June 2019 | By Chelon Carr-Newbold
New Tax Reforms Coming in July 2019
In the 2019/2020 Budget Communication, the Government announced various tax reforms which will come into effect on July 1, 2019.
This is an overview of the key changes which will affect real estate and other commercial transactions.
Real Property Tax
- “owner-occupied property” has been redefined as property occupied by a person who being the owner in fee simple or a mortgagor in possession occupies and resides in such property exclusively as a dwelling house on a permanent or seasonal basis. The previous requirement that the property had to be occupied by the owner for 6 months or longer has been removed.
- the cap on owner-occupied property has been increased from $50,000 to $60,000 per annum.
- a new category of property referred to as “commercial property” has been introduced which is defined as any property used to carry on a business activity but does not include residential property.
- a new method of assessment for the valuation of property by the Chief Valuation Officer has been implemented which will allow special market conditions in existence on the date that the property was sold to be taken into account.
- stamp duty will be eliminated on real property and is being replaced by value added tax (VAT) at the same rates – i.e. 2.5% on transactions under $100,000 and 10% on transactions of $100,000 or more.
- stamp duty at the rate of 1.5% will be payable on the conversion of Bahamian currency to foreign currency whether or not the funds are remitted or transferred out of The Bahamas. Previously, stamp duty was only payable when funds were converted and remitted overseas but this is no longer the case.
Value Added Tax
- the applicable VAT rates for the supply of real property are summarized below:
|Supply of Real Property||Applicable VAT Rate|
Every deed of conveyance, long-term lease, assignment or transfer of real property
An assignment, transfer, lease, sublease or licence of a marina slip
A transaction or instrument comprising the sale of a business which by virtue of the provisions of this Act is a supply of real property and which:
(a) has the effect of transferring any of the issued shares of a company or of transferring the beneficial interest in the ownership of such shares and which would have a like effect upon the ownership of or beneficial interest in any real property in The Bahamas owned by the company to which the shares relate had the issued shares of the company represented the proportionate parts into which that ownership of or beneficial interest in the realty were divided; or
(b) forms part of a series of transactions, the cumulative effect of which upon real property is as mentioned in paragraph (a), unless the Comptroller is satisfied that the transaction is not of a series having regard to a statement to that effect endorsed on the instrument
A deed of exchange of real property
A transfer of a crown lease
A mortgage or transfer of mortgage of real property
A re-conveyance of real property to a borrower or mortgagor only
An endorsement of mortgage under section 32 of the Conveyancing and Law of Property Act (Ch. 138), or other satisfaction or discharge of a mortgage (including a satisfaction or discharge of a debenture)
- Subject to the VAT Rules, the following supplies of real property will be exempt from the payment of VAT:
|Supply of Real Property|
An inter vivos gift of real property that is held by the transferee for at least seven years from the date of the transfer where —
(i) there is no change in beneficial ownership; or
(ii) the only transferees are —
(aa) the transferor or the transferors spouse, parents, children or remoter issue;
(bb) a company, all of whose shares of every class are beneficially owned by the transferor, and in relation to which no other person owns or has agreed to acquire any right, power, title, option or other interest in, over or concerning the shares, any of the property of the company, or any of the property of the transferor;
(cc) a trustee where the express and unalterable terms of the trust instrument permanently excludes the trustee from taking or receiving any title to the trust property or income, or any power, right or benefit pertaining to the trust, every person except for the transferors spouse, parents, children or remoter issue;
(dd) a foundation where the only beneficiaries and remaining beneficiaries are the founder, or the founder’s spouse, parents, children or remoter issue.
|A gift of real property from one exclusively charitable, religious or non-profit institution or body to another such institution or body||Exempt|
|Any real property transfer made pursuant to an adjustment order under the Matrimonial Clauses Act (Ch. 125)||Exempt|
|An acquisition of a dwelling for the first time by a Bahamian where the value does not exceed $500,000||Exempt|
|A transfer between licensed lending institutions of a home mortgage, or of a home mortgage combined with other domestic loans||Exempt|
The transmission of real property upon the death or bankruptcy of the owner of such property to his personal representatives or trustee in bankruptcy
- mandatory registration is required for the administrators of hotels, condominiums and all online marketplaces for vacation home rentals such as Airbnb, HomeAway and VRBO. All of these operators will be required to pay VAT.
- mandatory registration is also required for all telecommunication and e-commerce service providers, whether domiciled within or outside The Bahamas, who provide services for the use, enjoyment or benefit of persons within The Bahamas.
- any person required to become a VAT registrant must also have a business licence.
- an inter vivos gift of real property to immediate family will be VAT exempt unless the recipient seeks to sell or transfer the property within 7 years of receipt of such gift to someone other than immediate family or mortgage the property to a financial institution regulated under the Banks and Trust Companies Act.
- to allow businesses to select a time period that corresponds with their financial year, there will be four periods in the calendar year (i.e. March 31, June 30, September 30 or December 31) for the renewal of business licences and payment of business licence fees.
- a person licenced under the Act may choose to commence its financial year on April 1, July 1 or October 1 and must notify the Secretary in writing of such choice on or before 1st December, 2019. Otherwise, they shall be deemed to have selected the financial year commencing on January 1.
- for those persons who choose April 1, July 1 or October 1 as their financial years, the following transitional provisions will apply:
|Financial Year||Deadline for Payment of Pro-rated Tax||Deadline for Payment of Pro-rated Tax|
1 April 2020 – 31 March 2021
|30 June 2020||1 January 2020 – 31 March 2020|
|1 July 2020 – 30 June 2021||30 September 2020||1 January 2020 – 30 June 2020|
|1 Oct 2020 – 30 Sept 2021||30 December 2020||1 January 2020 – 30 Sept 2020|
- a business will have a 3-month grace period after expiration of its business licence to renew.
- the following businesses will be exempt from the payment of business licence fees:
(a) any financial services entity which has satisfied the Secretary that it has complied with its obligations to pay fees under the law regulating such entity;
(b) any registered insurer that carries on insurance business on behalf of an Apex body;
(c) a business in its first year of operation;
(d) a business with a turnover that is no greater than $100,000 for the prior financial year.
- “turnover” has been redefined as total revenues in money and money’s worth accruing to a person from his business activities within The Bahamas during the prior financial year, including all cash, credit sales and commissions without any deductions whatsoever, but does not include:
(a) output tax collected by a business in accordance with the Value Added Tax Act;
(b) the sale of capital assets, including real property unless such sale is in the ordinary course of the business;
(c) an amount received for or on behalf of a principal in an agency relationship except for agency fees or commission on sales or any similar amounts designed to remunerate the agent for its role or involvement in the sale or transaction;
(d) an amount received on items sold by an auctioneer, where the auctioneer has no title or any interest in the goods sold, except for the auctioneer fee or commission;
(e) export turnover;
(f) revenue accruing from transactions between members of a group under section 8(2A) which fall within the exclusions specified in Part B of the Sixth Schedule;
(g) revenue derived from services provided by a business to an entity where —
(i) the ultimate beneficial owner of 90 % of the shares in both the business and the entity is the same person; and
(ii) the entity is not a business under the Act; and
- a business with a turnover of $100,000 or more will be required to produce a statement of turnover of business along with its business licence renewal application.
- “export turnover” which is defined as turnover generated by the supply of services where the benefit or advantage is obtained outside The Bahamas will not incur business licence fees or VAT. This tax break is intended to allow Bahamians to compete on a global scale.
- the rental of a building, premises, structure or other place or any part thereof that is not a commercial rental establishment (as defined under the Value Added Tax Act) will not be considered a business operation.
Other Tax Reforms
- the City of Nassau Revitalization Act and the Family Islands Development Encouragement Act will be extended to 30th June, 2021.
- a single Tax Commission will be formed to hear appeals on various tax issues, including customs, business licence, real property tax and value added tax.
This memorandum is for general information purposes and is not intended as legal advice.