By NEIL HARTNELL
and NATARIO McKENZIE
Tribune Business Reporters
Business Licence fees will be based on “positive VAT-rated revenue” from 2020 onwards in a move that “removes some of the ambiguity” surrounding how they are calculated.
The reforms, unveiled yesterday by K P Turnquest, the Deputy Prime Minister, will now also require International Business Companies (IBCs) - for the first time ever - to register under the Business Licence Act and pay a value-based fee to bring them into compliance with the European Union’s (EU) anti-tax evasion offensive.
The changes, which mean IBCs will incur the same tax treatment as domestic firms incorporated under the Companies Act, are mandated by the recently-passed Removal of Preferential Exemptions Act 2018 - the law that meets a key EU demand by eliminating the preferential tax breaks previously enjoyed by non-resident entities and their foreign investor owners.
In doing so, Mr Turnquest revealed that the basis for calculating Business Licence fees will next year change to better align with Value-Added Tax (VAT). Turnover will now be defined as the revenue upon which VAT is charged.
“Moving forward, a company’s Business Licence fee will be calculated by reference to the value of any positively-rated taxable supplies made in that year, charged at a rate of between zero percent (0 percent) and two-and-a-half percent (2.5 percent) of that value, as may be prescribed by the Minister of Finance,” Mr Turnquest said.
He added that the Government’s reforms were designed to achieve three key objectives - impose no further obstacles to the ease of doing business; ensure there is a “revenue neutral” effect for the Public Treasury, meaning that there is no increase or decrease in its income; and compliance with the EU’s demands and the legislation that effects this.
Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that the reforms meant that Business Licence fees will be calculated based on “positive VAT-rated revenue” from 2020 onwards.
“The basis upon which the Business License fee will be calculated has been slightly modified,” he explained. “It has now been defined as positive-rated taxable supplies, which in layman’s terms is your VAT revenue. Any revenue that a business earns, that it charges VAT on, is now the revenue basis upon which Business License fees will be determined.”
The Government has already moved to align the Business Licence fee with VAT through eliminating the need for businesses with an annual turnover below $100,000 to pay the former. This is the same threshold where companies are required to register for VAT.
“It removes some of the ambiguity in turnover,” Mr Bowe added of the reforms unveiled by Mr Turnquest. “It’s certainly adding, to a certain extent, clarity in terms of what revenues are being used as the basis for the fee. There has been ambiguity for many years in terms of turnover.
“This achieves two goals. It ensures everyone is speaking in a common language, and allows government to maintain existing revenues with it.”
With further legislative changes and “regulatory calibration” required before the new Business Licence regime can be implemented, Mr Bowe confirmed this will not fully happen until 2020.
“As it relates to the Business Licence fee and regulatory regime, it’s not possible to put it in place for 2019 as you already have bills and the basis of taxation established,” the BICA chief confirmed.
Mr Turnquest, meanwhile, also confirmed that previous “barriers” between the Bahamian economy’s international and domestic sectors will no longer exist as a result of the EU’s demands to end “ring fencing” or preferential tax breaks for foreign investors.
He said: “Companies incorporated in The Bahamas under either the Companies Act or the IBCs Act – with the exception of [financial services industry players] – will be required to register under the Business Licence Act and pay a value-based Business Licence fee.”
These reforms, and others unveiled yesterday (see other article on Page 1B), represent a seismic change for the Bahamas and its economy - especially IBCs, the vehicle of choice for the financial services industry and its clients.
Up until now able to pay a standard annual fee of $350, and $300 incorporation fee, IBCs face the loss of their preferential benefits within three years - meaning they must pay the same taxes, and at the same rate, as domestic companies.
This means IBCs will have lost much of their advantages for foreign investors, a fact not lost on many in the financial services industry. Paul Moss, president of Dominion Management Services, told Tribune Business: “IBC are going to have to apply for Business Licences.
“That’s going to change the dynamic of the way they operate. They operated internationally; that’s the basis on which they were formed. They’re now going to be operating domestically and subject to Business Licence fees.”
Mr Bowe, though, argued that the IBC changes “cut both ways”. With all corporate vehicles “deemed to now be Bahamian” regardless of whether they are operating internationally or domestically, he added: “That provides an opportunity for indigenous companies to look a international business they may not have looked at before.
“It’s a knife that cuts both ways. You’ve brought everyone together as Bahamian companies, and all animals are treated equally.”