March 2021 Reporting
Following our previous communications related to Economic Substance in The Bahamas, we remind you that the entities with fiscal year end June 2020 must submit their first CESRA filing no later than March 31st, 2021.
If an entity’s 2019 fiscal year end occurred during the transitional period for CESRA (i.e. between 31st December, 2018 and 30th June, 2019), the first reporting for the entity will be due within (9) months of the end of its 2020 fiscal year.
WHAT NEEDS TO BE DONE?
Step 1: Complete the Pre-Questionnaire
Entity Identification Number (EIN) Application
- To apply for an entity’s EIN, the fiscal year of the entity must be provided. Commercial entities’ fiscal year span from January to December, unless the Directors of the entity resolve a different fiscal year.
- To effectively comply with the economic substance reporting in The Bahamas, all entities are required to apply for an EIN, whether or not they carry on a Relevant Activity.
- The Entity Identification Number (EIN) is the entity’s unique identifier for the purpose of CESRA reporting. As confirmed by the Ministry of Finance, the TIN and EIN are synonymous and can be used for the same purposes.
- The estimate turnaround for the Ministry of Finance EIN approval is of (10) business days. Clients are strongly encouraged to request EINs no later than March 1st, 2021 to ensure these are approved with sufficient time to complete the CESRA filing process before the prescribed deadline. Clients who request EINs past this date, risk delaying the entities’ CESRA filings, as well as potential administrative penalties for failing to report within the prescribed deadline.
Step 2: CESRA Filing Part I
The relevant Form determined by the Ministry of Finance Online Tax Administration wizard will be provided for each entity. The relevant Form must be completed no later than March 22nd, 2021. Clients who provide relevant Forms past this date, risk a delayed processing of their entities’ CESRA filings, as well as potential administrative penalties for failing to report within the prescribed deadline.
For further information on Economic Substance in The Bahamas, please review the notice below.
The Bahamas introduced legislations to address the concerns expressed by the Council of the European Union (EU) with respect to the absence of economic substance requirements for companies doing business in and through The Bahamas. Amongst these, the Commercial Entities (Substance Requirements Act), 2018 (CESRA Act) enacted on December 21st, 2018 and the Guidelines on the Commercial Entities (Substance Requirements) Act, 2018, published in the Gazette on 25th February 2019.
The enactment of these legislations reinforces the Bahamas’ commitment to meet the international requirements on tax transparency and is a conscientious effort from The Bahamas authorities to strengthen its industry.
Applicability and Provisions
Pursuant to section 2 of the CESRA Act, an “included entity” is an entity which (i) is a commercial entity and (ii) engages in a relevant activity.
A “commercial entity” is an entity incorporated, registered or continued under the ─
a) Companies Act (Ch. 308) and incudes a foreign entity registered under Part VI thereof;
b) International Business Companies Act (Ch. 309);
c) Partnership Act (Ch. 310);
d) Partnership Limited Liability Act (Ch. 311); or
e) Exempted Limited Partnership Act (Ch. 312),
but does not include an entity under paragraph (a) – (e) which –
(i) is resident owned in The Bahamas and conducts its core income generating activities in The Bahamas; or
(ii) is centrally managed and controlled outside The Bahamas and is tax resident in a jurisdiction other than The Bahamas.
“Resident owned in The Bahamas” means that direct or indirect ownership of 100% of the beneficial interests in the entity are held by one or more natural persons who (i) are ordinarily resident and domiciled in The Bahamas or (ii) have been issued a certificate of annual or permanent residence and who physically reside in The Bahamas for a cumulative period of at least (3) months in every calendar year.
A commercial entity may be considered “tax resident in a jurisdiction other than The Bahamas” if the commercial entity is able to provide the competent authority with a letter or certificate from or issued by the tax authority of its jurisdiction of residence, stating that the commercial entity is considered to be resident for tax purposes in that jurisdiction; and showing a clear specific period of validity.
The primary test of tax residency at common law is that an entity resides where its real business is carried on, and the real business is carried on where the central management and control actually abides. The Authority will exchange all information received from an entity claiming foreign tax residence with the relevant jurisdiction(s) to enable cross-checking by the relevant jurisdiction(s). In the absence of such evidence the entity will be regarded as an included entity that is subject to the substance requirements of the Act.
The CESRA Act provides that a commercial entity is subject to economic substance requirements if it engages in any of the following relevant activities:
An “included entity” has to demonstrate economic substance in The Bahamas by fulfilling both-
a) Its core income generating activities (CIGA) in The Bahamas with adequate (i) amounts of annual operating expenditure; (ii) levels of qualified full-time employees and (iii) physical offices; and
b) Its direction and management in The Bahamas by complying with (i) an adequate number of board meetings in The Bahamas given the level of decision making required; (ii) a quorum of the Board of Directors physically present in The Bahamas during the meetings; (iii) recording of strategic decisions made in the minutes of the meetings; (iv) keeping the books and records of minutes in The Bahamas; and (v) ensuring the Board of Directors has the necessary knowledge and expertise to discharge its duties.
Annual Requirements and Timeframes
The CESRA Act introduced an annual obligation on commercial entities to collect and submit information to enable the Competent Authority to monitor the reporting and compliance of economic substance requirements.
The timeframe for economic substance reporting is within (9) months of the end of the entity’s fiscal year. If an entity’s 2019 fiscal year end occurred during the transitional period for CESRA (i.e. between 31st December, 2018 and 30th June, 2019), the first reporting for the entity will be due within (9) months of the end of its 2020 fiscal year.
Failure to report, reporting false information or obstruction thereof may include the imposition of an administrative penalty of US$150,000.
The timeframe for economic substance compliance by “included entities” (i.e. commercial entities engaged in relevant activities) is 1st July 2019 through 31st December 2019 for the first fiscal year; thereafter, January to December of every fiscal year; or upon inception for newly incorporated commercial entities.
Failure to meet the economic substance requirements (when applicable) may include the imposition of an administrative penalty of US$150,000, with a possible further administrative penalty of US$300,000 and in certain circumstances the entity concerned being struck off of the Registrar of Companies.
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