International financial centres like the Bahamas play an increasingly important role in the global economy. The country is tax-neutral, which means it can avoid the distortions and the corresponding losses that occur when price changes cause fluctuations in supply and demand.
Tax neutrality can also ensure that the tax system can raise revenue and minimise the consequences of economic choices. This aids the notion that the same principles of taxation should apply to all forms of business, which further reduces the likelihood of biases influencing economic decisions.
Wealth management accounts for a large part of the country’s financial sector. For many high-net-worth individuals, banking and wealth management outside one’s home country simply makes good business sense and represents a wise avenue for investment. There are several reasons for this.
The Bahamas has a government ministry dedicated solely to financial services, while a shared commitment exists between the public and private sectors to develop the industry
For example, multinational and multigenerational families can preserve their wealth for the long term and transfer it to younger generations with relative ease when they place assets in a territory with trust laws. Their home country might be subject to civil unrest, or a history of political and financial instability. It is therefore prudent for high-net-worth individuals to offset these risks by protecting some of their assets. They can do this by keeping them in a jurisdiction that does not suffer from these problems. Furthermore, international banking and wealth management centres offer financial products that are usually more rewarding and secure than those found in their home countries.
The Bahamas also requires businesses and other entities to disclose information to the government about the ways in which they generate their income and the amount of tax they pay. This can be argued to be transparent taxation, as the Bahamas adheres to the doctrine that nations ought to exchange information with one another about the tax affairs of individuals and other entities.
After tourism, financial services is the most important industry in the Bahamas. Governments have repeatedly recognised the importance of the industry to the country’s continual economic and social development. The financial sector’s viability for success is therefore a priority for both the public and private sectors.
This level of importance is indicated by the responsiveness of the legislature and regulators to the needs and demands of the market, as well as the swiftness with which these processes can take place. It is also demonstrated by the balance that regulators strike between ensuring the financial services industry keeps its integrity while still encouraging lively competition. What’s more, the Bahamas has a government ministry dedicated solely to financial services, while a shared commitment exists between the public and private sectors to help promote and develop the industry.
In order to highlight the Bahamas’ strengths as an international financial centre, the Bahamas Financial Services Board was established in April 1998. It is funded both by private enterprise and the government, and continues to promote greater awareness across the globe.
Fiscal and economic stability
Representatives of the IMF visited the Bahamas at the end of last year, with a report from the organisation’s visit noting: “The Bahamian economy continues to recover, with real GDP growth projected to reach 2.3 percent in 2018 and 2.1 percent in 2019… The Fiscal Responsibility Bill will support the government’s efforts to secure fiscal sustainability and put debt on a downward path.” With the Bahamas’ GDP already having risen by more than $4bn between 2000 and 2017, this projection seems highly plausible.
Indeed, the legal system in the Bahamas has been very successful in helping the country respond effectively to the changing needs and demands of the market. It is based on English common law, which is (by and large) clear and simple for its citizens to understand. As an independent nation with a financial services industry bolstered by a strong public-private sector partnership, the Bahamas responds to shifts in the market swiftly and efficiently.