Offshore Banking in The Bahamas

INTRODUCTION 

Offshore banking has grown rapidly in recent times. Offshore centres like The Bahamas serve as headquarters for the branches and subsidiaries of large financial organizations with international affiliations. They are important and useful because of the prevalence of relative tax freedom, absence of exchange restrictions, stability, quality infrastructure, modern communications and skilled human resources. Secrecy between a bank and its customer has diminished in recent times as international best practices demand transparency and openness.

BANKING SERVICES

Banks provide banking for corporations, individuals and businessmen including current accounts regular and term deposits, loan and deposit facilities, and wide range of credit instruments and facilities.

The list includes:

a. Current account services such as the transfer of monies by cheque, transfer of monies by standing orders, transfer of monies by the credit-transfer system, permission to run an overdraft, bank loans, safety deposit boxes, night-safe facilities, and banker’s draft facilities.

b. Deposit account services.

c. Savings account services.

d. Other services such as foreign exchange purchasing and selling for importers and exporters, acting as intermediaries in dealing with stockbrokers overseas, executorships and trustee services, insurance, financial advice to customers, credit ratings and credit worthiness, banker’s credit cards, discounting Bills of Exchange, and investment management services.

In fact, offshore banking services may be broken down into four important categories – private client services, corporate trust services, corporate banking services, and investment banking.

PRIVATE CLIENT SERVICES

This is one of the more traditional offshore banking activities involving financial planning and management for wealthy individuals and families and the structuring of the assets through the use of offshore banker provides the complete range of private banking services which include safe custody, investment management and banking facilities.

All financial techniques are available, from interest risk and foreign exchange management to single-premium life insurance – linked investment management structures.

This is logically coupled with the benefits of global networks and modern electronic banking techniques to ensure that discreetly out of sight never means out of reach.

CORPORATE TRUST SERVICES

Corporate Trust Services largely comprise the administration of offshore collective investment schemes, including mutual funds and pension funds. The promoter of the fund will seek a range of services, including shareholder registration, accounting and valuations for the funds, global custody and corporate secretarial services.

CORPORATE BANKING SERVICES

Corporate Banking Services cover a broad range of related financial activities with offshore insurance being a major sector. The offshore bankers services the needs of captive insurance subsidiaries through the provision of basic cash management and reporting, letters of credit, global money transfer, comprehensive depository services and tailored investment activities, particularly involving fixed income portfolios or relevant mutual funds.

The offshore banker also offers, aircraft leasing to foreign sales corporations, totally international on line, real time global cash management, the complete financing of debt and equity for offshore vehicles, offshore pensions and employee benefit arrangements and many more. The services may include the management of a substantial portfolio of foreign currency loans to foreign government and companies, to conduct international trade financing, or to deal in bonds and money-market obligations. These administrative functions are performed locally. Some are autonomous in substantive credit and funding decisions while others share these functions with their parent organizations.

OFFSHORE INVESTMENT BANKING

Offshore investment banking is the next significant and logical development. Investment management has long been a traditional activity supporting private and corporate banking customers.

Companies that wish to find new sources of capital, that need the flexibility and free to compete, whose products need to serve a global market without being tied to one jurisdiction, set of rules or regulations, will naturally orientate to the offshore financial markets.

ELECTRONIC BANKING

The last five years have seen dramatic rises in the numbers of offshore subsidiaries through which trading cooperate maximize tax efficiency. Such customers look to their bankers to allow cash management to be conducted as efficiently from The Bahamas as from London or New York.

Thanks to electronic banking, it can be, and what is more, the latest proprietary electronic banking systems now allow the corporate treasurer to view the day-to-day positions of

subsidiaries around the world – and even at different banks – on one screen, and to manage his global cash position that much efficiently.

KNOWING THE CUSTOMER

As markets grow and offshore financial services become more sophisticated, it is absolutely necessary for respectable bankers, lawyers, accountants, company managers and regulators to know their customers and clients. Offshore banking must take steps to ensure the business is clean. On the other hand, new forms of fraud and deception frequently arise.

The Bahamas has enacted money laundering laws and regulations, KYC guidelines, and measure severely punishing all dealings in the proceeds of crime, funding terrorism, international fraud, and drug trafficking.

TAX FREEDOM

Undoubtedly, The Bahamas satisfies the criteria for being both a tax haven and a offshore financial centre. There is no corporate tax, no personal income tax, no capital gains tax, no profits tax, no sales tax, and no inheritance or estate taxes. There are no withholding taxes on dividends, interest or royalties and no payroll taxes. The Bahamas is also not a party to any double agreement.

TAX INFORMATION EXCHANGE AGREEMENT

The recent world economic recession has caused most of the developing countries to take stringent measures to collect taxes from their citizens wherever they be located and however earned. Offshore centres have been required to disclose financial transactions of foreign investors, do away with banking secrecy, and to sign Tax Information Exchange Agreements (TIEA’s) with other countries. The TIEA’s provide for the foreign jurisdiction to obtain information about their citizens’ affairs in offshore jurisdictions. The Bahamas has signed on to over 30 TIEA’s.