The Commonwealth of The Bahamas is a 100,000 square mile archipelago of several hundred islands, rocks and cays situated in the Atlantic Ocean approximately 50 miles off the Coast of Florida.

The Commonwealth of The Bahamas is a 100,000 square mile archipelago of several hundred islands, rocks and cays situated in the Atlantic Ocean approximately 50 miles off the Coast of Florida.

Not all of the islands are inhabited and they vary in size from several hundred square miles to others which are little more than rocky cays. The total land area of The Bahamas is approximately 5,400 square miles and the population is approximately 300,000. The local language is English.

The currency is the Bahamian dollar (BSD).

Legal System
As a settled colony, The Bahamas inherited the common law of England in accordance with constitutional doctrine of the day, except for those parts which in accordance with convention, or by reason of doubt, did not travel to the colonies. The common law was augmented by doctrines of the English Court of Chancery, including the equitable doctrines relating to the law of trusts. The Supreme Court Act (1896) enshrined the principle that law and equity were to be administered concurrently and that, in case of conflict, the rules of equity should prevail.

The Bahamas has had its own legislature since 1729. In furthering its authority to enact laws for the governing of the territory it has implemented much UK legislation. In addition, the decisions of the Superior Courts in England, while not binding on the Bahamian courts, have persuasive authority and are normally followed in the absence of local judicial authority or statute.
The Supreme Court is the court of general criminal and civil jurisdiction. The Supreme Court bench consists of the Chief Justice and not more than 11 additional judges. In practice, the Supreme Court is open on every weekday throughout the year, there being no long vacation for the transaction of general civil work (which includes trust and commercial matters).

The Bahamas Court of Appeal is made up of a President and two Justices of Appeal, appointed by the Governor-General on the recommendation of the Prime Minister after consultation with the Leader of the Opposition. The sittings of the Court of Appeal are held at such times as the President may determine, and this is dependent upon the pressure of work from time to time. Generally, the Court of Appeal sits three or four times per annum, each sitting being for a period of approximately three weeks. In practice, the Court of Appeal judges are usually leading judges of the former British West Indian territories, and they need have no former ties with The Bahamas.

Subject to leave of the Court of Appeal or of the Judicial Committee of the Privy Council, an appeal lies from the Court of Appeal to the Privy Council which is the final appeals Court.

Trusts
The Trustee Act (TA) which came into effect on 27 July 1998, is the leading act concerning the creation of trusts under the laws of The Bahamas. It consolidated previous trust laws of The Bahamas that were derived mainly from English statute. In addition, it introduced several significant innovations, a number of which mark a departure from the traditional trust concept. One such provision is that a trust shall not be invalidated by the settlor having retained or acquired any:

• powers to revoke the trust
• powers of appointment or disposition over any of the trust property
• powers to amend the trust
• powers to appoint, add or remove any trustees, protectors or beneficiaries
• powers to give directions to trustees in connection with the exercise of any of their powers or discretions
• powers exercisable by the protector under the TA
• right to be appointed as a protector of the trust
• beneficial interests (including absolute beneficial interests) in the capital or income of the trust property or in both such capital and income, and
• interests in any companies or assets underlying the trust property and any control over such companies or assets.

The TA also contains specific provisions relating to trustees’ powers of investment and other general powers, appointment of protectors and reservation of powers to the settlor. Despite the existence of these powers, trust instruments must be carefully drafted to ensure that the resulting arrangements are considered trusts in the settlor’s and/or beneficiaries’ home jurisdictions.

The TA addresses applications by trustees to the court for advice and direction, and the complex issue of disclosure of information to beneficiaries. The right to trust information is restricted for beneficiaries who do not have vested interests in the trust property (whether in interest or in possession), including, for example, objects of a power of appointment and discretionary beneficiaries. Trustees are vested with significant discretion to withhold information and are under no obligation to disclose the existence of the trust to contingent beneficiaries, discretionary beneficiaries, or objects of a power. Significantly, a new class of privileged documents has been created: documents relating to the exercise of a trustee’s discretion and letters of wishes are not discoverable in litigation.

The Trusts (Choice of Governing Law) Act is designed to resolve problems over jurisdiction and conflict of laws in relation to trusts created in The Bahamas. This legislation is particularly useful in respect of the forced heirship provisions in civil law countries as they relate to trusts in The Bahamas.

Where a trust term declares that the laws of The Bahamas shall govern the trust, then, with certain exceptions, all trust questions shall be determined by the laws of The Bahamas, including capacity of the settlor or donor, validity of the trust, administration, and existence and extent of powers conferred or retained. Generally, the proper law for determining the validity of real property located in The Bahamas or personal property located in any part of the world, which has been placed into a Bahamian trust is Bahamian law which does not recognise heirship rights in respect of such property.

The Perpetuities (Amendment) Act 2004 increases the statutory perpetuity period for trusts from 80 years to 150 years. This change enables families to plan for approximately five generations. The Bahamas’ statutory period is now more in line with other offshore financial centres such as Jersey and the Cayman Islands.

The TA provides a flexible framework that allows a settlor to determine the type of trust required. However, some of the more frequently used trusts include discretionary trusts, fixed interest trusts, and pension fund trusts.

Also, the Purpose Trusts Act 2004 (PTA) allows for the formation of purpose trusts in The Bahamas. Trusts of this type offer many estate planning and commercial uses, including the holding of shares of a private trust company. Using this structure, settlers, their family members and their advisers may be appointed directors of a private trust company, thereby assuming some responsibility for the management of the trust. This arrangement is often useful when the assets of the trust are of an unusual nature. Other commercial uses include:

• trusts to hold the benefit of warranties on trust for a wider and/or changing class of investors, thus avoiding novation issues
• trusts to provide social benefits which may not qualify as charitable purposes, and
• investment in family companies whose economic performance may be poor.

Unlike many other jurisdictions, the PTA of The Bahamas does not provide for an “enforcer”, but rather for authorised applicants who carry out similar functions (i.e. persons appointed as such under the trust instrument or the settlor of the trust or a person appointed by the court).

The Foundations Act 2004 provides for the creation of private foundations in The Bahamas. A foundation can be used to hold private assets endowed on the foundation for the benefit of identified persons or classes of persons. It may, if necessary for the proper management of the assets, buy and sell assets and engage in any other administrative activity not otherwise prohibited by law; however, business transactions must be secondary to the main purpose(s) of the foundation. In order to establish a foundation in The Bahamas, there must be a foundation charter or duly executed will, registration and the issuance of a Certificate of Registration. Once these requirements are fulfilled, the foundation is formed. The Charter is not a public document.

Offshore Jurisdictions: Other Forms of Legal Entities
The vehicles that are generally utilised in conjunction with trusts are international business companies (IBCs) (including Limited Duration Companies), Segregated Accounts Companies (SACs) and Exempted Limited Partnerships.

IBCs in particular are very popular and often used for holding special or risky assets, tax planning, and adding an extra layer of confidentiality to the trust arrangement. Amendments to the IBC (August 2004) provided several enhancements, including the ability to use an IBC to carry on external insurance and to register mortgages and charges of shares.

An SAC may segregate its assets into separate accounts that are independent and separate from each other and from the ‘core’ account of the company or entity. SACs are very useful in the mutual funds industry.

Taxation
There is no income tax, capital gains tax, estate tax, succession tax, gift tax or inheritance tax under the laws of The Bahamas. There is, however, a system of indirect taxation which mainly takes the form of customs duty payable on imports and an ad valorem stamp duty on property transfers.

The courts of The Bahamas will not enforce the tax laws of any other country.

The Tax Information Exchange Agreement (TIEA) came into effect on 1 January 2004, giving statutory effect to the TIEA signed with the US in 2002. The TIEA allows The Bahamas to provide information to the US on matters concerning US taxpayers, once US has made a reasonable effort to obtain information by other means to no avail. The TIEA presently permits information to be exchanged with respect to US tax criminal matters and with respect to both criminal and US tax civil matters from 1 January 2006. Any information obtained through the TIEA with the US for ‘the provision of information with respect to taxes and for other matters’ cannot be shared with other countries.

The TA exempts trusts for non-resident beneficiaries (for exchange control purposes) from all taxation except for a Trust Duty of BSD50 on the creation of the trust. There is a penalty of BSD100 per annum for failure to pay this duty. Stamp duty is charged only when Bahamian real estate is conveyed to trustees.

Generally speaking, there is no stamp duty payable on the transfer of real or personal property from a personal representative to a beneficiary.

There is stamp duty on transfers of real property and most personal property situated in The Bahamas with a maximum of 10 per cent payable on transfers in excess of BSD250,000 in value. Under the Stamp (Amendment) Act 1989, special provision is made for eurobonds which are liable to tax at either 0.25 per cent of the manager’s or issuer’s fee up to a maximum of BSD2,500.

Anti-Money Laundering
The offence of money laundering is dealt with in both the Financial Transactions Reporting Act (FTRA) (Chapter 368) and the Proceeds of Crime Act (PCA) (Chapter 93). The PCA clearly delineates the circumstances in which the offence can occur, namely:

• concealing, transferring or dealing with the proceeds of criminal conduct
• assisting another to conceal proceeds of criminal conduct, and
• acquiring, possessing or using proceeds of criminal conduct.

Offences include those relating to drug, bribery or money laundering and any other offences triable in the Supreme Court of The Bahamas. The PCA imposes a duty to disclose knowledge or suspicion of money laundering and provides immunity from breach of any statute or any civil liability as a consequence of such disclosure. Although the PCA expressly recognises legal professional privilege, attorneys are also under a duty to disclose.

The FTRA provides a comprehensive code for customer identification, suspicious transaction reporting, retention of records system and related search warrant machinery. It also imposes obligations over a wider field of persons, including attorneys and accountants. The regulations to the FTRA lay down detailed procedures for verification of identity. With respect to trusts, verification of identity is necessary only for beneficiaries with vested interests.

The Central Bank of The Bahamas (Central Bank) has issued an anti-money laundering manual that meets the requirements of the FTRA, its Regulations and Anti-Money Laundering Guidelines.

Trust companies in The Bahamas, along with other financial institutions now have specific duties with regard to identification, record keeping, and internal reporting procedures. These duties exist irrespective of whether the institution accepts appointment to a new trust or it administers an existing trust.

All licensed bank and trust companies are expected to adhere to such requirements. A trust company must disclose information to the appropriate supervisory authority if it knows or reasonably suspects that another person is engaged in money laundering, and such trustee is given protection from criminal or civil liability for bona fide disclosure of information.