Government moves to address VAT underperformance on real estate transactions over $1M

Government moves to address VAT underperformance on real estate transactions over $1M

NASSAU, BAHAMAS – The government has moved to address the revenue underperformance of VAT on real estate transactions over $1 million, with the Prime Minister revealing that it had collected just under eight percent of the budget forecast.

Prime Minister Davis, during his budget communication, noted: “The area of revenue underperformance which became apparent during these nine months is the VAT on real estate transactions. For example, if we look at the budget forecast for VAT on realty transactions over $1 million, it is $190.3 million. As of the end of March 2024, we have only collected $15.1 million, or 7.9 percent of this total. It has also been observed that the certificate of residency and international holding permit issuances are consistent with Balance of Payments data that shows a strong inflow of funds for property purchases. Last year’s revenue intake for this item was $121.1 million. These are the reasons why it is necessary for this Government to take a deeper dive into the underperformance of this category of revenue.”

Davis noted that information provided by the local real estate sector about the buoyancy of the high-end real estate market is not reflected in the government’s receipts.

“We have witnessed a sizable drop in revenue this year for this category. This is the primary underperforming revenue item that we have identified, and we have included a number of administrative measures to address the underreporting of real estate transactions. One such measure is the requirement that the Real Property Tax Assessment Number provided by the Department of Inland Revenue must be affixed on the Certificate of Registration and all certificates before forwarding to the Department of Immigration,” said Davis.

He further noted that the Department of Immigration must ensure that the Real Property Tax Assessment Number is captured on its approval documents for economic permanent residence and homeowners.

“This administrative step will help streamline the process and ensure that the real property tax number is carried throughout all processes across all government agencies, which would allow for auditing to ensure that the correct tax amount is being paid. Another area of concern is that the government is aware of a number of unstamped documents held by persons, which results in these persons not being able to prove land ownership to the Department of Inland Revenue and otherwise. This is an impediment for development and commerce in this country,” Davis said.

The Government has decided to grant amnesty to allow documents to be stamped at the value of the time the transaction took place rather than at the current market value. This regime is temporary and effective immediately, with an expiration date of December 1, 2024.

“This is a significant concession. At present, all documents are stamped at their current market value, regardless of when they were purchased. For example, suppose an individual purchased a property thirty years ago for $25,000 and sold that same property for $50,000 but never stamped the documentation. Later on, a new prospective buyer wants to acquire the property through a mortgage. The property now has a small house on it that is worth $150,000. In order to have the property financed, all of the transactions for the last 30 years need to be recorded, that is, to have the VAT paid at the current market value of $150,000 plus penalty. Unfortunately, this is all too often a deal breaker, preventing the transaction from moving forward, hurting both the buyer and the seller, and acting as a drag on the real estate market,” said Davis.

Another measure to address the issue of revenue underperformance for VAT on real estate will be the elimination of inter-vivos transfers to non-natural persons. All inter-vivos transfers after July 1st would have to be to a natural person.