The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian accountants must prove audit and other services they provide to financial services entities are “for purposes outside” the jurisdiction to obtain VAT-free treatment, the tax authorities have ruled.

The Department of Inland Revenue’s acting VAT comptroller, in an “advance ruling” dated October 31 this year, responding to a request for clarification from an unnamed accounting said the VAT treatment depends on whether “the benefit or advantage” from receiving their services occurs outside or within The Bahamas.

Should accounting services be supplied for “purposes outside The Bahamas, the tax authority warned that firms must obtain records from their client to prove this and make them available for inspection to obtain a VAT-free or ‘zero rating’ designation. This will enable their client to avoid the standard 10 percent levy.

Pretino P. Albury, the Bahamas Institute of Chartered Accountants (BICA) president, could not be reached for comment before press time last night but sources told Tribune Business that the ruling and its implications have prompted discussions in accounting circles.

At least one source, speaking on condition of anonymity, questioned whether applying VAT on services charged to Bahamas-domiciled corporate vehicles - such as International Business Companies (IBCs), trusts and investment funds - typically used by international clients was the right way to boost financial services competitiveness.

Another suggested the supply of such services had been VAT ‘zero rated’ until the law was changed to address the ‘ring fencing’ concerns of the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD). One accountant said some were discussing whether to absorb the VAT rather than pass it on to their clients.

Referring to the accounting firm’s request, the acting VAT comptroller said: “The taxpayer required a ruling on the VAT treatment of the provision of accounting, financial and other professional services by the taxpayer to clients in various scenarios. The taxpayer provides audit, accounting, financial advisory, tax, consulting and risk advisory services.”

They added that the supply of accounting or similar services is treated as an export from The Bahamas, and thus ‘zero rated’ and does not attract VAT, when the client or recipient “uses or obtains the benefit or advantage of the supply outside The Bahamas”. This could involve an audit or something required by overseas regulators, the acting comptroller explained by way of example.

“However, where the recipient of the supply uses or obtains the benefit or advantage of the services within The Bahamas, the supply is standard rated for VAT,” they said. “The VAT treatment of the audit services in each of the scenarios is therefore based on where the recipient is using the services or where the recipient obtains the benefit or advantage of the services.

“As a general rule, where services are provided to an entity that is established in The Bahamas, the services are prima facie deemed to be used in The Bahamas. Accordingly, if the audit services are required for purposes outside The Bahamas, the taxpayer must obtain from the recipient - and have available for inspection by the Comptroller - records to support the treatment of the services as zero rated.”

The accounting firm had put forward several scenarios for adjudication by the acting VAT comptroller variously involving a Bahamas-domiciled trust, IBC, mutual or investment funds, and a company that operates locally but will use the services provided to serve international clients. In the first three cases, all operations, assets, bank accounts, directors, shareholders and settlors/beneficiaries are based overseas.

Tackling the trust first, the acting VAT comptroller said it was a separate legal entity from its settlors and beneficiaries, and is therefore treated as the consumer of audit services. “In the circumstances where the trust has been established in The Bahamas and is administered by a local Bahamian trust company, the audit services are deemed to be used in The Bahamas,” they ruled, thus attracting 10 percent VAT.

In the case of the IBC and the mutual fund, the acting VAT comptroller said tax treatment is based on the reason for why audit and other services have been sought. “If the audit services are being provided to satisfy statutory obligations of a regulator in The Bahamas or are otherwise being used in The Bahamas, then the services are subject to VAT at the standard rate,” the ruling said.

“On the other hand, if the audit services are being provided to satisfy obligations of a regulator outside The Bahamas, or are otherwise required for purposes outside The Bahamas, then the services are VAT zero rated.”

As for the company with international clients, the acting VAT controller said: “The audit services are standard rated for VAT. The audit services are being provided to the company, which the company uses in the operation of their business within The Bahamas. It is irrelevant whether some of the clients of the recipient company are international clients.”

The ruling was effectively back-dated to March 3, 2023, as the time from when it takes effect.