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22 January 2015
Tax and exchange control exemptions
Segregated Accounts Companies Act
Investment fund classifications
Standard funds and professional funds
Common requirements for standard funds and professional funds
Recognised foreign funds
On December 15 2003 the Mutual Funds Act 1995 was repealed and the Investment Funds Act 2003 came into operation. The primary objective of the Investment Funds Act is to provide legislation that is flexible enough to accommodate the needs and growing demands of the financial sector. Various amendments to the act reflect changes in the financial sector.
Under the act, an 'investment fund' is defined as:
"a unit trust, company, partnership or an investment condominium that issues or has equity interests the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and achieving profits or gains arising from the acquisition, holding, management or disposal of investments."
To be a Bahamas-based investment fund, a nexus to the Bahamas must be established:
The definition of an 'investment fund' does not include a unit trust, company or partnership where the holder of equity interests has no option to redeem its equity interests or require the issuer to repurchase its equity interests. However, these closed-end structures have no option to elect to be licensed as an investment fund. An investment condominium must be licensed as an investment fund, whether the holders of equity interests have the right to redeem or not.
Under the Trustee Act, the following are not payable by any beneficiary treated as a non-resident for exchange control purposes in respect of any distribution to the beneficiary by the trustee of any trust:
The Exchange Control Regulations do not apply to any settlor, grantor, donor or beneficiary treated under the Trustee Act as non-resident for exchange control purposes.
Under the Exempted Limited Partnership Act 1995, an exempt limited partnership registered under the act or a partner thereof is not subject to:
The Exchange Control Regulations Act do not apply to exempt limited partnerships registered under this act or to any transaction of a partner thereof, unless the partner is a Bahamas resident pursuant to the regulations.
Under the International Business Companies Act 2000, the regulations do not apply to a company incorporated under that act, provided that the operations are exclusively overseas.
In addition, a company incorporated under the International Business Companies Act is not subject to:
In respect of any shares, debt obligations or other security of that company or shareholder, the following are not payable in the Bahamas:
Under the Investment Condominium Act, provided that no Bahamas resident pursuant to the Exchange Control Regulations Act has an interest in the investment condominium formed under such act, the company is not subject to a business licence fee or any other tax on income on distributions accruing to or deriving from the investment condominium, or in connection with any transaction to which that investment condominium or participant is a party.
The Segregated Accounts Companies Act 2004 enables companies incorporated under the Companies Act 1992 and companies incorporated under the International Business Companies Act 2000 engaged in investment fund business with the consent of the Securities Commission and/or investment fund administration to be registered as segregated accounts companies.
Investment funds in the Bahamas registered as segregated accounts companies can set up accounts containing assets and liabilities that are legally separated from the assets and liabilities of the investment fund's ordinary account, thus allowing the assets of one account to be protected from the liabilities of another. The ability to segregate accounts removes the need to use separate companies for each investment strategy, while affording each segregated account the same limited liability that would be obtained if separate companies were used.
In addition, the segregated accounts company structure enables an investment fund to be structured so that each investor has its own segregated account.
The Investment Funds Act provides for four classes of investment fund.
Standard funds are similar to regulated funds under the repealed mutual fund legislation and are designed to operate as a traditional collective investment scheme. A standard fund is highly regulated as it is anticipated that it will be offered to the general public and may be licensed by the commission only.
Professional funds are designed for the sophisticated investor and may be offered only to the following:
The licensing process for a professional fund may be much faster than that of a standard fund, as an unrestricted investment fund administrator can license a professional fund. However, the commission has undertaken to license professional funds within 72 hours.
A specific mandate alternative regulatory test (SMART) fund must satisfy certain prescribed parameters and requirements of a category, class or type of investment fund. The commission has pre-approved seven templates and published their parameters in approved rules. A SMART fund that meets the requirements prescribed in one of the pre-approved rules may be licensed by an unrestricted investment fund administrator or the commission.
Financial institutions or professional advisers may also submit written proposals to the commission for the approval of additional templates. On approving such additional templates, the commission can prescribe rules for that type of SMART fund.
Recognised foreign fund
A recognised foreign fund is an investment fund:
The offering document of a standard fund and professional fund must contain the following:
The constitutive documents of standard funds and professional funds must contain the following:
The following information can be included in the memorandum and articles of association, trust deeds or partnership articles, as applicable, or in the material agreements of the investment fund:
Common requirements for standard funds and professional funds include:
SMART funds are not required to have a full offering document, but are generally required to have a term sheet. However, certain SMART funds can dispense with this requirement if they wish.
There are seven approved templates for SMART fund.
Where the financial institution has a discretionary management agreement with its customers, the financial institution may set up an investment fund with such customers to meet SFM001 requirements.
A term sheet is not required. However, if a term sheet for the offering of equity interests in an SFM001 is prepared, it must contain the following:
An investment fund licensed as an SFM001 must file performance reports with the commission every six months, summarising:
In addition, the unaudited financial statements of the investment fund must be filed with the commission annually.
Operators must certify annually that the investment fund is qualified to operate as an SFM001 and pay the annual fee of B$1,300 or B$1,500 where self-administered.
To meet SFM002 requirements, an investment fund should have no more than 10 investors, with each such investor qualifying as an investor in a professional fund. The majority of the investors have the power to appoint and remove operators of the fund.
The term sheet for the offering of equity interests in an SFM002 must contain the following:
Operators must certify that the investment fund is qualified to operate as an SFM002 and pay the annual fee of B$1,300 or B$1,500 where self-administered.
A fund must be licensed as an SFM003 where it operates as an exempt fund under the Mutual Funds Act 1995 by reason of the equity interests being held by no more than 15 investors, the majority of which can appoint or remove the operators of the fund.
An investment fund operating as a private investment company with no more than five investors meets SFM004 requirements.
A term sheet is not required for an SFM004. However, if a term sheet for the offering of equity interests in a SFM004 is prepared, it must contain the following:
An SFM004 is not required to appoint an administrator. Operators may administer an SFM004, but the investment fund will not be treated as self-administered.
Operators must certify that the investment fund is qualified to operate as an SFM004 and pay the annual fee of B$1,300 or $1,500 where self-administered.
An SFM005 is similar to an SFM004 with the following differences:
Holders of equity interests in a specified investment fund may establish an SFM006, in which no more than 30% of the gross assets of the specified investment fund may be invested.
To operate as an SFM006, the investor must be a party to which a professional fund may be offered.
A term sheet is required and must contain the following:
Operators must certify that the fund is qualified to operate as an SFM006 and pay the annual fee of B$1,300 or B$1,500 where self-administered.
The Securities Commission may license a SMART fund which is restricted to investors to which a professional fund may be offered within 72 hours.
An SFM007 is investment fund limited to having at least one investor and no more than 50 investors, which hold equity interests in the fund. The minimum initial investment of each investor is US$500,000.
An offering document or term sheet is required and must contain the following:
An SFM007 is not required to appoint an administrator. Where the fund does not appoint an administrator, the operator will administer the fund, but it will not be treated as self-administered.
In order to be registered as a recognised foreign fund, an application must be made to the commission stating the following:
A recognised foreign fund is an investment fund:
A recognised foreign fund must pay the B$900 annual registration fee and renew its registration on or before January 31 each year by submitting a written declaration to the commission stating that all information filed with the commission is current and applicable.
In addition, it is an offence subject to a B$75,000 fine and/or two years' imprisonment for failure of an investment fund to:
A non-Bahamas-based investment fund:
The commission must be advised of any other form of nexus to the Bahamas within 14 days of such relationship.
In order to sell its equity interests in or from the Bahamas, an approved representative must be appointed and an application made to the commission.
A non-Bahamas-based investment fund should renew the appointment of its representative in the Bahamas on or before January 31 each year by submitting a written declaration to the commission in the prescribed form along with the B$100 annual fee.
A Bahamas representative must be:
A representative may be authorised to:
A self-administered investment fund is an investment fund administered by its own operators which are responsible for the functions of the investment fund administrator.
Self-administered investment funds may be licensed by the commission only where its principal office is outside the Bahamas. The investment fund must have a place of business in the Bahamas at all times where duplicate corporate and accounting records are available.
An investment fund that ceases trading and liquidates its assets, without formally liquidating its structure, is deemed a dormant investment fund and must inform the commission within 14 days of becoming dormant.
The commission will suspend the investment fund licence or registration and publish it in the Gazette.
A dormant investment fund may remain dormant for one year or such period as extended by the commission not exceeding 18 months. The dormant fund must apply to the commission to relaunch its operation within this time. If it fails to do so, the commission may revoke the licence or registration.
The commission has the authority to:
Investment fund operators
The operator must be fit and proper for its duties. Where the investment fund is a unit trust, the operator must be:
Where the investment fund is a company, there must be a minimum of two operators. Corporate operators are permitted with the commission's prior consent.
Where the investment fund is an investment condominium, the operator should be the administrator of that condominium or the governing administrator.
An operator must ensure that:
The custodian of an investment fund must be independent of the operator and administrator, unless a specific exemption is obtained from the licensor or they are deemed independent pursuant to the regulations.
A custodian of an investment fund must be one of the following:
An investment fund must appoint one or more custodians, unless the operators certify in writing that the structure or nature of the investment fund assets is such that they do not require a custodian.
The auditor of an investment fund must:
A B$1,000 application fee is payable for:
A B$2,000 fast-track application fee is payable for:
A B$200 initial registration fee is payable for recognised foreign funds.
In the first year a B$1,300 annual licence fee, to be pro-rated from the date of licensing to December 31 of that year, is payable for:
In the first year a B$1,500 annual licence fee, to be pro-rated from the date of licensing to December 31 of that year, is payable for:
The annual recognised foreign fund fee is B$900.
The application fee for the approval of re-launching a dormant fund is B$650.
For further information on this topic please contact Michael Paton or Michelle E Neville-Clarke at Lennox Paton by telephone (+1 242 502 5000), fax (+1 242 328 0566) or email (firstname.lastname@example.org or email@example.com). The Lennox Paton website can be accessed at www.lennoxpaton.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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