The Tribune

By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

ATTORNEYS are voicing fears that the Department of Inland Revenue’s (DIR) plan to impose a 5.25 percent interest charge on VAT due on real estate sales if the tax is not paid within 21 days will “create havoc in the industry”.

Andrew O’Brien, chair of the Bahamas Bar Association’s real estate committee, told Tribune Business that the proposal - which the tax authority currently plans to implement with effect from October 5 - threatens to, in effect, automatically push all mortgage purchasers and international home buyers into incurring this extra charge through no fault of their own.

This, he explained, is simply because of how The Bahamas’ conveyancing and property transaction system works. Department of Inland Revenue officials, during a briefing with Bahamian attorneys last Thursday to alert them to the imminent reform, said the 21-day time period will start running from the date the conveyancing document is executed.

However, Mr O’Brien said that - once executed - the conveyance together with all other necessary documents, including title opinions and searches, has to be sent to the bank or other lender if mortgage financing is involved. The banks, he added, typically take two to three weeks, or even longer if they have questions, to review and investigate the transaction before they will release the purchase funds.

Mr O’Brien said this alone would push a mortgage-financed real estate deal beyond the 21-day timeline for VAT to be paid to the tax authorities on the sale, almost inevitably triggering the new 5.25 percent (Prime plus 1 percent) charge. And, once the bank has completed its role in the process, he added that further time is required for the seller to receive the purchase proceeds and release all claims to any interest in the property for the deal to close.

Attorneys who attended Thursday’s briefing, a recording of which has been obtained and listened to by Tribune Business, also branded the 21-day timeline “pie in the sky” for deals involving international clients presently residing overseas. They pointed out that key documents frequently have to be sent via courier for signature by a party, or parties, to the sale, while papers also have to be authenticated (apostillised) to ensure they are accepted in The Bahamas.

All this adds time and, according to attorneys on the call, makes the 21-day deadline simply “impractical”. The Department of Inland Revenue, though, in a statement responding to Tribune Business inquiries, said it is merely implementing what is mandated by law when it applies the new interest charge with effect from October 5, 2026, to coincide with the upgrades to the VAT Stamp payment portal.

It said it is enforcing the VAT Act amendments, passed in June 2025 by Parliament but not implemented until now, that introduce the new 5.25 percent interest charge. These changes, to the VAT Act’s section 47A, stipulate that any tax “not paid by the date on which it becomes due and payable shall bear interest in respect of the outstanding amount at a rate of prime plus 1 percent”.

Real estate used to be exempt from such charges, but the 2025 reforms eliminated this waiver. “Where tax is payable on a supply of real property, the liability to pay interest shall commence 21 days after the date the tax becomes due and payable,” the VAT Act changes stipulate. This is what the tax authorities are now moving to enforce.

The Department of Inland Revenue said it will ensure “taxpayers are not disadvantaged” by subtracting, or deducting, from the 21-day timeline any days, weeks or months that a transaction’s completion is delayed by its own actions. This would typically involve the tax authority reviewing, or holding on to, a conveyance if it has queries over the transaction or is challenging the amount of VAT the parties believe is payable on the deal.

Yet attorneys and others are pointing to the already-existing 10 percent interest penalty in force, and applied to, real estate deals where conveyances are not brought forward for stamping - and VAT remains unpaid - for more than six months or 180 days. They are challenging why this new levy should “preclude’, or pre-empt, an already-existing penalty and, indeed, if it is needed.

The Department of Inland Revenue, confirming that the 180-day penalty is unchanged, sought to distinguish this from the new charge. “The interest provision introduced in 2025 is separate and distinct from the late payment penalty,” it said.

“Interest reflects the cost associated with tax that has become legally due and payable but remains outstanding, whereas the late payment penalty is intended to address prolonged non-compliance. The two provisions therefore serve different purposes.” The 5.25 percent charge, officials added, was for “depriving” the Government of due taxes whereas the other is a non-compliance penalty.

However, Mr O’Brien told Tribune Business that the 5.25 interest charge’s implementation threatens to inflict new real estate market disruption by introducing extra costs, delays and uncertainties for all parties involved, including both seller and purchaser, as well as their respective attorneys and mortgage financing lenders.

Acknowledging the Government’s desire to be paid due taxes as rapidly as possible, the Bar Real Estate chair called for the October 2 implementation date to be postponed to allow for further consultation with the legal and real estate profession, plus other affected stakeholders. He added that this would give all sides time to agree a “more realistic time period”, but warned: “What they have got now is setting us all up for failure.”

“My first plea is that they postpone the enforcement so the industry has more time to discuss this,” Mr O’Brien told this newspaper, “and perhaps suggest a more reasonable time period because 21 days is completely impractical, and it’s going to create havoc in the industry because banks are going to be issuing loans that do not include the interest payment.

‘‘Then their mortgage and security might get reduced because the Department of Inland Revenue claims extra money. Who’s responsible for paying that money? The Bahamian purchaser? The bank? The attorney? It’s just setting us up for failure and increased anxiety, and frustration for attorneys dealing with their clients.”

Department of Inland Revenue officials, in response to concerns raised during Thursday’s briefing, suggested that The Bahamas’ long-standing real estate conveyancing practices and system be changed to address the 5.25 percent interest charge worries.

Renee Charles, one of the officials, referring to how the process works in other jurisdictions, suggested that The Bahamas adopt a system where conveyancing documents were executed and mortgage lenders released funds at the same time. She queried if financing approvals “would not have been in existence prior to execution of the document”.

“I can explain the position in other jurisdictions,” she said. “There’s a reason for that, right? It is that you would execute the documents at the same time, simultaneously, with the release of the funds from the bank.” This prompted immediate push back from multiple Bahamian attorneys on the call, who argued: “That’s not how it works in The Bahamas.”

Noting that there is nothing in Bahamian law that mandates the process Ms Charles spoke of, they countered that banks and other mortgage lenders require the executed conveyance to be submitted as part of the package for their review to ensure the loan security is perfected before they will release the funds.

“It seems like the Department of Inland Revenue was suggesting banks change their system,” Mr O’Brien said. “There was a lot of arguments that we should change the way transactions are done by signing them on the day the funds are issued. That’s not how banks and the industry operates. There’s a disconnect between the DIR and those who are advising on the implementation on this, and how our process operates in The Bahamas.

“They were referring to other jurisdictions doing it this way. Other jurisdictions are not The Bahamas. There was an appreciation that all the documents are signed and held in escrow until the banks review the documents, and they won’t release the funds until then.”

Calling for a compromise between the Government, tax authority and private sector over the issue, Mr O’Brien added: “Everyone appreciates the Government has to get paid as soon as it can. Attorneys, on the whole, try to accomplish that. All these rules and regulations seem to be holding the industry accountable for some bad actors that do delay and don’t pay. It’s understandable that laws are being created to curb that.

“But what they have got now is setting us all up for failure. The time period needs to be extended significantly and the legislation changed so it has a more realistic time period before interest is enforced.” Asked what should replace the 21 days, Mr O’Brien said that needed further discussion among all stakeholders but said the private sector was ready to provide suggestions “in a short period of time”.

But the Department of Inland Revenue said it currently intends to proceed with what it described as “a statutory requirement established by legislation”. It added: “Effective 5 October, 2026, DIR will commence the application of the statutory interest provision in conjunction with the upgrade to the VAT Stamp Portal.

“This will bring the Department’s administration of VAT on real property transactions into full alignment with the requirements of the VAT Act and encourage the timely submission of instruments and payment of the associated VAT.

“The Department is committed to ensuring that taxpayers are not disadvantaged by delays that are attributable to DIR itself,” the tax authority affirmed. “Accordingly, where processing time within the Department contributes to a delay, DIR will apply the appropriate administrative treatment in accordance with the legislation and established procedures so that taxpayers are not unfairly charged for periods attributable to the Department’s processing.”

And, while acknowledging the “constructive feedback” it has received, the DIR added: “At the same time, the Department has a responsibility to administer and enforce the tax laws enacted by Parliament fairly, consistently and transparently.”

Mr O’Brien, though, asserted: “There have been so many changes it’s getting overwhelming.” He added that, besides the banks’ own reviews and the need for the seller to release the subject property from escrow and any ownership claims to complete the deal, issues such as currency conversion (for deals involving international buyers) and unexpected fee deductions can also delay conveyancing closings.

“There’s sometimes hiccups when you send funds overseas; a couple more days’ delay,” Mr O’Brien said. “Your attorney is not going to the Department of Inland Revenue until the vendor has released their claim to the property.”

The Government, which many observers suspect is dealing with cash flow and liquidity problems, during the first Davis administration sought to crack down on what it alleged was significant avoidance, evasion and delay of VAT payments on real estate transactions which can run into multi-million dollar sums on high-end properties. The 21-day timeline addresses both these issues.