The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Government was yesterday urged to clarify the Value-Added Tax (VAT) approach to International Business Companies (IBCs) with a physical presence in the Bahamas, and if financial institutions can ‘apportion’ inputs between different tax treatments.

Alexandra Hall, an associate with Higgs & Johnson, told Tribune Business: “There are certain issues that still remain to be clarified.

International Business Companies (IBC), for example, which are generally non-resident for exchange control purposes.

“If you look at the schedule to the Act as it is now, it talks about any services provided to somebody who is non-resident for exchange control purposes as ‘zero-rated’. However, when you look at the guide notes and you speak to someone from the VAT Department, if an IBC has a presence in the Bahamas, an office, for example, they are supposed to fall within the VAT regime.

“Even though they can claim VAT on their inputs, they should be paying VAT on their services, rent and whatever else. That is still a matter that needs to be clarified.”

The distinction is critical. While IBCs without a physical presence in the Bahamas would be able to both claim their VAT input payments and not levy the 7.5 per cent tax on their outputs, those with an office here would only be able to do the former.

Ms Hall, who was a presenter at Higgs & Johnson’s ‘Bankruptcy, Inheritance & Taxes’ seminar yesterday, added: “In terms of the legislation, it talks about ‘zero-rated’, ‘exempt’ and ‘VAT-able’ services. One of the provisions in the legislation allows all companies to apportion between ‘VAT-able’, ‘zero rated’ and ‘exempt’ supplies

“But the next provision says that banks and financial institutions can’t do that, even though listening to people, it’s not the intention that they can’t apportion it; they are just supposed to come up with a different method of calculating how they apportion it. The legislation at the moment doesn’t actually say that, so this is the time when you need to clarify what is intended by what is actually written down in the legislation.”

Ms Hall said many businesses may not be fully aware of the VAT registration requirements. “Most people are familiar with the $100,000 threshold, for instance, but they have not really appreciated the fact that it is a two-part test,” she explained.

“It is a historical test so, if in 12 months you had made $100,000, you should register. But also, if you sign a contract and expect to make $100,000 or more in the next 365 days, you are expected to register and the Government will be doing audits and determining when you should have registered.”