Overall, the Bahamian economy is trending in a positive direction with the Central Bank of The Bahamas, in its Quarterly Economic Review, June 2024, reporting growth at a moderate pace, due primarily to strong performance in the tourism sector, and a decrease in average consumer price inflation, through the end of the second quarter, and more recently by Standard & Poor’s (S&P) reaffirming The Bahamas’ B+ sovereign credit rating with a stable outlook.

The themes which have dominated the legal and regulatory framework relating to financial services in The Bahamas in 2024 include:

• ensuring compliance with international standards;
• establishment of a new regulatory framework for the digital assets space; and
• modernisation of the regulatory framework for the securities industry.

In addition, there have been several legislative amendments to increase the versatility of Bahamian corporate and exempted limited partnership vehicles.

Establishment of a New Regulatory Framework for the Digital Assets Space

The legislation regulating the digital assets space (the “2020 Act”) was initially implemented in 2020. In 2022, the government of The Bahamas published a Policy White Paper on The Future of Digital Assets in The Bahamas (the “White Paper”), outlining its vision and policy position on the regulation of the digital assets space over the next five years. The objectives outlined in the White Paper included growing the sector, increasing the attractiveness of The Bahamas for digital assets businesses, establishing The Bahamas as a leading digital assets hub and encouraging innovation in the fintech space.

Consistent with those objectives, the regulatory framework for the sector was overhauled entirely by the Digital Assets and Registered Exchanges Act, 2024 (the “DARE Act”), which came into force on 29 July 2024, and replaced the 2020 Act. The primary goals of the DARE Act are to (i) enhance investor protection while maintaining sufficient flexibility to facilitate innovation, (ii) ensure digital assets businesses are being conducted in compliance with international standards, and (iii) manage systemic risk associated with businesses operating in the digital assets space. The amendments contained in the DARE Act include, among other things, expanding the scope of digital asset activities which are subject to regulation, regulating the staking of digital assets, the introduction of capital requirements as prescribed by the Securities Commission of The Bahamas (the “Commission”), mandatory ongoing financial reporting including audited financial statements, the mandatory segregation of client assets, the regulation of stablecoin issuers, the introduction of requirements relating to stablecoin reserve assets and enhanced investigation and enforcement powers for the Commission. In his contribution to the debate on the DARE Act, the Prime Minister, the Honourable Philip Davis, indicated the role of the DARE Act in positioning “The Bahamas to be a leading jurisdiction for the exchange and use of digital assets, and financial services in general.”

Modernisation of the Regulatory Framework for the Securities Industry

In addition to the new DARE Act, the regulatory framework for the regulation of the securities industry generally was modernised by the passage of the Securities Industry Act, 2024 (the “SIA 2024”) which replaced the Securities Industry Act, 2011. The objectives of the SIA 2024 included (i) compliance with international standards, (ii) alignment with current industry practices, and (iii) enhancement of the authority and performance of the Commission. Some of the new provisions to note are (i) the provisions which enable the Commission to monitor, mitigate or manage systemic risks in the capital markets, (ii) the new regime for trading in derivatives, (iii) the conferral of the authority on the Commission to designate a digital asset as a security (which would be subject to regulation under the SIA 2024), and (iv) the enhancement of the enforcement powers of the Commission.

Amendments to Increase the Versatility of Bahamian Vehicles

As an augmentation to the toolkit of Bahamian products, amendments have been made to the International Business Companies Act, 2000 (IBCA) the Exempted Limited Partnership Act and the Investment Condominium Act, to enable (i) the demerger of Bahamian companies which are incorporated under the IBCA, (ii) the conversion of an investment condominium (a vehicle that can used to operate as an investment fund) to an international business company, and (iii) the continuation of an exempted limited partnership as an international business company. These changes have increased the versatility of Bahamian companies, investment condominiums and exempted limited partnerships by enabling the conversion of these entities from one form to another.

Domestic Minimum Top-Up Tax Bill

The Bahamas does not currently impose income taxes for entities or for individuals. However, in August 2024, the government circulated a draft Domestic Minimum Top-Up Tax Bill (the “DMTT Bill”) for public consultation. The DMTT Bill contemplates a 15% effective tax rate on constituent entities (CEs) of multinational enterprise (MNE) groups that are in scope for Pillar 2 (ie, MNEs that have global revenues of EUR750 million or more) located in The Bahamas.

As currently drafted, the DMTT Bill would apply retroactively from 1 January 2024. However, this retroactive application is conditional on the MNE group or CE being subject to an Income Inclusion Rule (IIR) or Undertaxed Profit Rule (UTPR) in another jurisdiction for the financial year of 2024. MNE groups not subject to these rules in other jurisdictions will only be liable for the DMTT starting from fiscal years beginning after 31 December 2024.

The consultation period ends on 16 September 2024. The government has indicated that it intends to finalise the draft DMTT Bill for submission to Parliament by 9 October 2024.

Conclusion

The recent legislative updates underscore The Bahamas’ commitment to adhering to international best practices and sustaining a robust regulatory framework for the financial services sector, while fostering innovation and growth, reflecting the nation’s commitment to evolving global standards.