On 1 July 2025 the Government of The Bahamas enacted several legislative amendments which have introduced significant tax administration changes and reporting obligations in real estate transactions as part of the 2025-2026 National Budget.
The amendments have also expanded the list of goods that will now be subject to VAT at the reduced rate of 5%. However, this provision becomes effective on 1 September 2025.
Limitation on VAT Refund Claims
VAT refund claims have been restricted to businesses with at least 50% zero-rated or reduced-rated supplies. Other VAT registrants will be required to carry forward excess VAT credits until they cancel their VAT registration. Note, however, that charities, non-governmental organizations, diplomatic missions, and international organizations will remain eligible to claim VAT refunds in accordance with VAT Rules.
Restrictions on VAT credits for Major Construction
VAT registrants are no longer able to claim VAT credits on goods or services acquired for major construction activity, unless the registrant is a real estate developer or other business engaged in the taxable supply of real property. Major construction has been defined to include projects exceeding one million dollars, land reclamation, infrastructure, or marina-related works. The Department of Inland Revenue (“DIR”) is able to prescribe exceptions to the restriction on input tax deduction for major construction activity.
Changes to Tax Reporting Obligations in Real Estate Transactions
Parties to real estate transactions, as well as their attorneys and real estate agents, are now required to obtain a VAT invoice from the DIR before executing the conveyance or other instrument to complete the transaction (e.g. a mortgage deed, or lease agreement). Note, that this is a provisional invoice and the amount reflected as payable may change when the final invoice is issued after the executed instrument is submitted to the DIR for stamping.
Property owners are also required to file a declaration with the DIR within 30 days of executing the conveyance when they convey a beneficial interest in their real property. The declaration is required whether the beneficial interest is conveyed directly or indirectly. The transferor and any real estate agents involved in the transaction are jointly and severally liable for a penalty in the amount of 3% of the consideration if the declaration is not filed in the time prescribed.
The DIR has posted new prescribed forms on their website for the submission of the request for VAT Invoice and the declaration.
Fees for Advance Tax Ruling Applications
Taxpayers that wish to apply to the DIR for an advance tax ruling (“ATR”) will now need to make a deposit of either $1,000 or security as determined by the DIR for ATR applications under the Value Added Tax Act (“VAT Act”), Business Licence Act and the Stamp Act. A penalty equal to the greater of $1,000 or 0.1% of the taxes assessed by the DIR for the transaction, may also be imposed, if the applicant fails to complete the transaction within the timeframe specified by the DIR.
Expansion of VAT Reduced-Rated Goods
The Fourth Schedule to the VAT Act was amended to expand the category of reduced-rated goods. Effective 1 September 2025 baby and adult diapers, feminine hygiene products, medications, and medical supplies will be subject to VAT at the reduced rate of 5%.
The Fourth Schedule was also amended to re-impose the standard rate of 10% on sweets, chewing gum, and sodas.
AUTHOR
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