The EU Savings Directive (“EUSD”) which subjects savings income in the form of interest payments made in one Member State to beneficial owners who are individuals resident for tax purposes in another Member State to effective taxation in accordance with the laws of the latter Member State was implemented on July 1, 2005.

While The Bahamas is not a participant in the EUSD, industry participants have monitored its implementation. Arising from this review (based upon Guidelines published by the Swiss), The Bahamas has sought to clarify the status of funds domiciled in The Bahamas that remit funds beneficially owned by an EU resident individual to a paying agent in Switzerland.

Legal analysis has confirmed that a Bahamian domiciled fund or so-called *“foreign fund”* will not be within the scope of the Directive (as defined in the Swiss guidelines) where it meets certain criteria; for example, a fund whose shares are available for redemption on a less frequent basis than quarterly are automatically out of scope. Where a fund is not automatically deemed out of scope, a Bahamas Fund will also be considered outside the scope of the agreement entirely under a “de minimis” rule where it invests no more than 15% of its assets directly or indirectly in debt instruments that themselves produce interest that would be subject to withholding tax under the agreement. The guidelines specifically mention hedge funds as examples of such funds qualifying under the “de minimis” rule.

Furthermore, where a Bahamas Fund does not satisfy the requirements mentioned but less than 40% of its assets are invested directly or indirectly in debt instruments producing interest, the guidelines indicate that capital gains in the case of sale or redemption of the shares in the Fund are not subject to the agreement, although any dividends or distributions are within the scope of the agreement.

The Securities Commission of The Bahamas (SCB) recognises that some Bahamian funds will seek to amend their constitutive documents to comply with the de minimis criteria, and has noted that the process to undertake such amendments is very efficient.

##Fund Administration##

The Bahamas fund administration regime continues to be competitive in the seamless launch of funds, high quality professional services and expanded structuring opportunities through SMART funds and Segregated Accounts Companies. Further, administrators have successfully responded to client queries on the European Union Savings Tax directive.

Legal analysis has determined also that funds administered or registered in The Bahamas that are domiciled in the EUSD participating country will be treated in accordance with its status – in or out of scope – as determined by the country of the fund domicile.

The market place continues to express interest in the funds platform available in The Bahamas, recognising the broad array of classes of funds, investment vehicles and the efficiency available in the launch of these funds.

##EUSD Participating Countries##

The participating countries are the EU Member States: Austria, Belgium, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Great Britain, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, The Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, The Czech Republic; Third Countries: Andorra, Liechtenstein, Monaco, San Marino and Switzerland; and Dependent and Associated Areas of the European Member States (Britain and the Netherlands): Anguilla, Aruba, British Virgin Islands, Cayman Islands, the Dutch Antilles, Guernsey, the Isle of Man, Jersey, Montserrat, and the Turks and Caicos Islands.