Economic Substance Requirements for Commercial Entities in The Bahamas: Reporting Obligations Update

The Commercial Entities (Substance Requirements) Act, 2018 (“CESRA”) is intended to ensure entities claiming to be tax resident in The Bahamas have real nexus to the jurisdiction. CESRA became effective 31 December 2018. A requirement of substantive presence to justify tax residency is now an important standard among international financial centers.

All ‘commercial entities’ incorporated, registered or continued to The Bahamas are required to comply with CESRA. All ‘commercial entities’ must report compliance with their obligations under CESRA to the Ministry of Finance.

How are commercial entities defined?

A ‘commercial entity’ is:

a) a Company incorporated under –

the Companies Act (“CAC”); and
the International Business Companies Act (“IBC”); and

b) a Partnership governed by –

Partnership Act (“PA”);
Partnership Limited Liability Act (“LLP”); and
Exempted Limited Partnership Act (“ELP”).

Other entities such as Bahamian foundations or trusts are not subject to the requirements of CESRA.

What is an ‘included entity’?

CESRA imposes different requirements depending upon whether a commercial entity is deemed an ‘included’ entity or a ‘non-included’ entity. Only ‘included entities’ must have substantial economic presence in The Bahamas, e.g. local offices performing core income generating activities, and staffing with adequate and relevant qualifications, skills or experience.

An ‘included entity’ is a CAC, IBC, PA, LLP or ELP that is not:

resident owned; or
tax resident abroad;

but either itself is engaged in, or if a holding company, where one or more of its subsidiaries is engaged in a ‘relevant activity’.

‘relevant activities’ are the following business activities:

banking business;
Insurance business;
fund management business;
financing and leasing business;
headquarters business;
distribution and service centers business;
shipping business; and
commercial use of Intellectual Property business.

What reporting is required?

All commercial entities, irrespective of whether they are ‘included’ or ‘non-included entities’, are required to report their compliance with CESRA to the Ministry of Finance using the Department of Inland Revenue’s e-portal no later than the last calendar day 9 months following their fiscal year end.

Are there any transitional provisions?

Special provisions apply to commercial entities incorporated, registered or continued to The Bahamas prior to or on 30 December 2018, as follows:

There is no reporting or compliance requirement for the 2018 fiscal year.

The Ministry of Finance has granted a 6 month transitional period which has the following effect:
a. if such entities are ‘included entities’ they will not have to comply with substance requirements until 01 July 2019;
b. entities which have a fiscal year ending between 01 January and 30 June 2019 will not have a reporting obligation for 2019 and their first reporting deadline will be 9 months after their 2020 fiscal year end¹.

Commercial entities incorporated, registered or continued to The Bahamas on or after 31 December 2018 are not granted a transitional period and are therefore immediately subject to substance requirements from the date of incorporation, registration or continuation, as the case may be and must report within 9 months of their fiscal year end.

See examples of reporting deadlines and reporting periods illustrated in the table below.

Date of incorporation, registration or continuation (“Start Date”)	Fiscal Year End	First Date of Compliance with CESRA	First Reporting Period	First Reporting Deadline
On or Before 30 December 2018	30 September 2019	01 July 2019	01 July 2019 – 30 September 2019	30 June 2020
	31 December 2019	01 July 2019	01 July 2019- 31 December 2019	30 September 2020
	31 March 2020	01 July 2019	01 July 2019- 31 March 2020	31 December 2020
	30 June 2020	01 July 2019	01 July 2019 – 30 June 2020	31 March 2021
On or After 31 December 2018	31 March 2020	Immediately	Start Date – 31 March 2020	31 December 2020
	30 June 2020	Immediately	Start Date – 30 June 2020	31 March 2021
	30 September 2020	Immediately	Start Date – 30 September 2020	30 June 2021
	31 December 2020	Immediately	Start Date – 31 December 2020	30 September 2021

What is the entity’s fiscal year?

A fiscal year is the 12 month accounting period approved by the entity for its financial reporting and budgeting;

An entity typically selects a calendar year (01 January to 31 December) for its fiscal year, or any other 12 month period which starts at the beginning of a quarter (e.g. 01 April to 31 March, or 01 July to 30 June);

An entity’s fiscal year is formally adopted by resolution of its directors. If an entity has not formally adopted a fiscal year, it will need to do so in order to properly comply with the CESRA requirements.

Other CESRA reporting details.

All commercial entities will be required to register on the Department of Inland Revenue’s e-portal which is expected to be operational in late 2019.

Upon registration, all commercial entities not previously issued a Tax Identification Number will be issued an ‘entity identification number’.

For those desiring more information:

Download a copy of CESRA:
https://bfsb-bahamas.com/wp-content/uploads/2019/02/DOCReprintofCommercialEntitiesSubstanceRequirementsActNo32of2018.pdf

See more detailed summary of the purpose and requirements of the Act in the Delaney Partners Legal Update of March 2019:
https://delaneypartners.com/2019/03/economic-substance-requirements-for-commercial-entities-in-the-bahamas/.
For further assistance or clarification:
If you have further questions, please contact the commercial lawyers of Delaney Partners at info@delaneypartners.com or your administrator at Delaney Corp.
Disclaimer: This publication is intended for information purposes only and does not constitute legal, accounting or tax advice.

¹ Pursuant to a Public Notice issued by the Regulatory & International Affairs Unit of the Ministry of Finance of The Bahamas on 29 July 2019.