Nassau GMT
EY Street address: Mail address: Caves Corporate Centre P.O. Box N-3231 West Bay Street & Blake Road Nassau Nassau Bahamas Bahamas
Indirect tax contacts
Bill Bailey +1 441 294 5319 bill.bailey@bm.ey.com
Phylese Hanna +1 242 502 6047 phylese.hanna@bs.ey.com
A. At a glance
Name of the tax
Value-added tax (VAT)
Local name Value-added tax (VAT)
Date introduced 1 January 2015
Trading bloc membership Caribbean Community and Common Market (CARICOM)
Administered by Department of Inland Revenue (DIR)
VAT rates
Standard 12% Reduced 2.5%, 6%, 7.5%, 10% Other Zero-rated (0%) and exempt
VAT number format Tax identification number (TIN) – 123456789
VAT return periods
Monthly and quarterly Thresholds
Registration BSD100,000 annual turnover (exceptions apply)
Recovery of VAT by non-established businesses No
B. Scope of the tax
VAT applies to the taxable supply of goods and services, including imported goods and services. VAT is applicable on the supply of goods and services at the standard rate of 12%, except in cases where the supply of goods and services is deemed to be either zero-rated or tax-exempt.
In the Bahamas, a taxable person is defined as a person that carries on a taxable activity who is registered or required to register for VAT as per the VAT Act. The term taxable activity refers to activity in the form of a business being carried on in the Bahamas continuously and that for consideration involves or is intended to involve the supply of taxable supplies.
Transactions relating to the disposition of a business. When a business is sold or ownership otherwise is transferred to another unrelated party, such a transfer is subject to VAT at a rate of 6%. The tax is applied to the assets of the business with the exception of cash, deposit accounts and real property. And where such transfers of a business occur that include the transfer of real
property, there is VAT levied on the real property at a rate of 2.5% for real estate valued under BSD100,000, 10% where the value is between BSD100,000 and BSD2 million, or if the value exceeds BSD2 million, 10% on the value up to BSD2 million, plus 12% on the value in excess of BSD2 million. VAT payments due and owing relative to the disposition of a business are payable to the VAT Comptroller of the VAT Department within 90 days of the completion of the transaction. Relative to the VAT amounts due and owing for real estate transfers as part of the disposition of a business, the liability for payment of said amounts is shared between the parties, joint and severally.
However, the transfer of a business by one registrant to another, where certain conditions are met, can be taxed at 0% (see Section D. Rates below).
Insurance proceeds. For taxable persons that receive payment in the form of reimbursement, recovery or indemnification under a contract for taxable insurance services, such payments received by the VAT registrant are deemed to be VAT inclusive.
C. Who is liable?
VAT applies to goods or services supplied by a taxable person undertaking, by way of business, a “taxable activity.” The taxable supplies must also exceed the annual threshold of BSD100,000 in value.
Exemption from registration. Exemption from registration is possible for certain zero-rated sup pliers, mainly in the financial services industry. Businesses need to apply to “opt out” of register ing for VAT and this is assessed on a case-by-case basis. Where an exemption is granted, a business cannot recover VAT on costs, as it will not be registered for VAT.
Voluntary registration and small businesses. For businesses that do not meet the VAT registration threshold but wish to legally charge and collect VAT, there is a voluntary registration mecha nism. Taxable persons that register voluntarily have the same obligations as taxable persons that were required by law to register.
Group registration. Businesses that operate as a group or are managed as a group can apply for VAT group registration. Where the group registration is approved, the group will use the taxable person identification number (TIN) of the taxable person selected as the controller of the group.
Members of the group are all jointly and severally liable for the liabilities of the group, which include VAT debts and penalties as well as other related taxes levied by the government of the Bahamas.
There is no minimum time period required for the duration of a VAT group.
Non-established businesses. If a company undertakes a business activity such as employing per sons that work in the Bahamas or deriving income from activities undertaken in the Bahamas, it is likely that company is a resident in the Bahamas.
Non-established businesses are subject to mandatory registration if they make domestic sales of goods and if they specifically sell digital services to consumers (i.e., telecommunication services/electronic commerce business). Such non-established businesses are required to apply for VAT registration regardless of the taxable turnover threshold. Additionally, hotels and persons providing a marketplace for vacation home rental are required to register for VAT, regardless of the threshold.
Tax representatives. For established businesses, they can appoint a third-party representative, such as an external accountant or business advisor, to submit a VAT registration form on behalf of the taxable person. It is also possible to delegate responsibility to manage certain aspects of the taxable person’s account. For non-established businesses, they can also appoint a local tax
representative. For both types of taxable persons, appointing a tax representative is optional and not mandatory.
Reverse charge. Under the reverse-charge mechanism (known as “self-account” under the Bahamas VAT law), persons that import services, which would ordinarily be subject to VAT if supplied by a local business, generally must account for and pay VAT due. However, the place of supply rules would need to be examined. The VAT Act provides that in the case of imported services, both parties, the importer and the recipient, are jointly and severally liable for VAT aris ing on the transaction.
Domestic reverse charge. There are no domestic reverse charges in the Bahamas.
Digital economy. No special provisions apply to the digital economy. In practice, a non-established business providing digital (i.e., e-commerce) services would generally be required to register for VAT and charge VAT on their supplies where the services are physically performed or where the benefit is experienced in the Bahamas. The VAT registration requirements for non resident entities providing digital services are less than the registration requirements for a resi dent entity.
No special additional e-commerce rules exist for supplies of imported goods.
Online marketplaces and platforms. The VAT law outlines guidelines for professional services, which includes similar services of electronic commerce and the supply of internet access. A person must apply for registration where such person, in the course or furtherance of a taxable activity carried on by them, makes taxable supplies or taxable importations and is domiciled within or outside the Bahamas to the extent such person provides, through an agent, telecommunication services or electronic commerce to persons for use, enjoyment, benefit or advantage within the Bahamas, regardless of the registration threshold.
Registration procedures. A person or business liable for VAT must apply to the VAT authorities for registration within 14 days of meeting the requirements. Registration is completed strictly online using the Department of Inland Revenue’s Online Tax Administration System (OTAS) portal. Failure to apply for registration can result in forcible registration by the comptroller and penalties. If applying separately for a business license application, the non-exhaustive list of items required to apply to be deemed a VAT registrant include, but are not limited to, a valid business license issued by the Department of Inland Revenue, NIB number, taxable person con tacts (name, address, phone number, email address), listing of directors/partners/shareholders, and the business representative authorization and contact details (name, address, phone number, email address). However, please note that additional information and/or approvals may be required based on the review of application by Department of Inland Review (DIR).
Deregistration. One can apply to cancel the VAT registration where a number of conditions are met. Typically, a company will need to wait two years from the date of registering for VAT before applying to cancel the VAT registration. The conditions do not apply in circumstances where the business effectively ceases to exist.
Changes to VAT registration details. To make corrections to any registration details, the taxable person is required to submit a contact update request through the OTAS portal providing the updated information in the appropriate boxes of the form and any documentation in support of the request. A representative of the DIR would then review the request and advise of next steps to approve the request or indicate the reason of the tax authority’s denial of the request. All cor rections are to be submitted through DIR’s OTAS portal. There are no specific time limits to notify such changes.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 12%
• Reduced rates: 2.5%, 6%, 7.5%, 10%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for a reduced rate, the zero rate or an exemption.
Examples of goods and services taxable at 0%
• Services that relate to land and property situated outside of the Bahamas
• Goods physically removed from the Bahamas or outside the Bahamas at the time of supply
• Certain professional, financial and insurance services where the benefit is obtained outside the Bahamas
• The transfer of a business by one registrant to another where certain conditions are met (see Section B. Scope of the tax above, under the Transactions relating to the disposition of a busi ness subsection)
• Prescription medication and most over-the-counter medication.
• Breadbasket items, which include baby cereal, baby food, baby formula, bread, broths, soups, butter, canned fish, cheese, condensed milk, cooking oil, corned beef, evaporated milk, flour, fresh milk, grits, margarine, mayonnaise, mustard, powdered detergent, rice, soap and tomato paste.
Examples of goods and services taxable at 6%
• When a business is sold or ownership otherwise is transferred to another unrelated party, such a transfer is subject to VAT at a rate of 6%. The tax is applied to the assets of the business with the exception of cash, deposit accounts and real property. See Section B. Scope of the tax above, under the Transactions relating to the disposition of a business subsection.
Examples of goods and services taxable at 7.5%
• The flat-rate scheme provides that VAT is charged and collected on supplies at the standard rate. However, rather than calculating the input tax each VAT period, the taxable person applies the flat rate of 7.5% to net sales and pays this amount to the comptroller.
Examples of goods and services taxable at 2.5% and 10%
• With effect from 1 July 2019, conveyances, mortgages, long-term leases and other real prop erty transactions attract VAT (this includes transfers of a business that includes the transfer of real property). Apart from a few exceptions, most of these transactions will no longer attract stamp duty, and the rates of the transactions under the VAT Act will be identical to what was obtained under the Stamp Act prior to 1 July 2019.
• Where the value is BSD100,000 or less, VAT is applicable at 2.5%. Where the value exceeds BSD100,000 and up to BSD2 million, VAT is applicable at 10%, and where the value exceeds BSD2 million, VAT is applicable at 12% on the part that exceeds BSD2 million. See Section B. Scope of the tax above, under the Transactions relating to the disposition of a business subsec tion.
Some examples:
—
Every deed of conveyance, assignment or transfer of real property
— An assignment, transfer, long-term lease, sublease or license of a marina slip
— A supply of real property that (a) has the effect of transferring any interest in a real prop erty holding entity and that would have a similar effect on the legal or beneficial interest in any real property in the Bahamas that is legally or beneficially owned by the entity, had the legal or beneficial ownership of such entity represented the proportionate parts into which
that legal or beneficial interest in the real property were divided; or (b) forms part of a series of transactions and has the cumulative effect on real property as referred to in paragraph (a) above, unless the comptroller is satisfied that the transaction is not of a series having regard to a statement to that effect endorsed in the instrument.
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Domestic financial services, other than those provided for an explicit fee
• Certain insurance services
• Medical services where provided by a public health care facility to a public patient
• Rental of a residential building
Option to tax for exempt supplies. The option to tax exempt supplies is not available in the Bahamas.
E. Time of supply
The time of supply is the date when a sale is considered to take place for VAT purposes. The time of supply is the earliest of:
• The date an invoice is issued
• Receipt of payment
• The date goods are delivered or made available to the recipient
• The date the performance of service is completed
Deposits and prepayments. Where a deposit or prepayment is received, regulations provide that a tax point is created and VAT (in the form of output tax) will become due on the amount of the deposit or prepayment. The amount of VAT due is typically calculated using the VAT fraction. The VAT fraction is calculated in accordance with the formula (R/(1+R)) where R is the rate of VAT expressed as a percentage applicable to the price of the taxable supply.
If the deposit is held in an escrow account, i.e., one the taxable person does not have access to, this is not considered a payment. The output tax does not need to be declared until the amount is released.
Where the deposit is nonrefundable, and the customer does not buy the goods or services on which the deposit was paid, this is considered a payment subject to VAT at the applicable rate.
Finally, if the deposit is intended to be refunded, the legislation does not require the taxable person to treat the payment as consideration and therefore, there is no need to declare VAT on the payment. However, if at some later time, it is determined that the taxable person is entitled to keep the deposit, then this is a supply and VAT must be declared.
Continuous supplies of services. Where there is a continuous contract for services and payment is required at certain stages, a VAT invoice should be issued when each payment is due. The invoice should detail the charge for that particular stage and the amount of VAT charged.
Goods sent on approval or for sale or return. The tax point occurs when the title to the goods is transferred. Therefore, if a supplier transfers inventory to a customer with the agreement that the title is retained by the supplier until the customer sells or uses the inventory, a tax point is not created, and any unused inventory can be returned to the supplier and will not be subject to VAT.
Reverse-charge services. There is no special time of supply rule in the Bahamas for reversecharge services. As such, the normal time of supply rules apply.
Leased assets. The time of supply for the supply leased assets (providing for periodic payments) is when a payment becomes due or when payment is received, whichever comes earlier.
Imported goods. Import VAT may apply to goods entering the Bahamas. The importer of a taxable importation must, on entry of the goods, submit an import declaration to the comptroller of customs and pay the VAT due.
F. Recovery of VAT by taxable persons
Generally, input tax can be reclaimed when the VAT was paid on purchases that relate to supplies liable to VAT at the standard rate or the zero rate, i.e., taxable supplies.
There is no set time limit for a taxable person to reclaim input tax in the Bahamas. This means that effectively the OTAS portal automatically applies the input tax (VAT credit) to the next tax period where there is a VAT liability and may be carried forward indefinitely until its complete recovery.
Nondeductible input tax. Input credit is unrecoverable if the VAT was paid on goods or services that are not used, or intended to be used, in the course or furtherance of a taxable activity. Where goods have a business and personal use, the taxable person must apportion the VAT to the busi ness and nonbusiness uses, claiming input credit only for the business portion.
Examples of items for which input tax is nondeductible
• Fees or subscriptions for membership of any club, association or society of sporting, social or recreational nature.
• Petroleum and similar products that are used for nonbusiness purposes.
• A passenger vehicle where the claimant does not carry on the taxable activity of providing transportation services. Even where the claimant does carry on this taxable activity, no input tax credit is allowed if the vehicle was not acquired for the purposes of this taxable activity.
Examples of items for which input tax is deductible (if related to a taxable business use)
• Entertainment expenses incurred wholly for an employee(s) as part of a reward for services provided
• Travel expenses
Partial exemption. A partial recovery calculation is required where costs incurred relate to both taxable and exempt supplies. Regulations provide a standard method of apportionment to calcu late the amount of input tax the taxable person is entitled to claim.
The standard method of appointment is calculated as follows:
A x B/C
• A is the total amount of the input tax payable in respect of supplies and imports received during the period, less the sum of the input tax attributable to supplies or imports acquired or made, which are directly allocable to the making of taxable supplies and in respect of deductions that are disallowed under the VAT Act.
• B is the total amount of taxable supplies made by the taxable person during the period
• C is the total amount of all supplies made by the taxable person during the period.
A taxable person may, where the fraction B/C is more than 0.90, deduct the total amount of the input tax on the supplies/imports acquired or made during the period.
A taxable person may not, where the fraction B/C is less than 0.10, claim input tax deduction on taxable supplies made during the period.
The above does not apply to a financial institution making both taxable and exempt supplies during a period.
The Comptroller may use an alternative basis to determine the amount of input tax permitted. This is determined on a case-by-case basis.
Approval from the tax authorities is not required to use the partial exemption standard method in the Bahamas. Special methods are not allowed in the Bahamas.
Capital goods. The sale, transfer, lease, rental or hire or any other supply of land or property located in the Bahamas is, in general, subject to VAT at the standard rate. The Bahamas does not currently have a capital goods scheme in place that provides for input tax recovery during the life of the asset.
Refunds. When the VAT paid on a taxable person’s purchases (input tax) is greater than the VAT charged on a taxable person’s sales (output tax), a refund may be due. You may also carry forward the excess and use it to offset any VAT due in the following tax period. Refund applications vary depending on the filing intervals of the taxable person’s VAT returns. All claims for a refund must exceed BSD500.
Pre-registration costs. If goods or services were purchased during the 24 months before registra tion, and those are used to make supplies subject to VAT after registration, it is possible to reclaim input tax paid on those pre-registration purchases.
Bad debts. A VAT registrant is entitled to claim an input tax deduction for sales made with respect to a taxable supply written off as a bad debt, i.e., when the amount owed is written off in account ing records, the taxable person can make an adjustment by claiming as input tax the amount previously declared as output tax.
Noneconomic activities. VAT paid on purchases of goods or services that are used or intended to be used for nonbusiness purposes are not recoverable.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses in the Bahamas is not recoverable.
H. Invoicing
VAT invoices. For all taxable supplies, the supplier must provide the buyer, if they are VAT regis tered, a VAT invoice within 60 calendar days of the supply. In order for a VAT invoice to be valid, it must show certain information as outlined in VAT law.
Credit notes. A tax credit note is required to be issued by a registered supplier to a purchaser when a VAT invoice previously issued charged VAT in excess of the tax properly chargeable. The credit note must be in the form and contain the information as specified in VAT law.
Electronic invoicing. Electronic invoicing is allowed in the Bahamas, but it is not mandatory. VAT invoices can be issued either by paper or electronically. A VAT invoice must show the required information as outlined in VAT law and there are no specific requirements for electronic invoic ing in the Bahamas.
Simplified VAT invoices. Simplified VAT invoices are allowed for retail sales in the Bahamas. For retail sales, a taxable person can issue a simplified VAT invoice or a VAT sales receipt, whereby items subject to VAT (or not subject to VAT) can be identified on the receipt with a symbol such as an asterisk, provided the total amount of VAT is clearly shown on the receipt. The method of identification must be clearly displayed so that customers can determine what is subject to VAT and at what rate before they pay for the goods. The unit price of each item on a sales receipt may be VAT inclusive or exclusive.
Self-billing. Self-billing is not allowed in the Bahamas.
Proof of exports. For zero rating to apply to exports out of the Bahamas, a VAT registrant must be able to meet the following conditions:
• The registered supplier, i.e., the entity registered for VAT, has entered the goods for export in accordance with the Customs Management Act, and the goods are, in fact, exported by the reg istered supplier.
• The comptroller is satisfied that the goods have been exported from the Bahamas and were not used after they were entered for export except such use as was necessary for, or incidental to, the export of the goods.
• The taxable person must have the relevant documentation to prove it is the exporter of record.
Foreign currency invoices. The VAT Act and Regulations do not specify which currency is to be stated on invoices. The official currency is the Bahamian dollar (BSD) and its exchange rate is USD 1:1. As per the VAT Act, invoices are to be denominated in money, which is defined as the currency used or circulating in the Bahamas. In practice, within the Bahamas, it is permissible to issue invoices in any currency. However, the ability to retain foreign currencies in the Bahamas requires explicit permission from the Central Bank of the Bahamas.
Supplies to nontaxable persons. If a VAT-registered supplier makes retail sales, it can issue a simplified VAT invoice or a VAT sales receipt, whereby items subject to VAT (or not subject to VAT) can be identified on the receipt with a symbol such as an asterisk, provided the total amount of VAT is clearly shown on the receipt. The method of identification must be clearly displayed so that customers can determine what is subject to VAT and at what rate, before they pay for the goods. The unit price of each item may be VAT inclusive or exclusive.
Records. Reliable accounting records in the English language, must be maintained within the Bahamas. A record of all supplies and purchases must be kept, i.e., a copy of all sales invoices, debit and credit notes, receipts and all purchase invoices either in paper or electronic form. If a taxable person does not possess a copy of an invoice on which VAT was paid or import docu ments showing the VAT amount, the VAT is not recoverable. While records are not required to be physically maintained within the Bahamas, a taxable person’s records should be readily acces sible should the tax authorities request to view them.
Record retention period. Records are required to be kept for five years.
Electronic archiving. Electronic archiving is allowed in the Bahamas, but not mandatory. Records must be kept for all supplies and purchases. This means keeping a copy of all sales invoices, debit and credit notes, receipts and all purchase invoices either in paper or electronic form. All sales invoices must be sequentially numbered so if a taxable person spoils an invoice and has to issue a new one, the taxable person must keep a copy of the spoiled invoice. If a taxable person does not hold a copy of an invoice on which it has paid VAT or import documents showing the VAT amount, it is not entitled to recover the VAT on these costs, so it is very important to keep such documents. The records a taxable person keeps must be such that the comptroller can determine, with reasonable accuracy at any time, the liability of the taxable person to pay tax.
I. Returns and payment
Periodic returns. The timelines for filing VAT returns are as follows:
• Taxable persons with an annual turnover greater than BSD5 million are required to file a monthly VAT return.
• Taxable persons with an annual turnover of less than BSD5 million are required to file a quarterly VAT return.
The VAT return should show:
• The VAT charged on sales in the period (output tax)
• The VAT paid on purchases (input tax)
VAT returns are due 21 days following the previous month. Further, should the filing due date fall on a weekend or public holiday, the VAT return is due on the following business day (which would typically be the Monday following the weekend, provided that the Monday is not observed as a public holiday).
Periodic payments. Where the amount of output tax is greater than the input tax, the difference must be paid to the comptroller. It is required to pay any VAT due to the comptroller within 21 days after the end of the VAT period so effectively the taxable person needs to file the VAT return and pay any amount due by the 21st day of the month following the last day of a VAT period.
VAT can be paid in the following ways:
• Using a debit or credit card via the online portal
• Via a taxable person’s online banking service
• Paying over-the-counter at the taxable person’s bank
• Presenting cash/manager’s check at any bank
All payments must include the related tax identification number (TIN) and reach the VAT Department by the due date.
Electronic filing. Electronic filing is mandatory in the Bahamas for all taxable persons. The OTAS portal was developed to assist taxable persons to manage their VAT accounts. This system allows registered taxable persons to file VAT returns and payments electronically. Other services avail able online may include taxable person inquiries, payments and refunds. The OTAS portal is the only method in which VAT reporting can be completed and submitted to the tax authority. Paper submissions are not permitted.
Payments on account. Payments on account are not required in the Bahamas.
Special schemes. Flat rate scheme. Businesses are allowed to use this scheme if they make supplies of goods or services at the standard rate of VAT. It was developed to assist with the administrative burden for businesses and requires businesses to apply for permission from the comptroller to use the scheme. The flat rate scheme provides that VAT is charged and collected on supplies at the standard rate. However, rather than calculating the input tax each VAT period, the taxable person applies the flat rate of 12% to net sales and pays this amount to the comptroller.
Cash accounting. Businesses are permitted to account for VAT on a cash basis in certain circum stances. Suppliers declare output tax on the VAT return in the same period during which custom ers pay. Similarly, you would only declare and reclaim input tax on the VAT return in the period when you paid your suppliers.
Annual returns. Annual returns are not required in the Bahamas.
Supplementary filings. No supplementary filings are required in the Bahamas.
Correcting errors in previous returns. To make corrections to any errors or omissions on VAT returns, taxable persons are expected to prepare an amended VAT return for the impacted period, if it is within the preceding year. For any corrections for a period outside of the preceding year, the taxable person is required to submit an enquiry through the OTAS portal outlining the cor rection being requested, the value of the correct, the impacted period and any documentation in support of the request. A representative of the DIR would then review the request and advise of next steps to approve the request or indicate the reason of the tax authority’s denial of the request. All corrections are to be submitted through DIR’s OTAS portal.
Digital tax administration. There are no transactional reporting requirements in the Bahamas.