There have been a number of legislative changes in 2014/15, one of the most significant being the implementation of Value Added Tax (“VAT”). VAT is a form of indirect consumption tax charged on the supply of goods and services. This article will explore the impact of VAT on real estate transactions in The Bahamas.
VAT was implemented on 1st of January 2015 at a rate of 7.5% and is governed by the Value Added Tax Act, 2014 (the “VAT Act”), Value Added Tax Regulations, 2014 (the “VAT Regulations”).
In June, 2015, the Ministry of Finance, VAT Department implemented VAT Rule # 2015-025 (Real Estate) (the “VAT Rule”) in an effort to provide clarity relating to VAT on real estate.
When considering the purchase of a property in The Bahamas, there are various professional services involved that will now incur VAT. These include fees for appraisals, title search fees, legal fees and real estate commissions.
Although not a professional fee incurred during the purchase of a residential property, a buyer needs to bear in mind that homeowner association fees are also subject to VAT.
Transfer of Real Property
VAT and Stamp Duty
According to the VAT Rule, VAT is chargeable on all conveyances of real property valued at more than $100,000. In assessing the value of the property, the VAT Comptroller may consider the purchase price and the appraisal value of the property, and the VAT Comptroller has the authority to choose the higher value. Real property valued at $100,000 and under are exempt from VAT.
For the avoidance of doubt, please note the following:-
- Conveyances include the sale, lease, assignment or other transfer of real property from an owner/s to another.
- Real property includes, but is not limited to:
a) vacant land;
b) dwellings for first time owner-occupiers whether or not valued over $100,000;
c) commercial buildings;
d) condominiums;
e) tenements or any other structures attached to the land;
f) time-shares; and
g) any buildings constructed for sale by contractors who are also the owners,
Prior to the implementation of VAT, Stamp Duty was charged on the value of the consideration (either the purchase price or the appraisal value) as per the following schedule:
The VAT Rule notes that first time homeowners who are exempt from Stamp Duty will also be exempt from VAT.
Consider the following examples:
| Value of Consideration | Stamp Duty |
| $0 – $20,000.00 | 4% |
| $20,000.00 – $50,000.00 | 6% |
| $50,000.00 – $100,000.00 | 8% |
| Greater than $100,000.00 | 10% |
Subsequent to the implementation of VAT, the Stamp Duty rate changed to a flat 2.5%, with 7.5% VAT being charged in lieu of the former Stamp Duty rate on transactions above $100,000.00.
The VAT Rule notes that first time homeowners who are exempt from Stamp Duty will also be exempt from VAT.
Consider the following examples:
| Property Value | Tax payable Pre-VAT | Tax payable Post-VAT |
| $80,000 | 8% Stamp duty | 2.5% (2.5% stamp duty + 0% VAT) |
| $150,000 | 10% Stamp duty | 10% (2.5% stamp duty + 7.5% VAT) |
| $500,000 (first time homeowner) | 0% Stamp duty | 0% (0% stamp duty + 0% VAT) |
Based on the examples considered, we can see that the total tax payable varies based on the value of the property; however once a transaction is over $100,000 there is no change to the tax due for conveyances of real property. There is however the additional VAT payable on the professional services rendered that relate to the transaction.
With regard to processing payments, VAT is paid first to the VAT Comptroller, who determines the basis on which the VAT should be paid. Once this is completed, the 2.5% Stamp Duty is paid to the Public Treasury.
Who is responsible for the VAT?
The VAT Rule paragraph 31 states that the VAT tax invoice will be issued to the purchaser, which has led to some belief in the market that the purchaser is solely responsible for the VAT at 7.5% and that the vendor is solely responsible for the Stamp Duty (reducing the vendor’s tax burden).
However, the VAT Comptroller has clarified this issue by indicating that while the VAT Rule states that the purchaser will be invoiced for the VAT, the VAT Rule does not stipulate how a vendor and purchaser shall decide to share the payment.
Typically stamp duty was split (50/50) between the vendor and purchaser (unless otherwise agreed). This clarification means that the total tax split of stamp duty and VAT can still be maintained.
On a positive note, if a purchaser is a VAT registrant, that purchaser can claim the VAT payment as an input credit, provided that the property is exempt from the payment of VAT.
November 15, 2015