Enforcement and compliance

Enforcement authorities

Which government authorities are responsible for the enforcement of economic substance requirements? What is the extent of their information-gathering powers?

The Minister of Finance, as Competent Authority under the Automatic Exchange of Financial Account Information Act 2016, is responsible for the enforcement of economic substance requirements in The Bahamas. The Minister of Finance has the authority from time to time to conduct on-site inspections of the business of a reporting entity, as well as appoint an auditor to conduct audits of the accounts of the reporting entity.

Reporting formalities

What reporting formalities apply with respect to the economic substance requirements?

All entities incorporated, registered or continued under the Companies Act, International Business Companies Act, Partnership Act, Partnership Limited Liability Act or Exempted Limited Partnership Act are required to file a substance report within nine months after the end of the relevant financial year end. The classification of the entity under the Commercial Entities (Substance Requirements) Act 2018 (CESRA) determines what information is required to be included in the substance report.

The information required to be provided by non-included entities includes a description of the nature of the business, registered address, physical address, jurisdiction of tax residence, the names, addresses and contact information of the directors, and the names, addresses, contact information and jurisdiction of tax residence of the registered shareholders.

The information required to be provided by included entities and regulated entities includes the same information required of non-included entities along with details of the amount and type of gross income, amount and type of expenses and assets, number of full-time employees, core income-generating activities and management and control activities.

Holding companies are only required to provide their registered and physical address.

Substance reports are filed electronically using an online portal. The online portal uses a ‘smart form’, which automatically generates the information required depending on the responses provided.

Demonstrating compliance

How does an entity in practice demonstrate its compliance with the economic substance requirements? How do the enforcement authorities assess compliance?

Compliance with the relevant economic substance requirements is demonstrated by the filing of an annual substance report.

Whether an entity is compliant with the substance requirements is determined by Minister of Finance.

Penalties

What are the potential penalties for failure to comply with the economic substance requirements?

Penalties range from an entity being required to conduct a formal audit at the entity’s expense, to penalties of up to B$150,000 with further penalties of up to B$1,000 for every day the entity remains non-complaint.

If the entity is required to take certain remedial measures and fails to do so, it may be subject to a further fine of B$300,000 and is subject to being struck from the register of companies in The Bahamas.

Where an included entity is engaged in high-risk intellectual property activities or fails to fulfil its substance requirements, then the Minister of Finance shall spontaneously exchange the substance report filed by the entity with a reportable jurisdiction of the legal or beneficial owner(s) of the entity.