Bahamas Developers Blast Oecd’s ‘Cynical’ Targeting
Bahamas-based developers have blasted the OECD’s “cynical” attempt to “”de-legitimise” this nation’s key investment product by suggesting it threatens the global fight against tax evasion.
The newly-formed Bahamas Developers Association (BDA), in a recent statement, argued that the Organisation for Economic Co-Operation and Development (OECD) was wrong to list this nation’s economic permanent residency regime offering among 21 incentive regimes it claims jeopardise “the integrity” of automatic tax information exchange.
“It’s unclear to us why the OECD would seek to undermine The Bahamas’ permanent residency programme when thousands of foreign investors are approved annually for economic citizenship across the globe,” said the BDA.
“High-net-worth-individuals (HNWI) could choose to live anywhere on earth. They choose The Bahamas as it’s the best option for them whether it’s for lifestyle, location, political and economic stability, or peace of mind.
“It’s incorrect to assume those who choose economic residence in The Bahamas pose a high risk to the integrity of the OECD’s Common Reporting Standard (CRS), as ours is a legal, structured programme which does not confer citizenship and requires the individual to comply with the tax laws of their birth nation,” the BDA continued.
“In some jurisdictions, citizenships and residency programmes have led to more expats than natural-born citizens. By international standards, our economic permanent residency programme is conservative. We applaud the Government for remaining unwavering in its commitment to this investment initiative.”
The OECD caught the Government, the financial services industry and wider private sector off-guard last month when it singled out The Bahamas’ economic permanent residency for allegedly undermining the fight against global tax evasion.
KP Turnquest, deputy prime minister, subsequently argued that The Bahamas’ inclusion on the OECD list was of “no real concern” because this nation granted economic permanent residency for investment – rather than tax – purposes. He added that significant due diligence was conducted on applicants, who still had to meet their tax obligations to other nations.
However, the listing still threatens to negatively impact a wide cross-section of the Bahamian economy, and not just the hard-pressed financial services industry. Besides attracting high net worth clients and their assets to this nation, economic permanent residency drives lucrative business for the BDA and its real estate developers, realtors and attorneys, and produces spin-offs affecting virtually all industries.
While the OECD’s list, and accompanying report, did not mention the imposition of sanctions or penalties against The Bahamas and 20 other countries, it did call on financial institutions to apply greater scrutiny to persons benefiting from their investment-related residency and citizenship programmes when it came to determining their tax compliance.
This enhanced due diligence, and likely extra costs and time involved, could deter wealthy investors and homeowners from applying for Bahamian permanent economic residence – thereby undermining a key component of the foreign direct investment (FDI) regime that has been in place for decades.
The Bahamas, since the International Persons Landholding Act (IPLA) was passed in 1993, has used economic permanent residency as a tool to help entice high net worth individuals to make a financial investment in this nation – primarily through property purchases.
The threshold to qualify for economic permanent residency was recently increased to $750,000 for a real estate purchase. Applicants who acquire a property worth $1.5m can seek accelerated consideration, and approval, of their application.
A newly-established association, the BDA’s formation in summer 2018 was intended to tackle issues of common concern that could negatively impact this nation’s high-end, second home-market. Its members include prominent developers, attorneys and real estate professionals.
The OECD, in unveiling its listing, said all the regimes – including The Bahamas’ economic permanent residency – “potentially pose a high-risk to the integrity of CRS”. That refers to the Common Reporting Standard (CRS), the OECD’s global reporting standard for automatic tax information exchange, which The Bahamas began implementing last month.
It added that all the investment-related residency/citizenship products identified “can be potentially misused” to enable individuals to “hide their assets offshore by escaping reporting” requirements under the CRS.
“Potentially high-risk CBI/RBI (citizenship by investment/residency by investment) schemes are those that give access to a low personal income tax rate on offshore financial assets, and do not require an individual to spend a significant amount of time in the location offering the scheme,” the OECD, which represents the world’s most powerful economies, added.
It said data obtained from the CRS’s automatic tax information exchange initiative had shown these regimes were open to “abuse”, describing those posing the greatest risk as levying less than a ten percent income tax on beneficiaries. There was also no requirement for persons to remain in the jurisdiction offering the incentive regime for a minimum of 90 days per year.
The BDA, though, accused the OECD of seeking to “de-legitimize” the many legitimate reasons individuals have for pursuing citizenship or permanent residency outside their home country.
“This cynical approach taken by the OECD seeks to disadvantage The Bahamas and other jurisdictions as viable options to so-called developed nations. It’s time for the OECD to place the blame for fleeing citizens where it belongs,” said the BDA.
“While the OECD views our permanent residency as a loophole strategy, we view it as the best legitimate option for those who not only want to own, but also belong to paradise.”