The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian companies will have two months to raise invoices for goods and services supplied prior to Value-Added Tax’s (VAT) introduction, otherwise these transactions will be deemed subject to the 7.5 per cent levy.

These and a host of VAT ‘transition arrangements’ were unveiled yesterday by the Ministry of Finance and its VAT Department, which confirmed that when it came to pre-existing construction and rental contracts, the new tax would only be levied post-January 1, 2015.

But, yet again, the transition guidance notes confirmed that the ‘devil is in the detail’, certainly when it comes to pre-existing contracts and invoices for goods and services.

In the case of post-transaction invoices, raised for deals completed pre-January 1, companies will have until February 28, 2015, to get them out otherwise the arrangement will attract VAT.

“For services performed and completed prior to January 1, 2015, you do not need to charge VAT provided you raise an invoice within two months of January 1, 2015 (prior to February 28, 2015),” the Ministry of Finance warned.

“Any invoices raised after February 28, 2015, are deemed to be for services supplied after January 1, 2015, and will be subject to VAT even if the services have been performed and completed prior to January 1, 2015.”

And, when it came to pre-existing services and rental contracts, there is a ‘catch’ even though VAT will not be due on the duration pre-January 1. For who pays the tax post-VAT implementation will depend on the client, if the contract contained no VAT provision.

If they do not agree to pay the VAT, the Government will deem the 7.5 per cent included in the contract price, thus slashing the vendor’s (service provider’s) profits and margins. This may have a big impact in sectors such as construction.

Commercial landlords may suffer the same fate. “If the rental contract does not provide for the application of VAT and it cannot be agreed with the tenant that VAT is charged in addition to the rent under the terms of the contract, the rent payments are deemed to be inclusive of VAT. To calculate the amount of VAT, you should use the VAT fraction 3/43,” the Ministry of Finance advises.

When it comes to the hotel industry, the Government will exempt pre-booked group and business packages from VAT provided they were paid for - or a deposit put down - before January 1, 2015.

These guests will still be liable to pay the 10 per cent room tax, and any services not included in the package will be subject to 7.5 per cent VAT post-January 1. Hotels have to provide a list of these bookings to the VAT Comptroller by October 1, and subsequently inform him of any cancellations or adjustments.

“Bookings concluded before or after January 1, 2015, will not be subject to VAT until the application of hotel guest tax has been repealed under the Hotels Act,” the Ministry of Finance said.

“Any contract executed after August 31, 2014, will be presumed to have made provision for VAT for accommodations commencing on or after January 1, 2015.”

Small businesses with annual turnover less than $400,000 will pay the Government the equivalent of 4.5 per cent of their cash sales, rather than the standard 7.5 per cent, if they elect to use the simplified reporting offered by the Flat Rate Scheme.

“These businesses with sales under $400,000 would pay 4.5 per cent of their cash sales to settle their VAT liability. They would still have to charge customers VAT at the rate of 7.5 per cent, but be allowed to retain the difference to compensate for input tax credits,” the Ministry of Finance said.

The guidance notes also confirmed the Government’s ‘virtual warehouse’ plan to ease the VAT transition plans for retailers and wholesalers.

Companies must apply to use this system by September 30, and will have until February 28, 2015, to pay duty on products subject to altered tariff rates come the New Year. They will have to submit a detailed list of inventory held in the warehouse on New Year’s Eve by midnight that night.

Mandatory VAT registrants, meaning those companies with an annual turnover exceeding $100,000, have until December 1, 2014, to register. The Government wants these registrations submitted “as soon as possible”.

For those who fail to comply with this obligation, VAT will be backdated to January 1, meaning that the tax payment will effectively come out of the business’s bank account rather than their customers’.

“Your effective date of registration will be January 1, 2015, so you must not charge VAT until this date,” the Ministry of Finance said. “If you do not register for VAT by January 1, 2015, and it is found that you should have registered by this date, your VAT registration will be backdated to January 1, 2015, and you may have to account for any VAT due on supplies you have made after January 1, 2015, even though you have not charged your customer VAT.

“You must not, under any circumstances, charge VAT on your supplies before you are registered for VAT.”

Still, the Government is proposing to adopt a ‘light touch’ regulatory approach to VAT during the tax’s first six months. “Getting VAT compliance and reporting right will always be the responsibility of the registrant, and it is the registrant’s responsibility to gain the knowledge required to comply with the legislation,” it added.

“ However, the Comptroller intends to take a light touch to compliance for the first six months with no fines imposed on those that make genuine errors (although any VAT payable will be collected).

“Fines will be imposed on those not registering for VAT when required to do so, not filing returns and paying on time, or intentionally filing incorrect VAT returns.”