Real Estate Transactions: Legislative Amendments

In the 2022/2023 Budget Communication presented by The Right Honourable Prime Minister Philip Davis QC, MP, the Government communicated its intention to introduce various legislative amendments which will affect real estate transactions in The Bahamas. These amendments are reflected in the Real Property Tax (Amendment) Act, 2022, the Stamp (Amendment) Act, 2022, and the Value Added Tax (Amendment) Act, 2022, (which all took effect on 1 July 2022) and are set out below.

REAL PROPERTY TAX (AMENDMENT) ACT, 2022

A. New Definitions

The definitions of ‘commercial property’, ‘residential property’, ‘unimproved property’ and ‘value’ have been amended as follows:

• Commercial property – any property used for business purposes including any property that falls within the proviso of the definition of residential property.
• Residential property – means any property:
  • that is not owner-occupied;
  • that comprises not more than four (4) units (not including out-buildings);
  • that is beneficially owned by Bahamian citizens or a person registered under the Value Added Tax Act for the operation of the property as a commercial rental establishment; and
  • that is used solely as a dwelling place;

PROVIDED THAT where a person owns more than four (4) dwellings that are not owner-occupied, each property shall be classified as a commercial property.

• Unimproved property – means any property on which no improvements have been effected. This includes properties under construction unless it is occupied or a certificate of occupancy has been issued. It does not include properties used to carry on a business activity.
• Value
  • unimproved property – the average amount over a period that the Chief Valuation Officer is of the view allows for a fair determination of the property’s value, which a willing seller may expect to realize from a reasonably well-informed buyer if the fee simple of the property is sold on an open market free from encumbrances or any other burden, charge or restriction.
  • improvements – the replacement cost of improvements at the time of the Chief Valuation Officer’s assessment.
  • improved property – the combined value of the unimproved value and the replacement cost of improvements at the time of the Chief Valuation Officer’s assessment.

B. Owner-occupied properties

• Properties owned by a company, may now be classified as owner-occupied property where the beneficial owner of more than 50% of the company’s shares occupies the property exclusively as a dwelling on a permanent or seasonal basis, and submits to the Chief Valuation Officer a declaration that such property is occupied by the beneficial owner exclusively as a dwelling house on a permanent or seasonal basis.
• Where a person owns more than one property that is used as a residence for the owner, only one property will be classified as owner-occupied property.
• Where a married person and his/her spouse own separate properties that are used as the matrimonial home or as a residence for either spouse; only one property will be classified as owner occupied property.

C. New Rates of Real Property Tax

The following changes have been made to the real property tax rates and are effective from 1 January 2022:

1. Owner-occupied Property

• The exemption granted to owner-occupied properties has increased from $250K to $300K.
• The maximum annual cap for owner occupied properties has increased from $60K to $120K.

The new rates of real property taxes on owner-occupied properties are now as follows:

2. Commercial Property

The real property taxes owing on commercial properties valued at over $500,000.00 has decreased from 2% per annum to 1% per annum for those properties valued up to $2million and 1.5% per annum for those properties valued above $2 million.

The new rates of real property taxes on commercial properties are now as follows:

3. Any other property

The new rates of real property taxes any other property are now as follows:

D. New rules relating to assessments

The Chief Valuation Officer may combine properties of one owner under one assessment number where the properties are contiguous and used for the same purpose.

E. Assessments of Subdivisions/Condominiums

The owner of property must notify the Chief Valuation Officer within 30 days of receiving subdivision approval or approval to construct a condominium, for separate assessment numbers to be assigned for each lot or unit.  The notification must be in the prescribed form and include a copy of the requisite approval.

F. Tax Due Date

• Real property taxes are due by 31 March each year in respect of the tax year commencing on 1 January of that year and surcharges will only accrue where taxes are not paid by 31 December in any given year.
• The Chief Valuation Officer, may for reason which appear to him sufficient in a particular case by written notice, postpone the date on or before which any tax is payable.

G. Liability of a Mortgagee in respect of commercial property

Where a loan has been repaid on a mortgaged property but the satisfaction of mortgage has not been stamped in accordance with the Value Added Tax Act, that mortgaged property shall still be deemed to be under a deed of mortgage and the mortgagee will still be liable to pay the real property taxes on commercial property if taxes remain unpaid in excess of 90 days.

H. Exercise of the Power of Sale by the Treasurer

Only owner-occupied properties which are beneficially owned by Bahamian Citizens are exempt from the Treasurer’s exercise of its power of sale.

I. Exempted properties

Properties owned by religious institutions, non-profit organizations, trade unions, civic organizations and burial societies are now exempt.

STAMP (AMENDMENT) ACT, 2022

• All references to the ‘transfer of land’ have been removed and where a transaction comprising the sale of any business will involve the transfer of any land or share in a landowning company, that transaction will be subject to Value Added Tax (‘VAT’) under the Value Added Tax Act.
• Leases of realty with a term of less than 5 years are now subject to stamp duty at the rate of 2.5% of the annual rent reserved.
• The following instruments are now exempt from stamp duty:
  • A lease of realty with a term of 5 years or more
  • A transfer of a Crown lease
  • Affidavits, other than affidavits of loss relating to a conveyance on which stamp duty or VAT was never paid
  • Any agreement not referred to in the First Schedule of the Stamp Act
  • Declaration of Condominium
  • Grant of right of way
  • Lease of easement
  • Renunciation or release of dower

VALUE ADDED TAX (AMENDMENT) ACT, 2022

The following items reflect the changes to the Value Added Tax (Amendment) Act, 2022, specifically related to real estate transactions. These amendments are subject to the VAT Rules and Regulations which we are advised are in the process of being amended.

A. Collection of VAT on supply of real property

• Where more than one instrument is executed as part of the collateral to secure the same loan, VAT is chargeable at the applicable rate on only one of the security instruments and no VAT shall be assessed on any other agreement, instrument or document delivered simultaneously with the security document chargeable to VAT. This provision only applies where the entire amount of the loan is secured by the instrument chargeable to VAT and all security documents are submitted simultaneously for stamping.
• Every instrument for a supply of real property shall:
  • From 1 October 2022, state the real property tax assessment number(s) in respect of all property to which the instrument relates;
  • Be presented to the VAT Department within the time prescribed by the VAT Rules; and
  • Not be stamped unless all outstanding real property taxes due on the property to which the instrument relates, has been paid.

B. Exchange Control and the International Persons Landholding Act (‘IPLA’)

Any exemptions, permissions, or approvals granted under the Exchange Control Regulations Act or the IPLA in respect of the acquisition of real property are now conditional on payment of VAT within Eighteen (18) months of becoming due. Where the VAT remains unpaid for such eighteen (18) month period, the exemption, permission or approval would be conclusively deemed to be rescinded but will be automatically re-instated upon payment of the unpaid VAT and any applicable fines.

C. Eligibility for a VAT refund

Bahamian Citizens are now eligible for a refund of the VAT paid in connection with the construction or renovation of such citizen’s first home and the criteria for eligibility will be as prescribed in the VAT regulations and VAT Rules.

D. Exempted supplies of real property

• Instruments relating to the acquisition of a dwelling for the first time by a Bahamian citizen where the value does not exceed $300K; a decrease from the previous amount of $500K;
• Instruments relating to the vesting of real property in a beneficiary under a trust, in accordance with the provisions of the trust;
• Instruments relating to the transfer of real property between two or more companies where at least 95% of the shares of both companies are beneficially owned by the same person; VAT would only be payable to the extent of a change in beneficial ownership; and
• Conveyances by way of assent and deeds of assent.

E. New rates for supplies of real property

The new rate of VAT for the following supplies of real property are as follows: