NASSAU, BAHAMAS — The government has extended the consultation period for its corporate income tax Green Paper to the end of August Prime Minister Philip Davis announced yesterday, stressing that the document is merely intended to stimulate stakeholder discussion and contains no commitment to any particular policy action.
The Ministry of Finance last week released a Green Paper presenting four corporate income tax strategies for The Bahamas.
Back in July 2021, The Bahamas became one of over 138 members of the OECD’s Inclusive Framework that agreed to support the implementation of the Pillar Two tax reform, under which all multinational entities with revenues of 750 million euros or higher will be subject to a minimum effective tax rate of 15 percent in each jurisdiction in which they operate.
Prime Minister Davis explained: “The Bahamas became a signatory to the OECD’s Pillar Two framework on July 1, 2021, along with approximately 350 countries, agreeing to the implementation of a 15 percent minimum corporate income tax.
“The Bahamas is not obligated to impose a 15 percent corporate income tax. However, entities exceeding the threshold of 750 million euros annually will be liable to pay a top-up tax in their respective jurisdictions, where they have offices or are already paying this income tax.
He continued: “This provides an incentive for the Bahamas to impose the 15 percent tax. If we don’t impose it on the multinationals, the jurisdiction where they are headquartered will top up whatever taxes are not met to reach the 15 percent. Instead of the funds going to that jurisdiction, it becomes an incentive to pay it here.”
Davis said the second motivation to explore a corporate income tax is to address the government’s goal of securing greater fairness and equity in the Bahamas’ tax regime.
“Prevailing concerns arise over the inherent bias in business licensing fees. Firms incur a significant tax burden even in loss-making years, as calculations are based on turnover instead of profits.”
Davis noted that companies that pay corporate income tax will not have to pay business license fees.
He stressed that the Green Paper was only intended to solicit feedback. He further noted that a subsequent White Paper will include explicit policy statements on the government’s intended approach, propose legislative changes, and introduce new laws as deemed necessary.
The strategies outlined in the Green Paper are as follows: Option 1 applies the OECD’s 15 percent minimum tax rate to multinationals earning over 750 million Euros. Option 2 adds a 10 percent rate for other firms. Option 3 includes a 12 percent rate for firms above B$0.5 million, while maintaining the business license fee (BLF) for firms below this threshold. Option 4 enforces a 15 percent corporate income tax for all firms, except those below B$0.5 million, which would be subject to a 10 percent rate.
Interested parties had been invited to comment on the proposals in Green Paper and to provide responses to the series of questions contained therein by July 3, 2023 but that deadline has been extended to August 31.
East Grand Bahama Mp and Opposition finance spokesman Kwasi Thompson described the Green Paper as “incomplete,” arguing that more information is needed.
“The government must have a plan to grow the economy and improve the ease of doing business,” said Thompson.