Bahamas down $25m on pre-2000 IBC gains Wednesday, July 25th 2007   BAHAMAS-domiciled International Business Companies (IBCs) contribute just over $50 million per annum to this nation`s gross domestic product (GDP), a Central Bank of the Bahamas study has found, an almost $25 million decline from the `pre-blacklisting` peak with no signs of a "discernible recovery" yet. The study, released yesterday, estimated that IBCs contributed $51 million to the Bahamian economy in 2004 through a combination of government revenues and private sector fees, "compared to a peak near $75 million in 2000". The Central Bank said its findings placed "a conservative estimate on the direct contribution of IBC activities to the economy of the Bahamas in the low $50 million range during 2005." "This was reduced from an estimated peak in the low to mid-$70 million range in 2000, the year before the full impact of the new legislation was felt. Revenue decline paralleled the sizeable fall-off in annual company incorporations, while a lesser portion of the losses was due to the reduction in the number of companies on the Bahamian register." While "a discernible recovery has not yet emerged" when it came to IBC numbers and revenues, the Central Bank study said these indicators had stabilised compared to the 2001-2003 period, when the financial services industry and its clients were adjusting to the post-2000 laws and abolition of bearer shares. "Medium-term prospects are favoured by the new Investments Funds Act 2003, which provides greater flexibility and scope in the creation of collective schemes, and by the more robust second homes market in the Bahamas, which should increase the number of IBCs used to hold real estate assets," the Central Bank study said. The research found that the incorporation process generated almost $2,100 in value per IBC, with annual maintenance fees producing a further $1,100. Most of these revenues, the study said, went to the private sector, the rest accruing to the Government. Incorporation fees generated 56 per cent of the private sector`s annual revenues during the period 1997-2000, compared to 21.9 per cent from 2003-2005 when IBC activities decreased due to the Bahamas` new regulatory regime and subsequent private sector adjustments. Financial institutions, such as banks and investment fund managers, provided registered offices and corporate services to almost 18,000 IBCs in 2005, a slight decline upon the 19,000 peak in 2001. Meanwhile, financial and corporate services providers provided services to just over 20,000 IBCs in 2005, the Central Bank saying its findings showed these Bahamas-based professionals "experienced the brunt of the business fluctuations which occurred during 2001 and 2005. "Excluding the period of fluctuation, financial and corporate services providers also experienced a larger decline in the total number of companies managed between 2000 and 2005, as compared to the reduction in business noted for financial institutions relative to a 2001 peak." Private sector revenues from the IBC industry peaked at $57.669 million in 2000, some $28.25 million coming from incorporation work and a further $29.419 million resulting from annual registration and renewal fees. That amount almost halved to $30.483 million in 2001, after the Bahamas reformed its regulatory regime to escape the Financial Action Task Force`s(FATF) `blacklist`. Incorporation fees accruing to the private sector slumped to $8.843 million that year, less than a third of what they had been in 2000. Although total revenues gained by the private sector from IBC activities increased to $52.418 million in 2002, they have since hovered at $40 million and below. Total revenues were $39.677 million, $41.432 million and $36.529 million in 2003. 2004 and 2005 respectively. Active IBCs dropped from 43,738 in 2000 to 29,229 in 2001, although this number recovered to 50,830 in 2002, 40,136 in 2003 and 38,923 in 2005. On the government side. annual fees collected from the IBC industry rose from $7.3 million in 1997 to $18.1 million in 2000. However, these earnings dropped to $11.1 million in 2001, although they rebounded to $19.2 million in 2002 due to "a reinstatement of registrants which had not paid fees for 2001". Average annual fees were in the $15 million range for 2003-2005, the Central Bank study found. The research indicated that active IBC numbers peaked at just below 44,000 in 2000, with annual estimates since closer to 40,000 and a reduction in fee-paying companies occurring during 2005. While some 134,595 companies had entered the Bahamian IBC register since 1989, the Central Bank survey found that the average life of a Bahamas-domiciled IBC was seven years. Data from the Registrar of Companies showed that between 2000-2003, only 1.5 per cent of the IBCs removed from the register switched to other jurisdictions, with 7.5 per cent voluntarily liquidated. "Instead, the majority (91 per cent) were struck off the Register for `other reasons`, mainly lapse in payment fees," the Central Bank said. "The inferences drawn from government revenue trends are that during both 1997-2000 and 2003-2005, nearly one fifth (18.8 per cent and 19.7 per cent respectively) of the companies on the Register did not pay fees during the following year." IBCs are supposed to pay $300 for filing their Memorandum of Association and $30 for filing their Articles of Association. An annual $350 renewal registration fee for companies with authorised share capital of up to $50,000 must be paid, with $1,000 paid by IBCs with a larger share capital. On the private sector side, registered agents usually charged $3,000 to incorporate IBCs, with average annual maintenance fees set around $830. Bahamian banks charged the highest fees, the Central Bank study said, followed by financial and corporate services providers and investment fund administrators. The Central Bank survey found that some 75.1 per cent of IBCs were formed to act as owners of financial assets, with a further 18.6 per cent created to act as holding vehicles for real estate. Another 4.3 per cent were incorporated to act as investment funds, with 2 per cent acting as operating companies. The Central Bank study found that IBCs formed by financial and corporate services providers were used more to hold assets, especially real estate, and as structured vehicles, while those incorporated by banks and fund administrators served more as investment and operating vehicles. Some 96.2 per cent of IBCs were incorporated with share capital of less than $50,000, with 2.2 per cent employing authorised capital between $50,000 and $1 million, and the final 1.6 per cent with share capital greater than $1 million. Of those discontinued IBCs in 2004, some 31.5 per cent of those companies ceased to exist due to insolvency. Source: The Tribune

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