The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent Freeport realtor yesterday warned that the city’s new investment incentives regime is threatening to “create a lot of havoc” and confusion for hundreds of existing foreign homeowners.

James Sarles, a broker with Coldwell Banker James Sarles Realty, told Tribune Business it was unclear whether foreign, non-corporate second home owners in the Port area would now have to pay real property tax.

The issue is not directly addressed in the Grand Bahama (Port Area) Investment Incentives Act 2016, but Mr Sarles said his interpretation of the legislation suggested that foreign homeowners now had to become Grand Bahama Port Authority (GBPA) licensees and then apply for renewal of their real property tax exemption.

The Act only refers to licensees, meaning the 3,500 Bahamian and foreign-owned businesses licensed by the GBPA, and makes no mention of the hundreds of foreign individuals who own Freeport real estate in their own names.

Mr Sarles explained that, if his interpretation was correct, existing foreign real estate owners would have to choose between paying real property tax and incorporating a company to become a GBPA licensee, then apply to the Government for the real property tax exemption.

Pointing out that many foreign buyers had chosen to come to Freeport precisely because of the city’s real property tax exemption, Mr Sarles warned that amid the uncertainty a key competitive advantage for its real estate market was being undermined.

“Nobody has said anything, for one,” Mr Sarles told Tribune Business, when asked to detail his concern on Freeport’s new ‘tax breaks’ regime.

“I looked at the Act, and my interpretation based on local lawyers is that a foreign investor who purchased under the Hawksbill Creek Agreement’s incentives in the beginning now must become a licensee of the Port Authority.”

The Grand Bahama (Port Area) Investment Incentives Act 2016 states that it applies to GBPA licensees, both Bahamian and foreign-owned, who must now apply to the Government for the renewal of their real property tax, income and capital gains tax exemptions.

While section 4 (4) stipulates that Bahamian-owned licensees will still be exempt from real property tax, bringing Freeport in line with real property tax’s application outside New Providence, no specific reference is made to foreign homeowners.

The Act does define ‘non-Bahamian’ as “a person who is not a citizen of the Bahamas”, but this then appears to be overridden by the term that it only “applies to a licensee”

Suggesting that the Government had failed to consider the wider real estate market ramifications, Mr Sarles said: “What about the hundreds or thousands of current homeowners?

“They’re going to have to determine whether there is property tax and, if so, do I pay it or do I become a licensee? The reason many of them came here was because there was no real property tax.

“Will anyone who owns a substantial property be subject to property tax unless they become a licensee of the Port Authority?”

Foreign real estate owners in the Family Islands have to pay real property tax, and it is possible the Government may be using the new incentives regime to bring Freeport into line with this policy.

Mr Sarles, though, warned that the existing uncertainty also threatens to deter potential new foreign home buyers from investing in Freeport real estate, as he urged the Government to re-assess the legislation.

“It’s creating a lot of confusion,” he told Tribune Business of the Act. “They’ve got to re-look at this, delay and defer it. It’s confusing everybody.

“It’s creating a lot of havoc, or will in the future. It doesn’t make any sense. It’s another level of bureaucracy. Will an individual be able to sign up [for the incentives], or do they have to incorporate a company?”

Mr Sarles said that if his interpretation was correct, another unresolved issue was the type of GBPA license that foreign homeowners will have to obtain.

He questioned whether a builder/investor license, or a “normal” one, would be required, pointing out that annual fees ranged from $1,500 to $10,000.

“They have to stop this madness and think twice about what they do,” Mr Sarles told Tribune Business of the Government. “They just have to turn the clock back and say if it’s under the Hawksbill Creek Agreement, and in the bonded area, it’s property tax free.”

Should Mr Sarles be correct, foreign real estate (second home) investors will face a substantial increase in annual taxes, costs and bureaucracy associated with their purchase, all of which could drive much-needed buyers away. There is also no certainty that they would gain the real property tax exemption if they applied for it, given that this is left to the discretion of the Investments Board and responsible minister.

Tribune Business understands he is not alone in his concern, with a number of Freeport-based attorneys also questioning whether foreign owners will face real property tax levies and no ability to obtain an extension to this exemption.

“The advantage which we had, which we never took advantage of, has gone away,” one Freeport business source, speaking on condition of anonymity, told Tribune Business on the real property tax issue.

“It looks like the Government has left this group [foreign second homeowners] out. Nobody said a God damn word. It’s a disaster.”

Tribune Business also understands that the Government has agreed to extend the deadline by which the GBPA’s 3,500 licensees must apply for renewal of their tax breaks by one month - from March 6 to April 6, 2017.

Many, though, have argued that there needs to be at least a six-month extension, given the extensive nature of the supporting documentation requested by the Government.

“That ain’t good enough. One month is no good,” the private sector source told Tribune Business.

The application form attached to the Act’s regulations divides GBPA licensees into two categories; those planning a business expansion within the next 12 months, and those who “expect to operate as a going concern and maintain current staffing levels for at least the next five years”.

All businesses, when applying for their real property tax, income and capital gains tax exemptions, have to supply ‘the estimated market value’ of their real estate holdings and number of staff employed.

Those planning expansions in the next 12 months, though, must provide extra details such as the number of jobs created and the timeframe over which this will take place; any land development and associated timelines; the amount of capital to be invested; and the source of financing.

These businesses are then also asked to “provide evidence that the investment is sufficiently financed”, “the manner and period within” which the investment will be made, and its projected impact on the Freeport economy.

Evidence of Value-Added Tax (VAT) compliance, along with site plans, plus economic and environmental impact assessments, are also being demanded by the Government.