|Name of the tax||Value-added tax (VAT)|
|Trading bloc membership||Member of CARICOM|
|Administered by||Central Revenue Agency (CRA)|
|Other||Zero-rated (0%) and exempt|
|VAT number format||123456701|
|VAT return periods||Monthly and quarterly|
|Thresholds||BSD100,000 in annual turnover|
|Recovery of VAT by non-established businesses||No|
Scope of the tax
VAT applies to the taxable supply of goods and services, including imported goods and services.
Who is liable?
VAT applies to goods or services supplied by a taxable person undertaking, by way of business, a “taxable activity.” The supplies must also exceed the annual threshold of BSD100,000 in value.
Registration procedures. A person or business liable for VAT must apply to the VAT authorities for registration within 14 days of meeting the requirements. Failure to apply for registration can result in forcible registration by the comptroller.
Voluntary registration. For businesses that do not meet the VAT registration threshold but wish to legally charge and collect VAT, there is a voluntary registration mechanism. Taxpayers that register voluntarily have the same obligations as taxpayers that were required by law to register.
Exemption from registration. Exemption from registration is possible for certain zero-rated suppliers, mainly in the financial services industry. You need to apply for this exemption, which is assessed on a case-by-case basis. Where an exemption is granted, you cannot recover VAT on costs, as you will not be registered for VAT.
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 taxpayer identification number (TIN) of the taxpayer selected as the controller of the group. Members of the group are all jointly and severally liable for the VAT liabilities of the group.
Non-established businesses. If a company undertakes a business activity such as employing persons 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.
Even companies that do not undertake an activity in the Bahamas are resident if the majority of the shareholding is beneficially owned, directly or indirectly by residents in the Bahamas.
Typically, where goods and services are supplied to companies considered nonresident or non-established, they will be treated as international goods and services and subject to VAT at the zero rate.
Reverse charge. Under the reverse-charge mechanism, 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 arising on the transaction.
Tax representatives. An appointed representative, such as an external accountant or business advisor, is permitted to submit a VAT registration form on behalf of the taxpayer. It is also possible to delegate responsibility to manage certain aspects of the taxpayer’s account.
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 before applying to cancel the VAT registration. The conditions do not apply in circumstances where the business effectively ceases to exist.
Late-registration penalties. Section 16 of the VAT Regulations, 2014 provides that a taxable person that fails to apply for registration commits an offense and is liable to a fine of BSD150,000. Section 41 of the VAT Regulations, 2014 provides that a taxable person who fails to apply for registration commits an offense and is liable on conviction to a fine not exceeding BSD100,000 or to imprisonment for a term not exceeding 12 months or to both a fine and imprisonment.
Furthermore, the taxable person that did not register is liable for any VAT that should have been charged to customers but which, lacking registration, the taxable person did not charge.
Digital economy. No special provisions apply to digital products.
The term “taxable supply” refers to a supply of goods and services that are liable to VAT, including a supply taxed at the zero rate. The term “exempt supply” refers to a supply of goods and services that are subject to VAT and is listed in the Second Schedule of the VAT Act. Persons that make exempt supplies are not required to register for VAT, and they are not permitted to recover any input tax incurred in making those exempt supplies (see Section F).
In the Bahamas, the following three rates of VAT apply:
- Standard – 7.5%
- Special Scheme – Flat Rate of 4.5% as discussed below
- Zero – 0%
There are also certain goods and services that are:
- Exempt from VAT
- Outside the Bahamas VAT system
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
Examples of exempt supplies of goods and services
- 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
- Sale of a residential building
Option to tax for exempt supplies. Not applicable.
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 taxpayer 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 non-refundable 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 taxpayer 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 taxpayer is entitled to keep the deposit, then this is a supply and VAT must be declared.
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.
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.
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.
Reverse-charge services. See above.
Cash accounting. Businesses are permitted to account for VAT on a cash basis in certain circumstances. Suppliers declare output tax on the VAT return in the same period during which customers pay. Similarly, you would only declare and reclaim input tax on the VAT return in the period when you paid your suppliers.
Leased assets. A lease of land principally used or intended for use as a dwelling is exempt from VAT. Generally, other leased assets will be subject to VAT.
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.
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 taxpayer must apportion the VAT to the business and non-business 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 non-business 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 calculate the amount of input tax the taxpayer is entitled to claim.
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 VAT recovery during the life of the asset.
Refunds. When the VAT paid on a taxpayer’s purchases (input tax) is greater than the VAT charged on a taxpayer’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 taxpayer’s VAT returns. All claims for a refund must exceed BSD500.
Preregistration costs. If goods or services were purchased during the 24 months before registration, and those are used to make supplies subject to VAT after registration, it is possible to reclaim input tax paid on those preregistration purchases.
Write-off of 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 accounting records, the taxpayer 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.
Recovery of VAT by non-established businesses
There is no provision for VAT to be recovered by non-established businesses.
VAT invoices and credit notes. For all taxable supplies, the supplier must provide the buyer 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.
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. A VAT invoice must show the required information as outlined in VAT law and can be either in paper or electronic form.
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 registered 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 taxpayer must have the relevant documentation to prove that it is the exporter of record.
VAT returns and payment
VAT returns. The timelines for filing VAT returns are as follows:
- Businesses whose annual turnover exceeds BSD5 million are required to submit a monthly VAT return.
- Businesses 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)
Where the amount of output tax is greater than the input tax, the difference must be paid to the comptroller. VAT returns are required to be filed within 28 days of the end of the VAT period. Starting 1 January 2017, VAT returns will be due the 21st of each month.
Electronic filing. The Bahamas Online Tax Administration System (OTAS) was developed to assist taxpayers manage their VAT accounts. This system allows registered VAT payers to file electronically. Other services available online may include taxpayer inquiries, payments and refunds.
Payments on account. Where a customer makes regular payments to an account prior to ordering goods, this is not a supply for VAT purposes. It is considered to be merely funds held on the customer’s behalf. Once the customer orders the taxable supply and funds are allocated from the account, a supply has been made for VAT purposes and the appropriate VAT should be declared.
Annual accounting. 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 taxpayer does not possess a copy of an invoice on which VAT was paid or import documents showing the VAT amount, the VAT is not recoverable.
Records are required to be kept for five years.
Special schemes. There are two schemes that may be beneficial to some businesses. The first is the cash accounting scheme outlined above and the second is the flat rate scheme.
The flat rate scheme applies to businesses that 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 taxpayer applies the flat rate of 4.5% to net sales and pays this amount to the comptroller.
Annual returns. Not applicable. J. Penalties
Penalties for late payment of VAT. Regulations impose heavy penalties for noncompliance. Under Section 40 of the VAT Regulations, an offense is committed when VAT is not paid when due for two or more consecutive or nonconsecutive tax periods. One can potentially be liable on conviction in court to a fine not exceeding BSD10,000 and imprisonment for a term not exceeding six months or both. Under Section 16 of the VAT Regulations, failure to pay VAT due is considered a “very serious” offense and may result in a fine of BSD150,000.
Penalties for errors made on VAT returns. Errors in the declared VAT amounts, whether input or output tax, can be adjusted on the next VAT return provided the error does not exceed BSD500. Where the error exceeds this amount, the taxpayer should notify the comptroller. If the error is not discovered promptly and is not considered deliberate, the taxpayer may only be charged interest on amounts owed and the associated fine may be waived.