value added tax: facts for financial services alexandra hall associate higgs & johnson
TRANSCRIPT
WHAT IS VALUE ADDED TAX?
A value added tax (VAT) is a consumption tax added to a product's sales price or to a service. It represents a tax on the "value added" to the product throughout its production process
The VAT Legislation is comprised of: VAT Act VAT Regulations VAT Rules (not yet circulated) VAT Guidance Notes (updated)
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT IS VAT CHARGED ON?
VAT payable on taxable supplies by taxable persons and on taxable imports by any person – unless exempt or zero rated
Most goods and services purchased or supplied locally or imported will have a VAT charge
Purchases on which no VAT will be charged will be classified as “exempt” or “zero rated”
No VAT is charged on exported goods and services Note: Special rules apply to the Port Area
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VAT TERMINOLOGY
Taxable supplies A supply of goods or services given or provided in
relation to a taxable activity, other than an exempt supply
Taxable activity Any activity conducted regularly and continuously
whether or not for profit and includes a supply of public entertainment
Taxable imports Imports of goods or services that are not exempt
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VAT TERMINOLOGY
Registered Person A person who is registered for VAT - These are the only
persons authorized to charge VAT on supplies of goods and service
Only registered persons can claim tax deductions for VAT paid on imports and domestic acquisitions
Taxable Person A person who is registered for VAT (registered person)
or a person who is required to register
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VAT TERMINOLOGY
Input tax VAT paid on imports or on local purchasesOutput tax
VAT charged on taxable supplies of goods and servicesExempt supplies
Supplies on which no VAT is charged Persons who produce exempt supplies cannot deduct VAT paid in
making these suppliesZero-rated supplies
Supplies that are taxable at a rate of 0% Registered persons can deduct VAT paid in making these supplies
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WHO MUST REGISTER? Persons whose turnover during a period of < 12 months was
$100k+ Turnover = gross revenues without deductions Note: Profit is irrelevant for this purpose
Persons who reasonably expect to have $100k of taxable activity in the next 365 days
Persons who hold a temporary licence under the Business Licence Act
VAT Registration Certificate must be displayed in a prominent place Government will also maintain a register of VAT registrants
A return must be filed with the VAT Department within 28 days after the end of any tax period (see later slide)
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WHAT ARE THE VAT RATES?
Standard rate – 7.5% Zero-rate - 0% Exemption on some goods and services Note: Both the standard rate and the zero-rate are
positive rates of tax for VAT purposes Note: Invoices must indicate the VAT charged separate
from the cost of the goods and services
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WHAT IS VAT PAYABLE ON?
VAT is payable at the Standard Rate on: Goods and services purchased locally (unless exempt or zero-
rated) e.g. utilities, office supplies, professional services
Imported Goods (unless exempt or zero-rated) When goods enter the country (unless a deferral is
requested) Imported Services (unless exempt or zero-rated)
If VAT would have been payable if the service was provided inside The Bahamas VAT must be paid if the services are imported into The Bahamas
e.g. legal fees from foreign lawyers, printing fees, advisory fees
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ZERO RATED SUPPLIES OF SERVICES
Services provided to a person treated as “non-resident” for Exchange Control purposes - zero rated (VAT Act): the benefit or use of the service is considered to be
outside The Bahamas or the “non-resident” recipient of the service makes
taxable from inside The Bahamas for benefit or use outside The Bahamas (VAT Regulations)
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“‘Non-resident’ means a person who does not, and is not deemed to, carry on a taxable activity in The Bahamas” (VAT Act)
“Non-resident” for the purposes of the Exchange Control Regulations include: Persons not resident in The Bahamas Permanent Residents with no-right or a restricted
right to work Person who hold a Permit to Reside in The Bahamas
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AREAS REQUIRING CLARIFICATION
How is VAT assessed where a person resides in The Bahamas for only a few months a year?
What is the VAT liability where a licenced trust company in The Bahamas obtain legal services to be paid for from trust assets where the settlor and beneficiaries are located outside of The Bahamas?
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AREAS REQUIRING CLARIFICATION
WHAT IS THE VAT RATE FOR FINANCIAL SERVICES? Zero-rated: Financial services provided to an IBC
operating exclusively outside of The Bahamas or trust services where the settlor and all beneficiaries are non-resident
Standard VAT rate: Financial services provided to an IBC (non-resident) with premises in The Bahamas or trust services where settlor or any of the beneficiaries are residents
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WHAT FINANCIAL SERVICES ARE EXEMPT?
Note: Exempt means 0% VAT rate but no deductions for VAT paid on inputs.
All insurance services until June 30, 2015 After June 30, 2015 - life insurance, annuities & savings
products only Financial services other than:
international financial services (i.e. services provided to non-residents which are exempt); or
domestic financial services (i.e. services provided to residents) for an explicit fee
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WHAT IS AN ‘EXPLICIT FEE’?
VAT chargeable at 7.5% in respect of financial services provided for an explicit fee
An “explicit fee” is charge that is separate from interest and stamp duty and includes Arrangement or commitment fees for loans Overdraft fees ATM/ABM fees Returned cheque fees Charges for payroll payments Charges for safe keeping of documents and safety deposit boxes Cash handling charges Charges for the payment of utility bills
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OTHER OPERATING COSTS ON WHICH VAT WILL BE PAYABLE
Building rent
Utilities (BEC, BTC, Cable Bahamas)
Office supplies
Vehicle purchases / leases
Professional services – local and imported
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RECOVERY OF VAT ON PURCHASES
VAT charged on business purchases and expenses (i.e. inputs) can normally be offset against from VAT collected from customers in the course of business (i.e. outputs) Inputs can only be reclaimed when they relate to zero-
rated or standard rated supplies Inputs cannot be reclaimed when they related to
exempt supplies Note: Licensed financial service providers, banks and other
financial institutions can only claim input tax deductions in respect of inputs directly attributable to and used wholly for the provision of taxable supplies
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HOW VAT WORKS
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Minus =
(Output Tax) (Input Tax)
VAT charged on sales
VAT paid on purchased
VAT Due or Creditable
WHEN MUST VAT BE PAID?
VAT returns must be filed and VAT paid within 28 days of the end of the tax period in which the first of the following occurs: An invoice is issued Payment is received (in whole or in part) for goods
or services Goods are delivered or made available to a recipient Completion of performance of services
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WHAT ARE THE TAX PERIODS?
There a two tax periods based on the amount of taxable activity per annum:
$5 million or greater - monthly
Less than $5 million – quarterly
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WHAT DOES THIS MEAN TO YOU?
You must meet with your accountants and attorneys to ensure that your company and your billing systems are ready for VAT
Contracts must state which party is responsible for the payment of VAT
Standard terms and conditions must be amended to incorporate a section on each client’s Exchange Control status Written confirmation must be received from each client
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You must be aware of the penalties for non-compliance: $100k fine or 12 months in prison for failing to
register $50k fine or 12 months in prison for failing to display
registration certificate personal liability for directors and/or similar officers temporary closure of businesses
WHAT DOES THIS MEAN TO YOU?
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NEED ASSISTANCE OR ADVICE?
Contact:Christel Sands-Feaste
[email protected] T. Hall
Higgs & JohnsonOcean Centre
Montagu Foreshore East Bay Street
P. O. Box N 3247Nassau, BahamasTel: 242 502 5200
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