Investment Climate - Bahamas Business Guide


The United States remained The Bahamas' major trading partner. American firms exported $725.0 million in goods and services to The Bahamas in 1996, up from $660.5 million the previous year. Primary American exports to The Bahamas were manufactured goods, machinery, food, petroleum products, automobiles, and chemicals. On the other side of the ledger, Bahamian commodity exports to the U.S. totaled $165.4 million in 1996 an increase from $156.0 in 1995. Primary Bahamian exports to the U.S. were pharmaceuticals, chemicals, industrial salt, lobster, and aragonite.

A1. OPENNESS TO FOREIGN INVESTMENT:

The Bahamian government actively encourages foreign investment in certain sectors of the economy, particularly in tourism, banking, agriculture, and manufacturing. At the time of its election in 1992, the Ingraham administration announced its intention to privatize several public corporations, including the hotel corporation, the corporation providing ground services at Bahamian airports, and parts of the state-owned Bahamas Telecommunications Corporation (BATELCO) and The Bahamas Electricity Corporation (BEC), as well as to invite private investment in the national air carrier, BAHAMASAIR.

In continuing its efforts to sell off all government-owned hotels, the FNM Government sold three hotels in Grand Bahama -- The Grand Bahama Beach Hotel (formerly the Holiday Inn), the Lucayan Beach Hotel and Resort, and the Clarion Atlantik Beach Hotel -- in April to Hutchison Whampoa, joint owners of the Freeport container terminal. These sales leave the Radisson Cable Beach Hotel in Nassau as the only major publicly-owned hotel in The Bahamas. There are still two government hotel properties for sale on Andros.

Certain businesses, however, are reserved exclusively for Bahamians. Reserved businesses include: wholesale and retail operations; commission agencies engaged in the import export trade; real estate and domestic property management agencies; domestic newspaper and magazine publication; domestic advertising and public relations firms; nightclubs and restaurants, except specialty, gourmet and ethnic restaurants; restaurants operating in a hotel, resort complex or tourist attraction; security services; domestic distribution and building supplies; construction companies, except for special structures for which international expertise is required; personal cosmetics beauty establishment; shallow water scale-fish, crustacean, mollusks and sponge-fishing operations; auto and appliance service operations; and public transportation.

The Bahamian government has targeted the following categories of businesses for foreign investors: touristic resorts; upscale condominium, time share and second home development; international business centers; marinas; information and data processing services; assembly industries; high-tech service; ship registration, repair and other services; light manufacturing for export; agro-industries; food processing; mariculture; banking and other financial services; captive insurance; aircraft services; pharmaceutical manufacture; and off-shore medical centers.

Benefits of investing in The Bahamas include a stable democratic environment; relief from corporate and personal income taxes; sophisticated financial services; timely repatriation of corporate profits; proximity to the United States; extensive air links through nearby Miami, Ft. Lauderdale and Orlando; excellent communications links; a good pool of skilled professionals; excellent tourism and conference facilities; and designation under the Caribbean Basin Initiative (CBI), Canada's CARIBCAN program and the European Union's Lome IV agreement. In 1993, the government announced the establishment of The Bahamas Investment Authority (BIA) within the Office Of The Prime Minister. BIA was designed to provide a "one-stop shop" to assist foreign investors with approval of their investment applications and to cut through further "red tape" for approved investments. Despite a slow start, BIA remains the Bahamian government's central point of contact for foreign investment questions.

In practice, the vast majority of successful foreign investments in The Bahamas have remained in the traditional areas of tourism and banking. The Bahamian government is most interested in investments which will generate local employment, particularly in white-collar or skilled jobs. Large-scale projects in areas such as agriculture may be difficult to fill since low-wage and low-skill jobs do not appeal to most Bahamians, and because the government is reluctant to permit foreign laborers in these jobs even on a temporary permit basis. Whenever new foreign ventures are perceived as competitors to existing Bahamian businesses or to the labor community, the government generally responds to local concerns and withdraws the license of the foreign business.

While The Bahamas has not yet enacted environmental legislation as extensive as that in the United States, the BIA will require a full accounting of the environmental impact of new industrial or agricultural schemes and will not approve projects which would be unable to pass United States environmental standards.

A2. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT:

The Bahamian government in 1993 repealed the Immovable Property (Acquisition By Foreign Persons) Act, which required foreigners to obtain approval from the National Economic Council to purchase real property in the country, and replaced it with the International Persons Landholding Act. Under the new law, approval is granted automatically for non-Bahamians to purchase residential property of less than five acres on any single island in The Bahamas, except where the property constitutes over fifty 50 of the land area of a cay (small island) or involves ownership of an airport or marina. The Bahamian government hopes this new legislation will stimulate the second home vacation home market and revive the once-vibrant real estate sector. The new law also provides for a two-year real property tax exemption for foreign persons acquiring undeveloped land in The Bahamas for development purposes, provided that substantial development occurs during those two years.

A3. PROTECTION OF PROPERTY RIGHTS:

The Bahamas is a member of the World Intellectual Property Organization (WIPO). Local copyright laws, which date to the 1970's, have not yet been revised to take into account recent developments in communications and computer technology. Generally, copyright laws to control piracy in satellite and videos industries are not enforced.

A4. FOREIGN TRADE ZONES FREE PORTS:

A free trade zone exists at Freeport on Grand Bahama Island. The Hawksbill Creek agreement established Freeport, the country's second-largest town, as a free trade zone in 1954. Firms in Freeport are granted the right to import materials duty-free, and enjoy other tax advantages. In 1993, the Bahamian government extended most Hawksbill Creek tax and duty exemptions through 2054, while withdrawing exemptions on real property tax for foreign individuals and corporations. Prime Minister Ingraham declared, however, that property tax exemptions might still be granted to particular individuals on a case-by-case basis.

A5. PERFORMANCE REQUIREMENTS INCENTIVES:

The Bahamas levies no taxes on personal or corporate income, capital gains, dividends, interest, royalties, sales, estates, inheritances, or payrolls. Foreign-owned businesses receiving tax benefits are expected, however, to contribute generously to various civic projects. The only direct tax is the real property tax. The tax rates on real property are as follows:

Owner occupied:

(a) exempt from real property tax on the first $50,000 of assessed value; (b) 0.75 percent per annum on the next $50,000 of assessed value; (c) 1 percent per annum on assessed value in excess of $100,000.

Commercial property:

(a) 0.50 percent per annum on the first $50,000 of assessed value; (b) 1 percent per annum on assessed value in excess of $50,000.

A gambling tax is also levied. The airport departure tax is $18 per person. The government originally raised the harbor departure tax from $7 to $20 per person in 1991; following protests from cruise ship operators, however, the harbor departure tax was lowered to $15 in 1992.

The following incentives are available to foreign investors:

Bahamas 'Industries Encouragement ActBahamas ': Under this law, the government may exempt from duties the machinery, tools, equipment, and raw materials imported to construct new factories. A list of duty-exempt items is negotiated separately with each new venture.

Bahamas 'Hotels Encouragement ActBahamas ': Under this law, new hotels and resorts can be exempted from real property taxes for ten years from the date the new facility opens. In addition, the act allows the duty-free importation of materials used for the construction of new facilities or the substantial renovation of existing facilities acquired by new owners for a set period of time. The list of duty-free items for each project and the duration of some duty-free windows are negotiated separately for each venture.

Bahamas 'Agricultural Manufacturers Act-Bahamas ': This law allows any materials necessary for the construction, alteration, or repair of an "agricultural factory," as well as any machinery or supplies used in establishing such a factory, to be imported duty free. An "agricultural factory" refers to any factory established for the purpose of manufacturing or preparing agricultural or horticultural produce of The Bahamas for sale or export.

Bahamas 'Spirits and Beer Manufacturers ActBahamas ': This law provides for the duty-free importation of materials used in the construction, alteration, or repair of approved liquor distilleries or beer breweries and the duty-free importation of raw materials and equipment for liquor or beer production.

The FY 97-98 government budget amended the Tariff Act to provide duty free exemptions for construction and development in the Family Islands.

A6. TRANSPARENCY OF THE REGULATORY SYSTEM:

The FNM government is committed to fostering an economic environment in which free enterprise can flourish. The government acts as regulator and facilitator of economic development. Its Investment Policy promotes transparency, fair play, and equality of treatment. It is designed to support an investment friendly climate where there is unity between Bahamian and foreign investments, and fosters appropriate linkages with all sectors of the economy, in particular, the tourism and financial services sectors.

A7. CORRUPTION:

The FNM Government was elected on a platform of accountability designed to change the country's image and international reputation of being a corrupt nation. Since it was elected in 1992, reports of corruption have virtually disappeared.

A8. LABOR:

In 1996, the Bahamian labor force consisted of approximately 148,000 workers. The official unemployment rate was estimated at 10 percent. Unemployment is highest among youth and slightly higher for women; unemployment outside Nassau and Freeport tends to be higher than in the two major population centers. Considerable underemployment also exists in The Bahamas. Despite these facts, wage rates, while considerably lower than in the United States, tend to be higher than elsewhere in the Caribbean.

The Government hopes to reduce unemployment by 5 percent by the year 2002. Officials hope to achieve this by: (1) establishing duty free zones on several Family Islands; (2) encouraging and training young men to join the work force, and (3) training 3,000 persons at The Bahamas Technical and Vocational Institute. Sun International plans to employ 2,200 persons by the end of 1998 and create an additional 1,000 indirect jobs as a result of its Atlantis phase II expansion program. This will make Sun the largest private sector employer in The Bahamas.

The Government established a minimum wage of $4.12 per hour for hourly paid government workers in September 1996. The Government is also considering a minimum wage for private sector workers in the following jobs: sales people in department stores, cashiers in grocery stores, security officers and domestic workers.

The Bahamas Industrial Tribunal officially opened in April 1997 with a backlog of more than 200 cases. The President of the tribunal described it as a labor court designed to resolve conflicts in the workplace, order reinstatements, and levy damages. The tribunal was established as a result of a landmark 1992 Supreme Court ruling which held that the Attorney General could not refer trade disputes to an arbitrator without the employer's consent. This ruling created a backlog of labor cases in the already overloaded Supreme Court.

The Department of Labor is responsible for enforcing labor laws and has a team of several inspectors who make on-site visits to enforce occupational health and safety standards and investigate employee concerns and complaints. The Department normally announces these inspections ahead of time. The Fair Labor Standards Act limits the regular workweek to 48 hours and requires at least one 24-hour rest period per week, paid annual vacations, and employer contributions to national insurance (the local equivalent of social security). The Act also requires overtime payment (time and a half) for hours in excess of the standard or time worked during public holidays. A 1988 law provides for maternity leave and the right to re-employment after childbirth.

The Bahamian constitution specifically grants labor unions the rights of free assembly and association. These rights are exercised extensively, particularly in the hotel industry where 80 percent of the employees are unionized. Unions operate without restrictions or government control. The right to strike is limited under the Industrial Relations Act, which requires that union members must vote to strike and that the motion must be passed by a simple majority before a strike can commence. The Ministry Of Labor oversees strike votes. While labor-management relations in The Bahamas are generally good, they are on occasion, strained. Major or prolonged strikes are rare. Labor unions involved in disputes with foreign-owned enterprises have not been above using the fact of foreign ownership as a lever to gain popular support for their demands.

The Immigration Act requires foreigners to obtain work permits before they can be employed in The Bahamas. The government will permit foreign employees to work in a technical, supervisory, or managerial capacity to initiate and operate industries, provided no similarly qualified Bahamians are available for the job. Foreign business owners are expected to train as many of their Bahamian employees as possible to eventually fill technical and managerial positions. The FY 97-98 budget proposed a new tax to be levied against foreign employees. The revenues will be used to pay for vocational training programs. While work permits are normally granted impartially under established criteria, there have been isolated instances in the past in which Bahamian government officials have prolonged the process of renewing work permits for foreign managers whose actions drew local labor protests.

A9. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT:

Formerly an oligopoly dominated by the subsidiaries of foreign banks, the Bahamian banking system is in the process of changing. Influencing these changes are several factors: increased competition in the marketplace; newly available technology allowing state-of-the-art electronic services; and political pressure to help small bankers. In spite of these incipient changes, the banking system today remains fundamentally as it has been for a long time. That is to say, it is legally divided between domestic banks, which service consumers and businesses operating in The Bahamas, and offshore commercial services which operate in all markets except the domestic market.

The non-interventionist tradition of the Central Bank of The Bahamas has allowed the industry to set interest rates and lending standards independently--a scheme which has been highly profitable for the banking industry, particularly in the areas of consumer and mortgage credit as well as in commercial lending. Nevertheless, with the excess liquidity created by years of cautious lending and a lack of available investments, and with the crowding of banking institutions in the country (there are five big international banks and three midsize local institutions for a population of 260,000), competition has increased significantly with interest rates dropping to the benefit of both the consumer and the foreign investor. Still, most financing for the private sector in The Bahamas comes from the relatively small number of commercial banks licensed to operate domestically or from The Bahamas Development Bank, which is a government-operated institution established to provide medium and long-term financing to projects in priority areas of the economy. Projects in The Bahamas are also eligible, in some instances, for financing from the US Export-Import Bank, the Overseas Private Investment Corporation (OPIC), or from multilateral institutions such as the Inter-American Development Bank (IDB).

Major Bahamian banking institutions which can provide financing for certain projects in The Bahamas include:

BANK OF THE BAHAMAS, LTD. P.O. BOX N-7118 Nassau, Bahamas Tel:(242)326-2560 Fax:(242)325-2762
BARCLAYS' BANK P.O. BOX N-8350 Nassau, Bahamas Tel:(242)322-4921
BRITISH-AMERICAN BANK P.O. BOX N-7502 Nassau, Bahamas Tel:(242)327-5170 Fax:(242)327-5166
CANADIAN IMPERIAL BANK OF COMMERCE (CIBC) P.O. Box N-7125 Nassau, Bahamas Tel:(242)322-8455 Fax:(242)326-6552
CITIBANK BAHAMAS Tel.:(242)322-4240 Fax:(242)323-3088 COMMONWEALTH BANK P.O. BOX SS-6263 Nassau, Bahamas Tel.:(242)328-1854
ROYAL BANK OF CANADA P.O. BOX N-7537 Nassau, Bahamas Tel:(242)322-8700 Fax:(242)322-6381

A10. CONVERSION AND TRANSFER POLICIES:

Profits and investment capital may be repatriated freely. Non-resident or foreign investors wishing to initiate operations in The Bahamas must register their operations with the Central Bank. If the projects are financed substantially by foreign currency transferred into The Bahamas, they will be given "approved status." This means that all profits and dividends, as well as the proceeds from sales of such business, can be converted from local currency into foreign currency at any time. While foreign investors in The Bahamas enjoy complete freedom to repatriate their investments and profits, The Bahamas does not offer any incentives for investment in other developing countries.

A11. EXPROPRIATION AND COMPENSATION:

The Bahamian government has never expropriated a business and both major political parties have stated that "nationalization will not be an instrument of government policy."

A12. DISPUTE SETTLEMENTS:

The Bahamas has been a member of the International Center For The Settlement Of Investment Disputes since October 18, 1995. The Bahamas in 1992 joined the Multilateral Investment Guarantee Agency (MIGA), which insures investors against currency transfer restrictions, expropriation, war and civil disturbances, and breach of contract by member countries.

A13. POLITICAL VIOLENCE:

The Bahamas has no history of political violence.

B. BILATERAL INVESTMENT AGREEMENTS:

The Bahamas is in the process of negotiating an investment protection agreement with the United Kingdom. There is no Bilateral Investment Treaty (BIT) between The Bahamas and the United States.

Bahamas 'Caribbean Basin Initiative (CBI): The Bahamas was designated a beneficiary of the Caribbean Basin Initiative (CBI) in 1985. As a result, with certain restrictions, products manufactured in the Bahamas qualify for duty-free entry into the United States. High wage rates, however, combined with the country's small manufacturing and agricultural sectors, have hindered The Bahamas' ability to exploit these benefits. In addition, The Bahamas' failure to enter negotiations with the United States for a bilateral Tax Information Exchange Agreement (TIEA) precluded the use of 936 (QPS II) credits for projects in The Bahamas or the use of the convention tax benefit for business conventions held in The Bahamas.

C. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS:

In 1992, OPIC approved two investment projects in The Bahamas. It guaranteed up to $10.8 million in loans to the UNIROYAL Chemical Company, Ltd. to assist in the purchase and refurbishment of a plant in Freeport formerly owned by Gist-Brocades, Ltd. UNIROYAL currently uses the plant to produce high performance antioxidants used in the manufacture of plastics for export to North America, Europe, and Asia. In addition, OPIC committed itself to loan up to $1.6 million to LANDQUEST, ltd. for the development of the Princess Cays cruise ship facility on Eleuthera island near Bannerman Town.

D. CAPITAL OUTFLOW POLICY:

Foreign investors in The Bahamas enjoy complete freedom of repatriation on their investments and profits. The Bahamian government does not offer any incentives for investment in other developing countries.

Net inflows associated with transportation services were reduced by $14.4 million to $34.3 million and government's net overseas expenses for services rendered were up by $6.7 million to $23.8 million. Other miscellaneous services net outflows grew by an estimated $12.6 million to $214.8 million.

E. MAJOR FOREIGN INVESTORS:

Major current foreign investments in The Bahamas include:

--Atlantis, a hotel, resort, and casino complex on Paradise Island near Nassau recently purchased by the South African firm Sun Hotels International; --Ruffin's Crystal Palace Resort, Casino, And Convention Center, operated by Host Marriott Corporation; --Coral Island Underwater Observatory, Marine Park, and Hotel formerly owned by an Israeli firm and recently sold to the Ruffin Group owners of the Marriott Crystal Palace Hotel and Casino which also recently bought the Fort Nassau Beach Hotel; --A container port facility opened in Freeport by Hong Kong investors, Hutchison Whampoa; --Ambassador Beach Hotel recently purchased from the Bahamian government by the Jamaican company, Superclubs, under the trade name Breezes; --Royal Bahamian Hotel recently purchased by Sandals company of Jamaica from the Bahamian government; --The Winding Bay Hotel in Eleuthera owned by Venta, an Italian group; --PFC Bahamas in Freeport, formerly known as Syntex is now owned by the Swiss pharmaceutical firm Roche; --Uniroyal Chemical plant manufacturing high performance antioxidants in Freeport; --Walt Disney World, Orlando recently purchased Gorda Cay, a private island; --Bahama Star, a large citrus farm being developed on Abaco island by the B.G. Harmon Fruit Company of Florida; --Grand Bahama Beach and Lucayan Beach Hotels sold to German owned Sun and Sea Estates Limited; --Cotton Bay Club, Eleuthera recently purchased by Colombian Carlos Sarmiento; --A large shrimp farm on Long Island operated by the American firm Maritek; --A tropical fish farm operated on Walker's Cay by Aqua Life, Ltd.; --Princess Cays, a cruise ship landing facility on Eleuthera Island owned by Landquest; --Club Med resorts on Paradise Island, Eleuthera, and San Salvador; --Comfort Suites on Paradise Island; --Freeport Lucaya Marina Village developed recently by European investors; -- Cable Bahamas, Ltd. recently established by a Canadian group --Island Outpost Resort at Compass Point recently built by a Jamaican music magnate.

 

 

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