BAHAMAS Law and Practice Contributed by: Alistair Chisnall and Erica Paine, Graham Thompson
3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Under the VAT Act, a debenture or mortgage that secures a monetary obligation would attract VAT at a rate of 1% of the monetary obligation secured. Where additional security is granted in respect of the same loan and the principal instrument attracts tax at a rate of 1%, no tax is charged on the collateral secu - rity documents provided that they are submitted for stamping at the same time. The industry standard is for applicable tax and related closing costs to be paid by the borrower. 3.5 Legal Requirements Before an Entity Can Give Valid Security There are no rules or requirements that must be com - plied with before an entity can give valid security, except for the government approvals noted in 3.1 Financing Acquisitions of Commercial Real Estate and the matters of general law which specify the fol - lowing, where a party is a corporate entity: • the proposed loan transaction and granting of security are completed in accordance with the corporate governance requirements; and • where a corporate guarantee is given as security, the giving of the guarantee is considered as having reasonably been in the interests of the guarantor and done with commercial justification. 3.6 Formalities When a Borrower Is in Default A legal mortgage over real property in The Bahamas has the effect of conveying title to a lender, and under Bahamian law a lender may do the following, in the event of default by the borrower: • exercise its power of sale of the property to a third- party purchaser without judicial sanction; • seek (voluntarily, and not by requirement of law) judicial sanction of the sale of the property to a third-party purchaser; or • apply to the courts for a Foreclosure Order, which would extinguish the borrower’s right to redeem the mortgage and result in absolute ownership by the lender. Under the Conveyancing and Law of Property Act, 1909, a lender is entitled to exercise the power of sale
ments Board under the IPL Act. A legal mortgage is deemed to be null and void in law in the absence of such a permit. As with the granting of a permit to a foreign purchaser of real estate, a permit granted to a lender is trans - action-specific, but such permits are routinely issued by the Investments Board upon submission of a com - pleted application and standard due diligence. Exchange Control Department Approvals In addition, as required by the Exchange Control Reg - ulations Act (which regulates transactions between “resident” and “non-resident” entities), a lender (whether deemed to be “resident” or “non-resident” for exchange control purposes) will have to obtain cer - tain approvals from the Exchange Control Department of the Central Bank of The Bahamas in order to lend money in foreign currency, including to a Domestic Company or an International Business Company (IBC) that is deemed to be “resident” for exchange control purposes. Such exchange control approvals typically also include the lender obtaining confirmation from the Central Bank that, upon drawdown of the loan by the borrower, the lender will be granted “approved loan status” (also referred to as “approved investment status”) in order for the lender to receive repayments in foreign currency from the borrower. Subject to the pre-closing approvals mentioned above, a lender is not required to obtain any further government approvals to facilitate a proposed loan transaction or to seek government approval in respect of any of the remedies the lender may wish to exercise in respect of its security (other than judicial approvals). Registration as a Foreign Company It should be noted that, as a matter of policy rather than law, the Investments Board requires a foreign entity (whether a lender or a purchaser) that intends to acquire an interest in real estate in The Bahamas to register as a foreign company under the Companies Act of The Bahamas as a condition for obtaining a certificate or permit from the Board.
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