Bahamas Economic Substance.
The Bahamas Ministry of Finance has granted an extension on the deadline to file the 2019 economic substance report (from December 31st 2020) to January 31st 2021 for entities incorporated prior to January 1st 2020 and with fiscal year end December 31st 2019.
WHAT NEEDS TO BE DONE?
STEP 1: First of all, you have to 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.
Also, 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.
STEP 2: The CESRA Filing Part I
Once the EIN is approved by the Ministry of Finance, the entity will be enabled in the portal to proceed with the CESRA Filing Part I.
OMC Group’s Pre-Questionnaire mirrors the questions of the Ministry of Finance Online Tax Administration wizard.
The information declared in the Pre-Questionnaire will be input onto the portal’s wizard, which will determine the relevant Form to be completed by each entity.
This is CESRA Filing Part I.
STEP 3: The CESRA Filing Part II
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 for final submission no later than January 25th 2021. This is CESRA Filing Part II.
For your reference, we have included below general information about the requirements on The Bahamas economic substance legislation.
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.
With 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 portrayal 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
Following the section 2 of the CESRA Act, an “included entity” is an entity which is a commercial entity and engages in a relevant activity.
A “commercial entity” is an entity incorporated, registered or continued under the Companies Act (Ch. 308).
This entity incudes: a foreign entity registered under Part VI thereof, International Business Companies Act (Ch. 309), Partnership Act (Ch. 310), Partnership Limited Liability Act (Ch. 311) or Exempted Limited Partnership Act (Ch. 312).
But it does not include an entity which is resident owned in The Bahamas, conducts its core income generating activities in The Bahamas or 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 are ordinarily resident and domiciled in The Bahamas.
Also, if they 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 Its core income generating activities (CIGA) in The Bahamas with adequate amounts of annual operating expenditure, levels of qualified full-time employees and physical offices.
Also, it has to demonstrate its direction and management in The Bahamas by complying with an adequate number of board meetings in The Bahamas given the level of decision making required.
In addition, it needs a quorum of the Board of Directors physically present in The Bahamas during the meetings, recording of strategic decisions made in the minutes of the meetings, keeping the books and records of minutes in The Bahamas and 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 their 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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