations by mortgage, pledge, or other charge of any of its assets.  
•Protect the assets of the company for the benefit of the company, its creditors and its members, and any person with a direct or indirect interest in the company.  
•Hold Board of Directors' meetings anywhere and by means of electronic telecommunications.  

Memorandum

An IBC is entitled to carry on legitimate business without having to specify in an "objects clause" a specific purpose for the company. The memorandum is required to contain:  
•Name of the company.  
•Address of the IBC's registered office and agent within The Bahamas.  
•Objects or purpose for which the company is to be incorporated, which can simply refer to the Act.  
•Currency in which the shares of the company will be issued.  
•Authorised capital of the company, giving total number of par value and no par value shares that the company is authorised to issue.  
•Number of classes and series of shares; the number of shares of each such class and series and their par values or no par values.  
•Designations, powers, preferences and rights, and the qualifications, limitations or restrictions of each class and series of shares that the company is authorised to issue.  
•Number of shares to be issued as registered or bearer shares and whether they are exchangeable.  
•Manner in which a required notice to members is to be given to the holders of shares issued to bearer.  

Continuations
An existing company, whether incorporated locally or in another jurisdiction, may continue as an IBC and is required to supply:  
•Articles of continuation approved by a majority of the directors or the other persons who are charged with exercising the powers of the company, or in such other manner as may be established by the company.  
•Articles of continuation to contain the name of the company and the name under which it is being continued; the jurisdiction under which it is incorporated; the date on which it was incorporated; the information required to be included in the Memorandum; the amendments to its Memorandum and Articles, or their equivalent, that are to be effective upon the registration of the articles of continuation.  

Mergers & Consolidation
An IBC may merge or consolidate with another IBC, an ordinary company, a subsidiary, or a foreign company. When an IBCs merge or consolidate with ordinary companies, the directors of each constituent company promoting the merger or consolidation must approve a written plan containing:  
•Name of each participating company and the name of the surviving company or the consolidated company.  
•Designation and number of outstanding shares of each class and series of shares and the voting entitlement of each such class and series for each participating company.  
•Specifications of each such class and series entitled to vote as a class or series in each participating company.  
•Terms and conditions of the proposed merger or consolidation.  
•Any Amendments to the Memorandum or Articles of the surviving company to be brought about by a merger.  
•Everything required to be included in the memorandum and Articles for a company incorporated as an IBC.  
Where the parent company is an IBC and merges with one or more subsidiaries, the parent will approve a written plan or merger containing:  
•Name of each participating company and the name of the surviving company.  
•Designation and number of outstanding shares of each class and series of shares, and the number of shares of each class and series of shares in each subsidiary company owned by the parent company for each participating company.  
•Terms and conditions of the proposed merger, including the convertibility of shares, debt obligations, other securities or money or other property.  

When IBCs merge or consolidate with foreign companies, the following provisions apply:  
•Bahamian IBCs must comply with the provisions of the IBC Act and foreign companies must comply with the laws of their own country.  
•Where the surviving company or the consolidated company is a foreign company, it must submit to the Registrar:
a) An agreement promising to honour any future claim, debt, liability, or obligation of a Bahamian IBC, or to protect the rights of IBC shareholders.
b) Irrevocable power to the Registrar to act as agent in the above procedures.
c) Agreement that it will honour awards due to IBC shareholders.
d) A certificate of merger or consolidation issued by the appropriate authority of the foreign jurisdiction where it is incorporated or such evidence as the Registrar considers acceptable.

Statutory Fees & Service Charges for IBCs
For further information, contact the regulatory authority responsible for International Business Companies:
Office of the Registrar General
The Registrar General's Department
Registry of Companies
Rodney E. Bain Building
Shirley & Parliament Streets
P.O. Box N532
Nassau, N.P., The Bahamas
Tel: (242) 322-33167147, (242) 322-7160
Fax: (242) 322-5553


Investment Incentives in The Bahamas  
The Bahamas has become a particularly favorable target for international investment. It has established generous legal incentives to attract foreign investors and has streamlined government bureaucracy for expeditious project approval. The Bahamas possesses an outstanding infrastructure for commercial and industrial activity, and offers a highly-skilled workforce. The professional community of accountants, international bankers, trustees, and investment specialists is large, diverse and highly skilled. There is also a full complement of respected and experienced law firms. The climate for foreign investment is particularly favourable to the finance industry, insurance, manufacturing, shipping, import & export trade, and of course, tourism development.

Freedom from Taxation

One of the most attractive elements of investing in The Bahamas is the tax-free status accorded to income. There are no taxes levied on capital gains, corporate earnings, personal income, sales, inheritance, or dividends. This tax freedom is available to all resident corporations, partnerships, individuals and trusts.


Economic and Monetary Stability


Investors are also attracted to the stability of the economy, which is steadied by the solid value of the Bahamian dollar. This currency is pegged to the US dollar on a 1:1 ratio. US dollars and Bahamian dollars are used interchangeably throughout the island chain.

A Wealth of Investment Incentives

The inducement of a tax-free environment and a stable currency are enhanced by a series of investment incentives that provide relief from customs duties on approved raw materials, equipment, and building supplies, as well as allowing exemptions from business licenses and real property taxes for up to 20 years.
•The Hotels Encouragement Act exempts hotel developers from customs duties on raw materials and equipment. Exemptions from real property tax and licensing fees are also available.
•The Industries Encouragement Act exempts exporters from import duties on raw materials and equipment and business license fees. This act is of particular benefit for manufacturers.
•The Export Manufacturing Industries Encouragement Act provides an approved manufacturer who intends to export or annually exports at least 95% of the total approved products produced by the manufacturer is afforded duty-free import of raw materials, equipment and building supplies used in the manufacture of the product or facilities for the same and duty-free export of those products.
•The Bahamas Free Trade Zone Act
•The Agricultural Manufactories Act provides subsidies to agricultural businesses in the form of interest-free loans for the purchase of supplies and exemption from duties on a wide range of products, including building suppliers, processing materials and farm trucks. It also provides exemption from export taxes.
•Freeport on Grand Bahama Island gives businesses in the free trade zone exemption from taxes on profits, capital gains, inheritance, income, earnings, distributions, gifts, or on imported and exported goods. In addition, import duties and taxes on real estate have been waived through August 3, 2015.
•The Tariff Act provides exemptions to approved manufacturers for the import of capital equipment and raw material for garment manufacturing, food processing, the production of handicraft and souvenir items, and cottage industries.
•The Spirit and Beer Manufacture Act provides duty-free import of raw material and equipment for spirits and beer manufacturers.


No Exchange Controls/Free Repatriation of Profits

In accordance with terms of the International Monetary Fund Agreement, The Bahamas has no restriction on current account transactions. Additionally, there are no restrictions on the free repatriation of profits. Exchange control is administered by The Central Bank. The Bank, however, delegates to its authorized dealers the power to approve allocations of foreign exchange for certain payments.

Accessible International Financing


The Bahamas is associated with several organizations that ease access to financing and provide important safeguards for investors. The US Government's Overseas Private Investment Corporation (OPIC), for example, makes direct financing and loan guarantees available to foreign investors. The Multilateral Investment Guarantee Agency is a World Bank unit and parent of the Multilateral Investment Guarantee Convention, which provides protections similar to those of OPIC. The Bahamas also recently agreed to become a party to the convention on the settlement of investment disputes.

Facilitated Incorporation and Registration


The International Business Companies Act of 1989 and the Companies Act of 1992 have made it easier than ever before to establish a commercial presence in The Bahamas.

Flexible Immigration Policy


Necessary work permits for key personnel are readily granted. Businesses requiring work permits for other than key personnel are encouraged to advise The Bahamas Investment Authority of their needs at an early stage in their discussions.

Accelerated consideration for annual or permanent residence is given to major investors and to owners of residences valued in excess of $500,000. All international persons owning residences in The Bahamas are eligible to receive, upon application to the Director of Immigration, a "Home Owners Card." The card does not provide residency status for tax purposes; however, it facilitates entry into The Bahamas and entitled the owner, his/her spouse and minor children to enter and remain in The Bahamas for the duration of the validity of the card.

 
 
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