VAT - Facts for Financial Services - 17 Dec

Report
Higgs & Johnson
VALUE ADDED TAX:
FACTS FOR FINANCIAL
SERVICES
ALEXANDRA HALL
ASSOCIATE
WHAT IS VALUE ADDED TAX?
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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:
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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?
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
VAT TERMINOLOGY
Input tax
 VAT paid on imports or on local purchases
Output tax
 VAT charged on taxable supplies of goods and services
Exempt supplies
 Supplies on which no VAT is charged
 Persons who produce exempt supplies cannot deduct VAT paid in
making these supplies
Zero-rated supplies
 Supplies that are taxable at a rate of 0%
 Registered persons can deduct VAT paid in making these supplies
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHO MUST REGISTER?

Persons whose turnover during a period of < 12 months was
$100k+
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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
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Turnover = gross revenues without deductions
Note: Profit is irrelevant for this purpose
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)
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT ARE THE VAT RATES?
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT IS VAT PAYABLE ON?
VAT is payable at the Standard Rate on:
 Goods and services purchased locally (unless exempt or zerorated)
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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)
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
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)
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
AREAS REQUIRING CLARIFICATION
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
AREAS REQUIRING CLARIFICATION
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How is VAT assessed where a person resides in The
Bahamas for only a few months a year?
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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?
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT IS THE VAT RATE FOR
FINANCIAL SERVICES?
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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
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT FINANCIAL SERVICES ARE EXEMPT?
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT IS AN ‘EXPLICIT FEE’?
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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
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
OTHER OPERATING COSTS ON
WHICH VAT WILL BE PAYABLE
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Building rent
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Utilities (BEC, BTC, Cable Bahamas)
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Office supplies
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Vehicle purchases / leases
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Professional services – local and imported
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
RECOVERY OF VAT ON PURCHASES
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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 zerorated 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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
HOW VAT WORKS
VAT charged
on sales
(Output Tax)
Minus
VAT paid on
purchased
=
VAT Due or
Creditable
(Input Tax)
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHEN MUST VAT BE PAID?
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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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VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT ARE THE TAX PERIODS?
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There a two tax periods based on the amount of
taxable activity per annum:
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$5 million or greater - monthly
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Less than $5 million – quarterly
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT DOES THIS MEAN TO YOU?
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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
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
WHAT DOES THIS MEAN TO YOU?
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You must be aware of the penalties for noncompliance:
$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
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VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
QUESTIONS
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
NEED ASSISTANCE OR ADVICE?
Contact:
Christel Sands-Feaste
[email protected]
Alexandra T. Hall
[email protected]
Higgs & Johnson
Ocean Centre
Montagu Foreshore
East Bay Street
P. O. Box N 3247
Nassau, Bahamas
Tel: 242 502 5200
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES
DISCLAIMER
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© 2014
“H&J” refers to Higgs & Johnson, Counsel and Attorneys-at-Law.
The information contained in this publication is provided for the general interest of our
readers, but is not intended to constitute legal advice. Clients and the general public are
encouraged to seek specific advice on matters of concern. This publication can in no way
serve as a substitute in such cases.
No representation or warranty (express or implied) is given as to the accuracy or
completeness of the information contained in this publication, and, to the extent permitted
by law, H&J, its partners, associates, employees and agents do not accept or assume any
liability, responsibility or duty of care for any consequences of you or anyone else acting, or
refraining to act, in reliance on the information contained in this publication or for any
decision based on it.
Higgs & Johnson is a full-service commercial practice that gives personal and reliable service
to our clients built on exceptional experience, insight and excellence.
The firm’s affiliates, H&J Corporate Services, Ltd., H&J Corporate Services (Cayman) Ltd., H&J
Management Services Ltd., and H&J Fiduciary Services Ltd. provide a full range of company
formation and estate management services, respectively.
VALUE ADDED TAX:FACTS FOR FINANCIAL SERVICES

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