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What global businesses need to know about payroll in the Bahamas
Many people regard the Bahamas as a piece of paradise: beautiful crystal-clear seas and white sandy beaches on this archipelago just off the south-east coast of Florida. And it can be just as much of a paradise for incoming businesses, too.
The Bahamas has a reputation as a tax haven: there is no income tax, no corporation tax, and no capital gains tax. This has made it a global center for banking and shipping in particular, which helps balance out the islands’ reliance on tourism: no surprise, therefore, that services represent over 90% of the Bahamian economy.
Dig a little deeper and you’ll see that there are some expenses and potential complications to doing business in the Bahamas. But plan ahead, and know what your responsibilities are, and you’ll find that none of them are insurmountable. Start by reading this guide for the latest information.
Getting Started
Firstly, it’s crucial to note that the Bahamas has a range of restricted industries. If you plan to run any of the following, you will not be allowed to operate in the Bahamas: construction, essential services, local food and beverage, local media, local transport, real estate, retail, seafood, or security services.
Because of this, starting a business in the Bahamas must start with gaining approval from the Bahamas Investments Authority, which controls direct overseas investment into the country. They will want to see a proposal for the business, and confirmation of minimum capital of 500,000 Bahamian dollars (approx. £395,000; €460,000). They can also advise on areas where they encourage foreign investment, as well as any investment incentives available to you.
Many different types of companies can be registered in the Bahamas. But for incoming foreign organizations, an International Business Company (IBC) is the most popular as it is the most straightforward to set up. A minimum of one shareholder and one director is required, and there is no legal requirement to file annual statements or returns.
The registration process generally comprises four steps:
- Company name reservation
- Preparing and filing incorporation documents
- Opening a corporate bank account in the Bahamas
- Obtaining relevant business licenses (see license fee information below)
The registration process normally costs a few thousand dollars and can be completed within a couple of weeks.
Employment Considerations
Although it is always advisable to have a written contract of employment where possible, they are not a legal requirement. However, employees must be aware of particular terms of employment from the start, including the duration of employment (if a fixed-term contract), when and how much they will be paid, and their expected working hours. Collective bargaining through unions is common in the Bahamas and they often negotiate contract terms en masse.
The normal working week in the Bahamas is 40 hours, generally following a nine-to-five, Monday-to-Friday pattern, although some businesses operate on Saturdays, too. All hours worked beyond 40 hours a week are subject to overtime pay of 150% of the normal rate, or 200% if on a public holiday. Employees should not work more than 12 hours a day, inclusive of any overtime worked.
There are no statutory requirements around probationary periods, although employees with between three and six months of service can be dismissed without notice. Officially, notice periods start at one week after six months of service, rising to two weeks after a year. For managerial staff, notice for those with a year’s service or more is four weeks. Notice can be paid up in lieu, and added to the severance pay entitlements (see below).
Compensation, Bonuses and Severance
The national minimum wage of the Bahamas was increased at the start of 2023, from BSD 210 per week to BSD 260 per week (approx. £205, €240). The subject of minimum wage remains a focus in Bahamas politics, and so further increases in the near future cannot be ruled out.
There is no legal requirement to pay 13th or 14th-month bonuses in the Bahamas, although many businesses like to pay a discretionary Christmas bonus. Payroll is normally run monthly, although weekly or biweekly is acceptable if agreed in employment contracts.
For supervisors and managers, severance pay is one month’s pay per year of service, up to a maximum of 48 weeks. Other employees with at least a year’s service get two weeks’ pay per year of employment, up to a maximum of 24 weeks.
Tax and Social Security
There is no income tax or corporation tax levied in the Bahamas. However, there are some taxes that businesses should be aware of. For example, a VAT rate of 12% is levied on many (but not all) goods and services.
Most relevant to incoming businesses is the tax on business licenses, and the rates for these were overhauled in July 2023. Businesses turning over less than BSD 100,000 from their Bahamas operations (approx. £79,000; €92,500) no longer have to pay license fees. Those turning over more than this are required to pay 0.5% of their turnover each year, increasing to 0.75% for those turning over more than BSD 500,000 (approx. £395,000; €460,000), and 1.25% for those turning over more than BSD 5 million (approx. £3.95 million; €4.6 million)
There are also social security contributions to make in the Bahamas, for all employees who earn at least BSD 2687 per month (approx. £2100, €2500). These contributions are 5.9% by the employer and 3.9% by the employee.
Holidays and Leave
There are 11 days of public holiday in the Bahamas each year, and employees should receive this as paid time off. Holidays that fall at the weekends are normally moved to the following Monday. Paid leave entitlement starts at one week after six months, covering the rest of the first year of service. After this, it moves to two weeks per year, and then to three weeks for those with at least seven years of service.
Paid maternity leave entitlement is 12 weeks. The last week before the due date and the eight weeks after this are mandatory, but the other three weeks can be used before or after this period, at the mother’s discretion. Social security covers two-thirds of the mother’s salary during maternity leave, and employers cover the other third. There is no paternity leave as such, but employees with at least six months of service can take one week off (unpaid) following a birth.
Paid sick leave can be claimed for a maximum of one week per year, as long as the employee has at least six months of service. Bereavement leave (in the event of the death of a spouse or parent) is one week unpaid.
In Summary
On the face of it, the Bahamas is a great place to do business: exemption from many taxes, a dollar-pegged and stable currency, and strong trade links with North America. However, as this guide explains, not all is as it seems and areas like license fees can catch out the unwary while planning an expansion. From the outset, we would always recommend partnering with a global payroll provider with the right expertise to guide you through all the ins and outs of Bahamian payroll and employment legislation.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.