Payroll in The Bahamas: What Global Companies Need to Know About Bahamas Payroll

What Global Companies Need to Know About Bahamas Payroll

Think of traveling to the Bahamas and you’re probably thinking less about business and more about pleasure. The archipelago in the Atlantic Ocean, just off the south-east coast of Florida, is full of beautiful beaches and gets excellent weather through most of the year. But it’s also a great place for business, too.

The main reason for that is that it’s one of the most liberal countries in the world for taxation. Income tax, corporation tax, inheritance tax, and capital gains tax rates all sit at zero, and so it’s understandably a very popular destination for offshore banking. 

Most of the rest of its economy depends on tourism, which provides 50% of the jobs that support a population of 400,000. The reliance on tourism is such that COVID-19 hit the Bahamas economy hard (GDP dropped by 27% in 2020), but it’s now on the road to recovery. It’s also important to note that the Bahamian dollar is pegged to the value of the US dollar.

Despite the relaxed approach to tax, there is still plenty to know if you’re looking at setting up a business in the Bahamas, especially from a payroll perspective. This guide covers all the basics.

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Getting Started 

Starting a business in the Bahamas must start with gaining approval from the Bahamas Investments Authority, which controls direct overseas investment into the company. They will want to see a proposal for the business, and confirmation of minimum capital of 500,000 Bahamian dollars (approx. £430,000; €500,000). They can also advise on areas where they encourage foreign investment, and areas that are reserved solely for Bahamian businesses, as well as any investment incentives available to you.

There are many different types of company that 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

The registration process typically 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% their normal rate, or 200% if on a public holiday.

Compensation, Bonuses and Severance

The national minimum wage of the Bahamas is B$210 per week (approx. £180, €210) which works out at B$5.25 per hour (approx £4.50; €5.25) based on a 40-hour week. There have been conversations in Bahamian politics and in the media about increasing this rate, which currently applies to around a quarter of Bahamian workers, so you should check regularly in case of any rate rises in the coming years.

Minimum notice periods in the Bahamas are one month (or one month’s pay in lieu) for supervisors and managers. For other employees, notice/lieu pay periods are one week for employees with six months’ service, or two weeks for those with at least a year of service.

Similar rates apply for severance pay. For supervisors and managers, one month’s pay per year of service is applicable, 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

As mentioned at the top of the guide, there is no income tax or corporation tax levied in the Bahamas. However, there are some taxes that businesses should be aware of.

Most relevant to incoming businesses is the tax on business licenses. New businesses pay a token fee of B$100 (approx. £85, €100). After this, license tax rates are progressive, based on annual turnover, starting at 0.5% of turnover if over B$50,000 (approx. £43,000, €50,000); 0.75% if over B$500,000 (approx. £430,000, €500,000), 1.25% if over B$5million (approx. £4.3million, €5million), and 1.5% if over B$50million (approx. £43million, €50million).

Even though there is no income tax, there are still social security contributions to make in the Bahamas, although they only apply to the ‘maximum insurable wage’ of BS$3077 per month (approx. £2650, €3000). Contributions are 3.9% by the employee and 5.9% by the employer.

A sales tax rate of 12% is levied on many (but not all) goods and services.

 

Holidays and Leave

There are 11 days of public holiday in the Bahamas each year. Entitlement to paid leave is two weeks per year after one year of service, increasing to three weeks after seven years.

Paid maternity leave entitlement is nine weeks, although mothers can only receive it once every three years. There is no parental or paternity leave enshrined in Bahamian legislation.

Paid sick leave can be claimed for a maximum of one week per year, as long as the employee has at least six months’ service.

 

In Summary

An investment-friendly approach to tax and a stable, dollar-pegged currency make the Bahamas a great candidate for international operations. However, as this guide demonstrates, getting payroll and other related procedures right isn’t necessarily as simple as it seems. Partnering with a global payroll provider can help you make sure you run everything above board.

 

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.

 

 

 

 

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