Monday, November 17, 2014
Monday, November 17, 2014
The Ministry of Finance and the VAT Department are revising the value added tax guidance notes ahead of the implementation of the new tax next year.
The notes foreshadow the administrative framework for the VAT.
“We want to ensure that the private sector receives ongoing clarity about the VAT framework. The next version of the sector specific guidance notes and the general VAT Guide will do this,” a spokesperson for the Ministry said.
“In addition we will introduce the first set of detailed guidance on pricing, accounting and record keeping.”
Amended VAT regulations are now ready for promulgation, once final sign off is received from the Cabinet.
International financial and professional services are unequivocally zero-rated.
Guidance notes updates for the financial sector will reinforce the zero-rated treatment of products and professional services supplied in the international sector. VAT will not be charged on the end range of these products and services provided, to non-resident clientele.
The VAT Department acknowledges that non-residents are considered to be persons and corporate vehicles that are located wholly outside The Bahamas, as well as companies and individuals (foreign property owners) who have physical operations in The Bahamas, but are recognized as non-residents under the Exchange Control Regulations.
The second category includes most Bahamas licensed banks and trust companies, external insurers and mutual fund administrators, along with a vast range of products and vehicles, including trusts, IBCs, and investment funds. While Bahamian registered companies and vehicles number in the tens of thousands, only a very limited few who maintain their own locally staffed operations, are required to register for VAT.
“We will continue to provide the clarity that is needed to ensure there is complete understanding that VAT is not supposed to be passed along in the prices for products and professional services that are considered exports in the context of the offshore or international sector.”
Income producing homes and condos may qualify as commercial investments
For local real estate services, the VAT Department explained that even when these are supplied to non-residents, VAT would always apply as the benefit of the services are considered to be received in The Bahamas.
However, some non-residents have permission to hold real estate as income producing investments. Under the VAT legislation these holdings will qualify as commercial properties.
These properties would always be required to register and charge VAT, if annual earnings exceed the $100,000 threshold. Once they meet and satisfy the registration requirements they will also qualify, like other commercial properties, to claim input credits.
Another clarification for real estate is that transfers of commercial property will only be subject to VAT on legal fees and commission and not the stamped conveyances. This will remain the practice until stamp tax on conveyances is reduced or eliminated.
Hotels can begin including VAT in 2015 reservation bookings.
The Ministry of Finance and the VAT Department have worked diligently to address queries by hotel operators on how to transition from the hotel occupancy tax to VAT. As of January 2015 all stays in hotels, and holiday rental properties will be subject to VAT instead of the room tax.
“We have worked with BHTA (Bahamas Hotel and Tourism Association) to grandfather hotel packages secured before September to remain subject to the occupancy tax that was paid with the reservation. As properties complete their VAT registration they are also permitted to advertise and book the VAT for 2015 stays.”
This is a practice that the VAT Department is immediately allowing VAT registrants to adopt, so as to minimize VAT-related adjustments when guests check out from properties in 2015. In the meantime, the Ministry of Finance is working closely with the hotel sector to notify online and foreign travel agencies of the pending VAT.
The public is invited to visit the government’s website at www.bahamas.gov.bs/VAT for a more detailed report on the changes being made to the VAT guides.