June 2019 | By Chelon Carr-Newbold
New tax reforms in effect
In the 2019/2020 Budget Communication the government announced various tax reforms which came into effect on 1 July 2019.
This article provides an overview of the key changes that will affect real estate and other commercial transactions.
Real Property Tax
‘Owner-occupied property’ has been redefined as property occupied by a person who, as 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 owner occupy the property for six months or longer has been removed.
The cap on owner-occupied property has increased from B$50,000 to B$60,000 per year.
A new category of property referred to as ‘commercial property’ has been introduced. This is defined as any property used to carry on a business activity, excluding residential property.
A new assessment method for valuing property has been implemented. The new method will allow the chief valuation officer to consider special market conditions in existence on the date that the property was sold.
Stamp duty on real property has been replaced by value added tax (VAT) at the same rates (ie, 2.5% on transactions under B$100,000 and 10% on transactions of B$100,000 or more).
Stamp duty at the rate of 1.5% will be payable on the conversion of Bahamian currency to foreign currency regardless of whether the funds are remitted or transferred out of The Bahamas. Previously, stamp duty was payable only when funds were converted and remitted overseas.
Value Added Tax
The applicable VAT rates for the supply of real property are summarised 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 VAT:
- 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:
- there is no change in beneficial ownership; or
- the only transferees are:
- the transferor or the transferor’s spouse, parents, children or remoter issue;
- 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 or any of the company’s or transferor’s property;
- a trustee where the express and unalterable terms of the trust instrument permanently exclude the trustee from taking or receiving any title to the trust property or income, or any power, right or benefit pertaining to the trust or anyone except for the transferor’s spouse, parents, children or remoter issue; or
- a foundation where the only 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;
- any real property transfer made pursuant to an adjustment order under the Matrimonial Clauses Act (Chapter 125);
- an acquisition of a dwelling for the first time by a Bahamian where the value does not exceed B$500,000;
- a transfer between licensed lending institutions of a home mortgage or of a home mortgage combined with other domestic loans; and
- the transmission of real property on the death or bankruptcy of the owner of such property to their personal representatives or trustee in bankruptcy.
Mandatory registration is required for administrators of hotels, condominiums and all online marketplaces for holiday home rentals (eg, Airbnb, HomeAway and VRBO). All of these operators must pay VAT.
Mandatory registration is also required for all telecoms and e-commerce service providers, whether domiciled within or outside The Bahamas, that provide services for the use, enjoyment or benefit of persons within The Bahamas.
Any one 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 seven 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, the tax reforms provide for four periods in the calendar year (ie, 31 March, 30 June, 30 September or 31 December) to renew business licences and pay business licence fees.
Those licensed under the act may choose to commence their financial year on 1 April, 1 July or 1 October and must notify the secretary in writing of their choice on or before 1 December 2019. Otherwise, they will be deemed to have selected the financial year commencing on 1 January.
For parties that choose 1 April, 1 July or 1 October as their financial years, the following transitional provisions apply.
|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
Businesses will have a three-month grace period after their business licence expires to renew it.
The following businesses will be exempt from paying business licence fees:
- financial services entities which have satisfied the secretary that they have complied with their obligations to pay fees under the law regulating such entity;
- registered insurers that carry on insurance business on behalf of an apex body;
- businesses in their first year of operation; and
- businesses with a turnover of more than B$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 their business activities within The Bahamas during the previous financial year, including all cash, credit sales and commissions without any deductions whatsoever, but does not include:
- output tax collected by a business in accordance with the VAT Act;
- the sale of capital assets, including real property, unless such sale is in the ordinary course of the business;
- 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;
- an amount received on items sold by an auctioneer, where the auctioneer has no title or interest in the goods sold, except for the auctioneer fee or commission;
- export turnover;
- revenue accrued from transactions between members of a group under Section 8(2A) which fall within the exclusions specified in Part B of the Sixth Schedule; and
- revenue derived from services provided by a business to an entity where:
- the ultimate beneficial owner of 90% of the shares in both the business and the entity is the same; and
- the entity is not a business under the act.
A business with a B$100,000 turnover or more must produce a business turnover statement 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 aims 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 VAT Act) will not be considered a business operation.
Other Tax Reforms
The City of Nassau Revitalisation Act and the Family Islands Development Encouragement Act will be extended to 30 June 2021.
A single Tax Commission will be formed to hear appeals on various tax issues, including Customs, business licence, real property tax and VAT.
This memorandum is for general information purposes and is not intended as legal advice.