Bahamas government announces corporate tax on MNEs, in line with OECD Pillar Two

Monday, 26 February 2024
The Bahamas government is to introduce a 15 per cent corporate income tax on the largest multinational enterprises (MNEs), to comply with the OECD's Pillar Two tax framework.

Pillar Two requires all jurisdictions to impose a minimum corporation tax on MNEs whose annual group turnover exceeds EUR750 million. It is part of the OECD's Base Erosion and Profit Shifting (BEPS) initiative, intended to deter MNEs from shifting their operations to low- or zero-tax international financial centres for purely tax reasons. In October 2021, the G20 and OECD countries agreed that the 15 per cent global minimum tax would be implemented by most jurisdictions by January 2024, although some have not yet done so.

The Bahamas began consulting on its reaction to the 'compelling realities' of the OECD scheme in May 2023. As well as the 15 per cent minimum tax, its consultation suggested various options for taxing firms whose revenues fall below the OECD global minimum tax rate threshold. It also suggested a move away from the existing business licence tax for domestic companies. In June 2024, it published the Bahamas Business Licence Bill. This introduced a tax on Bahamas-domiciled international business companies (IBCs) on their overseas revenues for the first time, albeit only at 0.25 per cent or 1.25 per cent for financial services businesses.

The government has now finalised its policy with a proposal for a qualified domestic minimum top-up tax (QDMTT). This is one of the options approved by the OECD for implementation of the Pillar Two tax framework and the government expects it will generate a new revenue stream initially estimated at BSD140 million annually.

Draft legislation for the QDMTT is expected to appear by the end of May 2024, with a view to introducing a Bill to parliament after further consultation. The government has temporarily decided against a full revision of the corporate tax system, believing that addressing only Pillar Two MNEs is the proper approach for the moment.

'Any consideration of a wider business income tax would only happen if it is a more equitable approach for Bahamian businesses', it noted. 'It would only be done after proper consultation, with considerable lead time in order for Bahamian businesses to properly prepare.'

'This policy move is a clear indication of our commitment to fiscal responsibility, international compliance, and the well-being of our citizens and residents', said the government.

One issue to be settled is how to phase in the new tax, given that it was supposed to have taken effect at the beginning of 2024. The government has suggested to parliament that it may collect the tax ‘retroactively’.


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