By NEIL HARTNELL
Tribune Business Editor
The proposed permanent residency reforms are “not a hedge” against OECD/G-20 plans for a worldwide automatic exchange of tax information system, a leading financial services executive said yesterday.
Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive, told Tribune Business that efforts to foster a more transparent, predictable permanent residency regime were instead design to “expand the financial services industry and opportunities for direct investment”.
“I very much see the proposed Immigration reforms as supportive of economic opportunity in the Bahamas, creating and expanding our services offering and deepening the financial services industry, not as a hedge against forthcoming regulatory requirements,” Ms Allen told Tribune Business.
“It really is facilitating the expansion of the financial services industry in the Bahamas and opportunities for direct investment, not only in traditional areas like hotels, but non-traditional services as well.”
There had been indications that the Government, and some in the financial services industry, had viewed potential Immigration reforms as a counter to the ever-evolving G-20/OECD drive for greater tax information exchange.
While the US’s worldwide taxation system means that all Americans (at least in theory) will be caught in the Foreign Account Tax Compliance (FATCA) net, high net worth clients from Europe, Canada, Latin America and Asia do not face the same problems.
Tax systems in these regions are jurisdiction-based, meaning that if their high net worth citizens can be lured to the Bahamas and establish this nation as their primary domicile/residence, they could escape the automatic exchange of information ‘dragnet’.
Ms Allen, though, said countering the latest OECD/G-20 initiatives was not the primary motivation for the proposed permanent residency reforms now before Cabinet.
“It’s about creating a clear and transparent framework that gives you certainty about what to expect when you apply for permanent residency,” she told Tribune Business.
“The discussion about residency being the test or substantive test has been around for some time. One would not deny the importance of having a clear framework for ensuring that process is facilitated, but I don’t think that is the main driver of reform.
“The main driver is the expansion of the industry, and realising we have to become much more efficient in dealing with a major component of financial services, which is establishing a substantive business in the Bahamas, establishing a residence in the Bahamas, and following your money here,” Ms Allen said.
“We’ve been pushing that the Bahamas can be much more than a place for banking products or banking relationships.
“The real economic opportunity is the Bahamas as a place for substantive operations that will create real employment and physical businesses going forward.”
Tribune Business has been reporting for over a decade that the best approach to countering the global tax information exchange drive is for the Bahamas to entice its high net worth clients to ‘follow their assets’ here and become permanent residents.
In doing so they will escape the clutches of ‘home country’ tax authorities and, in time, may follow the likes of Joe Lewis (Albany) and the Izmirlian family (Baha Mar) in investing in the Bahamian economy and create hundreds of local jobs.
And no longer can Bahamas-domiciled entities (IBCs and the like) and corporate structures be passive ‘fronting’ vehicles to conceal beneficial ownership; they must be doing ‘real business’.
This is the direction and business model that the Bahamian financial services industry is now embracing, with the focus very much on tax compliant business.
Sean McWeeney QC, a key adviser to Prime Minister Perry Christie, told May’s STEP Caribbean conference that this would also pave the way for Bahamas-based family offices, established solely to handle the affairs of these high net worth families.
However, he warned that a potential downside from this trend was a decline in the Bahamian financial services industry’s labour needs. Family offices require less staff than the traditional private banks and trust companies.
The Government, meanwhile, appears to have backed away from the ‘Investor Citizenship’ programme floated at the same conference by Mr McWeeney.
This would have granted citizenship to the select investor group the Bahamas was targeting once they met a strict qualifying criteria, including a ‘high’ multi-million dollar minimum investment threshold.
An obstacle to this, though, is the Nationality Act’s requirement that someone be resident in the Bahamas for seven years before applying for citizenship, not to mention the likely political fall-out from granting citizenship to investors.
The Government now appears to have taken the advice of Michael Paton, the former Bahamas Financial Services Board (BFSB) chairman, who told Tribune Business recently that a predictable, transparent and certain permanent residency programme, with clearly defined timelines and qualifying criteria that were adhered to, would more than satisfy high net worth clients’ needs.
This is effectively what the Government is proposing, and Ms Allen said the financial services industry was “satisfied with many of the proposals” now before Cabinet for consideration.
“I think it will represent an opportunity for the Bahamas to create a better offering on the permanent residency and investor residency side, which could ultimately succeed in attracting a much more substantive business presence,” the BFSB chief executive said, “which is the way of the future for many economies.”
Ms Allen said other countries, including the likes of the US and UK, were adopting similar approaches to “attract capital to their shores”.
“What you’re trying to create is much more interlinking with the local economy, and you’ll get that if you’re able to attract them, their families and their businesses,” she said. “What we’re trying to provide is the whole services offering.”