According to where you were, at the stroke of midnight on the 1st of January 2015, Value Added Tax (“VAT”) of 7.5% should have appeared on your receipt. VAT reared its dreadful head despite numerous protests from critics and lingering questions from businesses and residents of The Bahamas. VAT is here and is now LAW.

As anticipated, over the last several days, there have been numerous inaccuracies on how VAT is implemented.

In one instance, an unregistered merchant unlawfully included the payment of VAT on its receipt. In another misguided effort at policing VAT, a wholesale merchant is refusing to supply goods to non-registered buyers. In fact, it is actually in the interest of the buyer (if not statutorily required) to voluntarily register, so as to offset its VAT related expenses. Further, some VAT registered merchants opted not to charge VAT on 1st January and beyond, while other businesses, providing goods and services have arbitrarily increased the price of their goods and/or services more than 7.5% in order to immediately recover VAT related expenses. This price gauging practice is premature since the structure of VAT allows for recovery over a period of time.

As we return to normalcy after the holidays and go about our daily routines, we now need to educate ourselves to avoid VAT pitfalls and uncertainties, some of which include the following:

  • Excited to spend that gift certificate you received for Christmas?

You should be aware that VAT will be added at the time of redemption.

  • Are you a frequent restaurant patron?

In addition to VAT charged for food and drinks, VAT will be charged on gratuity. However, you should be aware that if the entire amount of gratuity is not being paid DIRECTLY to the staff, you SHOULD NOT be charged VAT on the gratuity. This is difficult to police as a regular patron will not be privy to the internal operations of a restaurant. While the practice of charging VAT includes self-policing, can we depend on all restaurateurs to be honest and not take advantage of unknowing patrons?

The same gratuity rules apply to services provided in a hotel.

  • Are you a member of a condominium or homeowners association?

If your current statement includes charges up to 31st December 2014, VAT will not be applicable to the period prior to 1st January 2015. Again, some self-policing is involved as condominium or homeowners associations making below the $100K threshold (and has not voluntarily registered) should not be charging VAT on its membership dues. As a further note, condominium or homeowners associations SHOULD NOT charge VAT on real property taxes and insurance premiums collected from homeowners, although these are taken into consideration when determining the condominium or homeowners associations’ threshold.

  • Planning to host a one-time public sporting event, ball or cultural event?

Before doing so, an application must be made to the VAT Comptroller for registration at least 48 hours before the public event is scheduled to occur. You will be required to file a VAT return within 5 calendar days of the public event.

  • Plan to promote a public event?

The threshold for VAT registration is $50,000.00.

  • Is your business a charitable organization and a VAT registrant?

If yes, your charitable organization is eligible for certain refunds from the VAT Department, however, refunds of less than $500 will not be entertained.

  • Are you a business that is a VAT registrant and uses a passenger vehicle solely for business purposes?

As long as the passenger vehicle is in the name of the VAT registrant, all expenses relating to the passenger vehicle is recoverable. One stipulation is that the passenger vehicle must not be used for personal purposes even if used by employees.

  • Are you a retail business located in a tourist area?

If yes, provided all governmental approvals and annual filings are current, you may apply to the Comptroller to participate in a VAT Free Shopping Scheme, which is only applicable on sales to tourists for items that cost more than $25.

  • Are you a business that frequently import goods and receive certain Government incentives?

A VAT registrant may apply to the Comptroller to participate in a deferral scheme whereby the payment of VAT on imported goods is postponed to a later date.

These scenarios are only a small spectrum of the concerns with the new tax, as there are many other qualms that individuals and businesses will undoubtedly encounter over the course of the next few months, as VAT is still in its infant stage.

Notwithstanding, over the course of the last 12 months we have found the VAT implementation team to be very responsive and knowledgeable on the many nuances related to the enactment of the VAT legislation.   Thus far, the level of responsiveness and guidance has continued post VAT implementation. However, the first real test of the Government will be at the end of February, when the first category of VAT registrants file their first VAT return. We anxiously look forward to the Government’s proposed seamless processing of the same.

For businesses STILL IN DENIAL about the implementation of VAT, or, simply overwhelmed by the thought of registering (to date approximately only 5,400 businesses have registered below is list of initial information required:

(1) Registered Business Name

(2) Business Registration Number (available from Registrar General Department)

(3) Business National Insurance Number

(4) Business License Number and date License Issued

(5) Business License Control Number

(6) Contact Details: Name, Telephone Number, Email Address and Business Address. (Please include secondary contact for emergency purposes)

(7) Additional Details: Address for each Branch, Shareholders, Directors, Partners and Trustee information

(8) Real Property Tax Assessment Number

(9) Banking Information: Bank Name, Branch Location, Account Number, Account Type and Credit Reference Letter. (Account related to your value added tax activities)

(10) Additional Information: Business Activity Details – Letter Authorizing a designated Representative (if required)

(11) Port Licensee Number (For Freeport Only)

(12) Business Activities: Turnover

 

Melinda S. Bacchus-Maynard and Yolande C. Julien

January 19, 2015