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The Bahamas: a sound offshore financial center for prudent Chinese investors

The Bahamas: a sound offshore financial center for prudent Chinese investors

By Leo Zhang.

As one of the most prosperous and richest countries in the Caribbean region, The Bahamas has a long history of offshore finance dating back to the 1930s. Apart from a flourishing tourism industry, the most powerful engine behind the country's economy is financial services, which account for about 15 to 20 percent of its GDP.

The Bahamas maintains a sophisticated financial industry. It's home to more than 270 licensed banks and trust services providers, including seven of the world's top eight private banks and 35 of the top 100 global banks.

As the country constantly upgrades its legislation and regulatory systems, cultivates skilled workforce and enhances travel and telecommunications infrastructure, its appeal to the world's principal financial institutions has been growing bigger.

With the improved interaction between China and The Bahamas at both government and private levels in recent years, getting involved in the Caribbean country's financial sector could bring desirable returns to Chinese investors seeking safety of wealth and stable returns.

Established financial industries.

The financial services sectors of The Bahamas have benefited from its long history of political and social stability. As an independent nation, financial markets in The Bahamas are supervised by independent regulatory authorities, including the Central Bank of The Bahamas.

Products that Bahamas can offer include international business companies, investment funds, international insurance products, captives, exempted limited partnerships, segregated accounts companies, trusts, foundations, private trust companies and more recently, the Bahamas Executive Entity.

The Bahamas government and the country's private sector have a shared vision for the future of its financial services sector: to be a globally competitive international business center for private wealth management, capital investment in the Americas and emerging markets, and residency. The goal is to create an environment that could spur the continual growth of the financial sector by adhering to internationally accepted regulatory principles and beefing up efficiency in their administration.

Thus, The Bahamas Financial Services Board, a partnership between the government and the private sector, is in charge of promoting the development of the nation's financial services industry.

Private banking, portfolio management and mutual fund administration have gained in importance in recent years, reinforcing the international community's recognition of The Bahamas as a safe place for the financial assets of individuals and corporations.

The securities sector in The Bahamas is a dynamic and growing part of the financial services industry. Established in 1995, the Securities Commission of The Bahamas is an independent body, charged with providing regulatory oversight for developing capital markets. It has been a member of the International Organization of Securities Commissions (IOSCO) since 1996.

The Bahamas International Securities Exchange (BISX) was launched in 2000. More than 120 broker dealers and investment advisory firms in The Bahamas provide investment management services, custodial services, corporate services and registrar and transfer agent services. There are more than 60 fund administrators and 700 licensed funds in The Bahamas.

The Bahamas' insurance industry is poised for growth under a modern and compliant regulatory environment. With the establishment of the independent Insurance Commission of The Bahamas (ICB) in 2009, and the introduction of competitive insurance legislation, in particular the External Insurance Act, 2009, The Bahamas is poised to become an international wealth management hub.

Banking on the resources of experienced professionals and services providers, The Bahamas has developed a mature industry for international life insurance and captive insurance. Regulators are working carefully to ensure industry development is in line with the principles and rules set by the International Association of Insurance Supervisors (IAIS).

Legislation, taxation and other considerations.

Although The Bahamas has retained its status as a global financial center for a long time, its legislative framework for the financial services industry is highly modern.

The jurisdiction has a complete set of laws and regulations covering trusts, funds, insurance, wealth management, corporate establishment, partnerships and foundations.

The country's laws protect the right to confidentiality and privacy of bank clients. Meanwhile, its legislation criminalizing money laundering enhances the country's reputation among discerning international investors and businessmen.

The Bahamas also has a very competitive tax regime. It has no personal, capital gains, value-added, estate gift or inheritance taxes. There is also no corporate tax unless the revenue is derived from within the country. The Bahamas government has enacted the International Tax Cooperation Act in 2010 and has 28 tax information exchange agreements with major international business and financial partners.

There is no minimum capital required for registering an international business company in Bahamas. IBCs may have any number of directors who need not be resident in The Bahamas.

A Bahamas IBC can have as many share classes as a client requires and can also have those share classes denominated in any currency. Directors benefit from statutory indemnities but not in a way which compromises the rights of shareholders.

Just this year modern insolvency legislation was introduced in The Bahamas to make it clear when a company is deemed insolvent, the rights of shareholders and creditors, and the priority of debts.

For non-residents, the repatriation of foreign investment funds, foreign assets and dividends or profits arising from foreign investment is allowed and facilitated as Bahamas doesn't exert exchange controls.

As a country focusing on financial services, a group of skilled workforce is another treasure of Bahamas. There is a diverse and highly-skilled pool of attorneys, accountants, international bankers, trustees and investment specialists in Bahamas.

Aliya Allen, CEO and Executive Director of Bahamas Financial Services Board, told China Offshore that it is possible to incorporate an IBC through the online filing process in a day, with receipt of the certificate of incorporation within a week.

"Chinese investors will find an environment that supports international investment through our National Investment Policy and legislation that supports effective planning and structures, the latter of which is very important to Chinese investors who are just putting in place mechanisms in family businesses for governance and succession planning," said Ms. Allen.

Growing connections with China.

China has a long friendly relationship with The Bahamas. In 2006, The Bahamas opened an embassy in China, further solidifying its diplomatic ties and relationship with China.

Although The Bahamas suffered a setback during the 2008-2009 global financial crisis its connections with China, on the contrary, have improved a lot in the fields of politics, trade and economy, culture and education, amongst other areas.

In December 2009, The Bahamas and China signed a Tax Information Exchange Agreement, marking a key milestone in diplomatic relations between both countries. The agreement was the sixth concluded by The Bahamas government. It has incorporated the widely-accepted international standards in respect of transparency and effective information exchange in tax matters.

Before that, Wu Bangguo, Chairman of the Standing Committee of the National People's Congress and Vice Premier Hui Liangyu both made official visits to Bahamas in 2009. In the same year, China and The Bahamas signed another three important agreements: an investment promotion and protection agreement; a framework agreement for the loan through the Chinese Exim Bank for the Airport Highway Project; and, an agreement on economic and technical cooperation directed exclusively toward the construction of the national stadium.

In September last year, Baha Mar, a resort company with its headquarters in Nassau, Bahamas, announced that it was strengthening relations with its Chinese partners by opening an office in Hong Kong. The company had secured a US$2.4 billion 15-year loan from the Export-Import Bank of China earlier in the year. Baha Mar gave the contracting work to a mainland group, China State Construction Engineering as well as its US unit China Construction America. Moreover, 7,000 workers were sent to the Caribbean to build the hotels, golf course, casino, water park and accommodation.

The recent developments have showed that there could be more business chances for China in The Bahamas in the coming years thanks to strong support from the government levels, said Chris Xu, an investment consultant with China Merchants Bank.

"The loan by a state-owned Chinese bank and the involvement by a Chinese large construction group is somewhat a testimony that investing in Bahamas is safe and sound," said Xu. "That's a kind of combination between tourism and finance. For the wealthy Chinese, they could really think about doing something in The Bahamas."

The potential of investing in Bahamas and its tourism sector has already aroused the interest of some Chinese people. Eric Wang, a wealth management advisor in Shanghai, said that one of his clients is considering investment in tourism in the Caribbean region.

"Bahamas is certainly a choice for him," said Wang. "But competition is also tough among offshore financial centers. The Baha Mar case did boost some Chinese investors' confidence in Bahamas. However, it may take some time to make decisions due to the uncertainty of the global markets."

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