The Bahamas does not have income, estate or inheritance tax. The Bahamian government has said that it will be implementing a Qualified Domestic Minimum Top Up Tax which will only affect multinational enterprises with annual turnovers exceeding EUR750 million, however, this has not yet been implemented.

The tax regimes that currently exist in The Bahamas that may be relevant to individual clients, estates, trusts and foundations include value added tax (VAT), stamp duty and real property tax.

Generally, the transfer of real property in The Bahamas will attract VAT at a rate of 10%. However, there are exceptions.

Certain transfers of real property may qualify as an inter vivos gift, which results in the transfer being zero rated, meaning that it will attract VAT but at a rate of 0%. Examples of real property transfers that may qualify as an inter vivos gift include:

• transfers to a spouse, parent, adult child, adult grandchildren or remoter issue;
• transfers from an individual to a company in which the beneficial owners are the transferor, the transferor’s spouse, the transferor’s adult children and/or adult remoter issue;
• transfers to a trustee where the terms of the trust instrument exclude every person except for the transferor and the transferor’s spouse, parents, children or remoter issue from taking or receiving any title to the trust property; and
• transfers from an individual to a foundation whose only beneficiaries are the transferor and/or the transferor’s spouse and/or the transferor’s children or remoter issue.

The following real property transfers are also zero rated:

• transfers to a personal representative or trustee upon the death or bankruptcy of the property owner;
• instruments relating to the vesting of real property to a beneficiary in accordance with the provisions of a trust; and
• conveyances by way of assent transferring real property from a legal representative to the beneficiary under a will or letters of administration.

The Bahamas does not have income tax.

Save for two exceptions, the rate of real property tax assessed on real estate in The Bahamas is the same for citizens, non-citizens, residents and non-residents.

Vacant land and property located on any island in The Bahamas other than New Providence, which is owned by a Bahamian citizen, is exempt from real property tax. However, such an exemption does not apply where the land is owned by a non-citizen of The Bahamas.

While the VAT, stamp duty and real property tax legislation are regularly amended, there should be no fear of tax uncertainty as it is important for clients to have an up-to-date understanding of those tax regimes when making tax and estate planning decisions.

In December 2018, The Bahamas enacted the Removal of Preferential Exemptions Act to abolish certain tax exemptions that were only available to non-resident entities.

The Bahamas has legislation in place that requires the reporting of certain bank account information pursuant to the US Financial Account Tax Compliance Act and the OECD’s Common Reporting Standard.

In The Bahamas, there are many family-owned and operated businesses that involve individuals from multiple generations of the family. This ensures that the source of the family’s wealth is maintained and that there is a transition of knowledge from one generation to the next.

Where succession planning in The Bahamas involves assets, businesses and/or family members located in various jurisdictions, it is of paramount importance for the legal advisers in the relevant jurisdictions to work together to understand the various tax laws and their potential impact on the proposed succession plan. Inherent in a successful succession planning process is a full disclosure of the assets, individuals, entities, etc, involved by the client to the advisers.

Options that may minimise or insulate family members from the application of tax laws in the jurisdiction of another family member include the settling of multiple trusts or the creation of foundations.

There are no forced heirship laws in The Bahamas.

In The Bahamas, all property acquired during the marriage is deemed to be matrimonial property. However, the courts will be guided by certain legislation and other factors when determining whether both parties derive the same interest in matrimonial property. These factors include:

• the income, earning capacity, property and other financial resources that each of the parties to the marriage has or is likely to have in the foreseeable future;
• the financial needs, obligations and responsibilities that each of the parties to the marriage has or is likely to have in the foreseeable future;
• the standard of living enjoyed by the family before the breakdown of the marriage;
• the age of each party to the marriage and the duration of the marriage;
• any physical or mental disability of either of the parties to the marriage; and
• the contribution made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family.

There is no strict formula when considering the interest each party enjoys in matrimonial property, given the multiplicity of factors to be considered.

It may be possible for one spouse to transfer matrimonial property without the consent of the other spouse, particularly where the property is a chattel or is owned solely in the name of one spouse.

Generally, the transfer of real property in The Bahamas will attract VAT at a rate of 10%.

Certain transfers of real property that qualify as an inter vivos gift attract VAT at a rate of 0%.

The transfer of real property upon the death of an individual does not attract tax.

Companies, trusts and foundations are commonly used for estate planning purposes in The Bahamas. However, the benefits associated with using such vehicles generally do not include tax advantages because of the structure of the various tax regimes in The Bahamas.

There are no taxes or regulations currently in place in The Bahamas that govern the transfer of digital assets for the purposes of succession.

The types of trusts commonly used in The Bahamas for tax and estate planning purposes are:

• asset protection trusts;
• charitable trusts;
• purpose trusts; and
• testamentary trusts.

Foundations are also used and recognised in The Bahamas.

The Bahamian Trustee Act 1998 was most recently amended in 2016 and provided for various updates, including:

• granting the court the discretion to set aside an exercise of fiduciary power in various instances;
• clarifying the scope of a release that an outgoing trustee could obtain; and
• extending the protection under a trust instrument concerning the alienation of trust property.

Trusts are recognised and respected in The Bahamas; in fact, The Bahamas is regarded as one of the leading trust jurisdictions in the world. The legislative framework, including the Trustee Act 1998 (as amended), the Trustee (Choice of Governing Law) Act 1989, the Fraudulent Dispositions Act 1991 and the Purpose Trust Act 2004, makes The Bahamas one of the leading jurisdictions in the world in terms of trust formation and administration.

There are generally no tax consequences for a citizen or resident of The Bahamas who serves as a fiduciary or is a donor or beneficiary of a foreign trust, foundation or similar entity. However, trust companies do need business licences and would pay any taxes associated therewith. Additionally, there may be taxes associated with the transfer of Bahamian real property and personalty into the trustee’s control.

Variation of Trusts

Typically, Bahamian trusts and foundations will contain sections outlining the circumstances and parameters surrounding the variation of the trust deed or foundation charter. For example, many trust deeds provide that a trustee can vary the trust deed with the protector’s consent.

However, it is possible for individuals to apply to the court for the variation of a trust deed. Pursuant to Section 70 of the Trustee Act, the court can approve on behalf of certain persons (eg, minor and unborn beneficiaries) any arrangement varying or revoking any or all of the trusts or enlarging the powers of the trustees to manage or administer any of the property subject to the trusts, with the stipulation that the court may not approve an arrangement on behalf of any person if it would be “detrimental to that person”.

Pursuant to Section 87 of the Trustee Act, no entitled beneficiaries can terminate or modify a trust if doing so would defeat a material purpose of the settlor in creating the trust, unless the settlor is living and also consents. The material purposes of the settlor may be ascertained from the trust instrument or by collateral evidence.

Settlors’ Reserved Powers

Bahamian law permits a settlor to reserve powers to themselves if they so wish; in fact, it is quite common for a settlor of a Bahamian trust to do so. Furthermore, the retention by the settlor of certain powers is expressly declared not to invalidate a trust or cause a trust created inter vivos to be a testamentary trust. The powers include but are not limited to:

• powers of revocation;
• powers of appointment over any part of the trust property;
• powers of amendment;
• powers of addition or removal of trustees, protectors or beneficiaries;
• powers of investment; and
• powers to direct the trustee in connection with the exercise of any of their powers or discretions.

The most popular method for asset protection planning is the creation of an asset protection trust. When settling an asset protection trust, Section 4 of the Fraudulent Dispositions Act, 1991 (the FDA) should be borne in mind, which provides as follows:

• every disposition of property made with an intent to defraud and at an undervalue shall be voidable at the instance of a creditor thereby prejudiced;
• the burden of establishing an intent to defraud for the purposes of the FDA shall lie with the creditor seeking to set aside the disposition; and
• no action or proceedings shall be commenced pursuant to the FDA unless commenced within two years of the date of the relevant disposition.

Based on these provisions, it is important to ensure that a settlor does not have any known creditors when they create an asset protection trust. However, unless the settlor is notified of a claim or litigation pending against them, any future transfer of property to the asset protection trust would not, by itself, be voidable. While the FDA offers certain protection to the beneficiaries of an asset protection trust, it ultimately depends on the laws of the jurisdiction of their domicile as to whether distributions made to them from the trust and paid to them in that jurisdiction are available to satisfy their creditors.

In addition to trusts and foundations, many high net worth families create private trust companies to act as the trustee of a defined number of family trusts. Another popular strategy is for two or more persons to hold shares in Bahamian International Business Companies as joint tenants with the right of survivorship. If one of the joint shareholders passes away, the remaining shareholders automatically continue to be the shareholders of the company, without the need for any probate proceedings in The Bahamas nor the payment of any transfer taxes.

Taxes are generally levied on the transfer of realty and personalty in The Bahamas. However, no taxes are payable on the distribution of assets in accordance with the terms of a valid will.

The transfer of shares in a Bahamian land-holding entity is considered a transfer of an interest in real estate that attracts VAT. If a partial interest in a Bahamian land-holding entity is transferred, VAT is levied on the value of the property and in accordance with the value of the interest that is being transferred. For example, where 25% of the interest in the real property-holding entity is transferred to another person, 25% of the value of the land will be subject to the payment of VAT. The fair market value would not be adjusted to reflect a discount for lack of marketability and control.

The transfer of generational wealth upon the death of settlors or heads of families is the primary driver of wealth disputes in The Bahamas. This has led to disputes amongst second-generation family members seeking to position themselves as successors, or in relation to how the trust fund or estate should be divided or the extent of their rights in the post-death era. It has also led to disputes regarding the exercise of fiduciary powers by trustees, who hitherto were likely addressing only requests from the patriarch or matriarch of the family.

Some disputes have also emerged from the very broad reporting obligations imposed on trustees to make filings under the Common Reporting Standard (CRS) regime, with enforcement authorities being willing to utilise their coercive powers to ensure that full disclosure is being made. This has resulted in some litigation by settlors and beneficiaries of trusts who challenge that their structures are reportable. In some instances, regulators have had regard to the Proceeds of Crime Act, 2018 and the property freezing order regimes thereunder. This has led to an increase in regulatory disputes between trustees/beneficiaries and the enforcement authority concerning legacy structures and CRS filing obligations.

Where the dispute involves an application to set aside a property freezing order, the court may require an undertaking in damages from the enforcement authority. To the extent it is a trust dispute between beneficiaries centred around any entitlement to the corpus of the trust fund or whether assets have been appropriately settled on trusts, orders can range from equitable restitution to equitable damages; to the extent it is a breach of trust claim against trustees, remedies can include orders for account and/or equitable damages.

The use of corporate fiduciaries is prevalent in The Bahamas. Corporate and professional trustees are held to a higher standard of conduct than a reasonably prudent trustee. Further, should a trustee hold themselves out as having a specialised skill or knowledge, they will be held to a higher standard for the skill or knowledge they possess.

Generally, it is not possible to pierce the veil of a trust, foundation or similar entity and hold the fiduciaries liable for the liabilities of such entity. However, when the fiduciary has acted beyond the scope of their office, it is arguable that they owe personal responsibility to the claimant.

Exoneration and exculpatory clauses are often used in The Bahamas as a mechanism to protect fiduciaries from liability. Trustees also have the ability to delegate authority for specific aspects of administration which will absolve them from liability as long as they have acted reasonably and satisfied the appropriate duty of care in the selection of the agents.

Section 5 of the Trustee Act requires trustees to “make, retain and change investments as a prudent investor would, having regard to the purposes, distribution requirements and other circumstances of the trust”. Further, the banking, trust and financial services industry in The Bahamas is regulated by the Securities Commission of The Bahamas, the Central Bank of The Bahamas and the Compliance Commission of The Bahamas. These regulators are governed by statute that regulates banking, trust and financial institutions in The Bahamas and they often issue regulations and guidelines to facilitate fiscally responsible financial transactions, including investments.

Generally, a trustee’s investment theory should be that of a reasonably prudent business person investing their own money with an obligation to maintain a diversified, balanced and conservative investment approach to the trust assets. However, there may be a specific direction as to the makeup of the investment portfolio which will guide the trustee.

Trusts, foundations or similar entities are authorised to hold active businesses as there are no limitations on investments held in these structures. However, holding active businesses will present challenges to fiduciaries, who would not actively participate in the day-to-day running of the business owned by the trust. In these circumstances, a Re Lucking or Bartlett clause would likely be included in the trust deed that protects the trustee from having to inquire into the running of the business.

The Bahamas does not have a programme for “citizen by investment”. However, non-Bahamians may reside in The Bahamas and own real property once the necessary permits are acquired. Permits to reside in The Bahamas permanently are generally obtained through the acquisition of real property. A Certificate of Permanent Residency does not typically confer the right to work in The Bahamas but may permit the holder to work in their own business. A permanent resident may make an application for Bahamian citizenship after a certain number of years.

While there are no means for an individual to obtain expedited citizenship in The Bahamas, applications for permanent residency for individuals who purchase homes of a certain value in The Bahamas are given expedited consideration. A permanent resident is generally able to apply for citizenship after living in The Bahamas for more than ten years.

It is possible to appoint a disabled person or a minor as a beneficiary of a trust. However, the settlor will be required to name a guardian to receive the distributions on behalf of such a person.

Section 20A of the Child Protection Act (as amended) empowers the court to appoint a person as a guardian of a child, in addition to any other person or as sole guardian, either upon an application by any person or upon its own initiative, on making an order removing a testamentary or any guardian appointed or acting by virtue of the Child Protection Act.

In court proceedings, a court order to appoint a person as guardian ad litem is only required in the following circumstances:

• in ongoing proceedings, the guardian ad litem is to be substituted with another person;
• in ongoing proceedings, a party to the proceedings becomes a patient; or
• where a person under a disability is served with proceedings and no appearance is entered for that person.

While there is no ongoing supervision of the guardianship by the court, certain matters (ie, the settlement of claims by the guardian) must be approved by the court.

There are useful tools in The Bahamas for individuals and families to prepare financially for longer lives. An often-used example is an enduring power of attorney which enables an individual to appoint a person or persons to act on their behalf even after they are no longer mentally competent.

The Bahamas also commonly house certain trust structures which allow individuals to ensure that their finances are secured and handled in accordance with their wishes.

The enactment of the Status of Children Act has abolished the differentiation of children who are born within a marriage and those born out of wedlock in The Bahamas. The Inheritance Act also confers the same status and entitlements to children born out of wedlock as to those born within a marriage in relation to succession and entitlement under a will. The Adoption of Children Act provides for the adoption of children and the approval process mandated by the Bahamian government. There are no laws regulating surrogate children in The Bahamas. A trust deed or a foundation charter can be drafted to specifically include (or not include) surrogate, adopted, or illegitimate children.

The Bahamas does not recognise same-sex marriages or domestic partnerships. Same-sex couples can use the many estate planning structures available in The Bahamas such as trusts, foundations or a will to protect themselves and their wealth.

There is no income tax in The Bahamas. However in certain circumstances the transfer of real property to a foundation or charity will not attract value-added tax.

The most commonly used structure for charitable planning is a non-profit organisation (NPO). NPOs have the benefit of certain deductions on excise tax for items imported into The Bahamas and may be entitled to claim input tax deductions in connection with value-added tax paid on utility and maintenance payments.