On the face of it, establishing residency in the Bahamas is not only relatively straightforward for those of comparatively high net worth, it’s appealing on many levels as well. For one thing you can enjoy tax free living in the Bahamas – the country levies no capital gains taxes, personal income tax or estate duties. For another, it’s a stunning tropical paradise in which to set up home for tax free living.
However, there are some considerations that have to be borne in mind while deciding whether the Bahamas suits your needs and expectations.
This report will explain how you can establish residency and what are the benefits of doing so. It will also outline some of the serious considerations you need to think through before deciding whether tax free living in the Bahamas is right for you and your family.
Tax in the Bahamas
In the Bahamas there is no income tax, capital gains tax, capital transfer tax or estate tax.
Those in employment pay national insurance contributions – 3.9% paid by the employee and 5.9% paid by the employer. Self-employed have to pay the whole amount by themselves.
A value-added tax (VAT-7.5%) was introduced effective 1 January 2015. There is also stamp duty payable on property and mortgage transactions, and a tax on real estate.
It’s worth noting that duties are high on most imported goods, which can ratchet up the cost of living. However, the other tax savings more than offset this.
For most people looking for a tax-enhanced lifestyle abroad, the main taxes they focus on are income and capital gains taxes, and as stated, these are zero in the Bahamas.
Companies in the Bahamas pay business license fees, stamp duty, property taxes and import duty. Usually offshore or non-resident incorporated entities are exempt from business license fees and many are exempt from stamp duty. Most companies pay incorporation or registration fees to the Government.
Establishing Residency in the Bahamas
A non-Bahamian can enter the Bahamas as a visitor for an initial period of up to two months. During this time the visitor may apply for a Residence Permit from the Department of Immigration. It might one of the three types:
- Annual Residence Permit
- Permanent Residence Permit
- A Home Owner’s Card
These 3 main ways of establishing residency in the Bahamas give you right to reside in the islands assuming you’re of sound financial means and good character, and are not looking to take up employment in the Bahamas.
1) You can apply for an annual residency that’s renewable every year. You can apply without having to buy a home, on the basis you have a lease or rental agreement in place in the island country.
To apply there is a form to complete, and it has to be submitted with a certificate from the police in your current country of residence showing your good character over the past 5 years.
Additionally you will need to supply 2 testimonials showing your good character, and pay a fee of B$25 (Bahamian Dollars) for the application.
If you’re accepted the annual fee is B$1,000 plus B$25 for any named dependent endorsed on your permit.
2) Any non-Bahamian who owns property on any of the islands is eligible for the Home Owner’s Resident Card. The card is annual and while valid it gives you, your spouse and minor children right to multiple entries to the Bahamas and the ability to remain in the country.
There is a non-refundable processing fee of BS$100.00 per applicant. Once approved, applicants must pay an additional BS$500.00 for issuance of the Home Owner’s Resident Card.
3) Alternatively, if you’re looking for permanent residence in the island nation you can establish residency through your property ownership. Permanent residence is a status issued to expats for the duration of their life, unless revoked, and gives them the right to live and/or work, but not the right to vote in the Bahamas
The property you purchase has to be valued in excess of B$250,000, you have to be financially independent and be planning to establish your life in the Bahamas.
If you can afford to buy Bahamas property valued at B$250,000 or more, getting permanent residence is easy. Most of such applications are approved automatically by the Immigration Board.
Moreover, double the sum – and you will receive an accelerated processing of your application for residence if buying a local property valued at B$500,000 or more.
If the price of the property you are buying exceeds B$1,500,000 your application will get a response within 21 days.
The good thing about acquisition of this type of permanent residency is that it can only ever be revoked in special defined circumstances by the government. These are limited and extreme, such as if you’re involved in serious crime, or you choose to leave the Bahamas for a continuous period of 3 or more years.
The Bahamas Wants You!
The main things to note are that if you’re of good character, substantial financial means, and you’re not seeking employment in the Bahamas, the government wants you!
This can make establishing residency straightforward, and it can lead to citizenship after 7 or more years of residency if so desired.
The Bahamas Lifestyle
It’s not accurate to even suggest that living in the Bahamas is like holidaying there…vacations and day to day living are world’s apart in any nation.
However, there is a massive crossover in the Bahamas between the pace of life you experience on holiday, and the pace of life you have to get used to when living there!
Unless you’re living and working in a bank in Nassau perhaps, you’re likely to find the pace of life slower than you’re used to if you herald from the UK or US for example.
This can be a blessing for your health, and a burden when you want to get things done.
The climate is excellent almost all year round, and this really does lead to an outdoor-centric lifestyle.
The amenities available are first world and luxurious, healthcare is good as long as you can afford to pay for it, and because the official language is English, the transition to living in the Bahamas is very easy for Brits and Americans alike.
It’s a short and relatively inexpensive flight to the States, and the Bahamas has good international air connections as well.
The cost of living is high – mainly because of the high duties payable on almost every imported item.
It’s critical to consider taking an extended holiday in the Bahamas to get a feel for where you would like to live, on which island and in which community. And also to help you orientate yourself and work out whether you and your family would find enough to do to make life in the Bahamas ideal.
Pros and Cons of Tax Free Living in the Bahamas
Aside from the fact there’s no income tax, capital gains tax or estate duties payable in the Bahamas, what makes them worthy of your offshore consideration?
The Bahamas is really flexible about the number of days you have to remain living there to maintain your residency.
Assuming you’ve taken one of the above listed 3 types of residency, you can pretty much come and go as you please. This can mean you can have your residency in the Bahamas, but live for a lot of the year elsewhere.
However, there is a massive caveat worth stating here. Whilst you may wish to establish your residency in the Bahamas for tax purposes, and instead live most of the year elsewhere, depending on where you choose to live, you may be restricted in that nation in terms of the number of days you can remain.
In the UK, if you leave and establish tax residency elsewhere you can only return to visit for a set number of days, otherwise you’re deemed to be resident back in Britain again and therefore liable to UK taxes.
So, whilst a great advantage of living in the Bahamas is that you don’t need to be physically in the country for a set number of days each year to maintain your residency after you’ve established it, you can’t just assume you can live full time in another country and avoid its taxes.
Additionally, just because there is no capital gains tax in the Bahamas, this doesn’t mean you’re automatically exempt from payment of capital gains in any other nation in which you hold assets.
Even though you may establish tax residence in the Bahamas, a country in which you hold and then sell assets for profit may be able to charge you capital gains tax.
Also worth noting is that although the Bahamas won’t tax an estate in inheritance tax terms, your heirs’ liability for IHT is highly likely to depend on your nation of domicile, not your nation of residence.
For Britons this is almost always the case. Any Brit who moves abroad and establishes tax residency overseas does not lose their nation of domicile. And inheritance tax liability is based on your country of domicile – which is usually your country of birth.
So, you could set up residency in the Bahamas, live there for your whole life, and the British taxman would still come knocking for IHT when you died.
Finally on this point, the cost of privately educating children and paying for healthcare in the Bahamas is high. Whilst the standards of education and healthcare are also high, affordability may be a consideration depending on your financial status.
Planning Will Be Your Key to Establishing a Tax Free Living in the Bahamas
If you’re looking to offshore your life, reduce your tax burden and relocate to a stunning destination, it will be imperative to seek professional advice in your old home nation and in the Bahamas before you commit to relocation.
You may be able to minimise any negative tax consequences of your relocation such as deemed realisation of capital gains by forward planning carefully.
Depending on where you intend to hold your capital and investments you may be exposed to withholding taxes – again, forward planning may help you offset future tax liabilities.
Alternatively, it may make sense to offshore your finances as well – either way, timing in terms of taking any action relating to your money’s investment will be key.
Proper planning and advice will be critical to ensure you correctly structure your affairs to minimise your current and future tax liabilities, and it will guide you about when is the right time to establish residency abroad, and how to go about it.