The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Attorneys yesterday warned the Bahamas is “shooting ourselves in the foot” through red tape that has caused multi-month delays to the closing of real estate transactions.

The increased costs and bureaucracy, which are impacting real estate deals involving foreign investors, are said to be creating such “uncertainty and anxiety” that many overseas owners “want to get out” of the Bahamas.

Frederik Gottlieb, the former MP, told Tribune Business that the recent real property tax over-billings were just ‘the tip of the iceberg’ when it came to obstacles threatening to deter foreign direct investment (FDI) in Bahamian real estate.

Warning that the situation threatened to undermine the Government’s stated objective of improving the Bahamas’ ‘ease of doing business’, Mr Gottlieb said the problems stemmed from the increased paperwork demanded by the Central Bank before it will give permission for real estate sales proceeds to be remitted to foreign buyers.

He explained that this was linked to Value-Added Tax’s (VAT) imposition on real estate transactions, which now requires the sales price to be approved and stamped by both the Department of Inland Revenue and Public Treasury.

In the past, conveyances only required the latter’s ‘stamp of approval’, and Mr Gottlieb and others warned that the extra layer of bureaucracy could potentially add several months to the approvals process.

The Abaco-based attorney said a further development causing consternation among the legal profession, realtors and their foreign clients was the Central Bank’s decision to suddenly enforce a provision in the Stamp Tax (Amendment) Act 2016.

This allows it to levy a 1.5 per cent fee on remittances heading out of the Bahamas, and Mr Gottlieb said the Central Bank had decided to impose this without warning on real estate sales proceeds being sent to foreign vendors.  

“There are so many things that are creating uncertainty and anxiety for these investors,” he told Tribune Business. “There’s the way in which Stamp Duty is assessed and determined, with no regard for the price negotiated in good faith by a vendor and purchaser.

“Appraisals have to be done, and all that results in delays to getting documents stamped. You can’t get a Certificate of Registration and record the conveyance value unless it’s stamped by both the Department of Inland Revenue and the Public Treasury.

“That, in turn, is creating further delays, and now the Central Bank has made it clear that they will not give permission for the remittance of funds by or to foreign owners who have completed the sale of their property unless they receive a conveyance stamped by the Department of Inland Revenue and the Public Treasury, and a Certificate of Registration is attached to the conveyance, along with evidence that the conveyance has been recorded.”

Other attorneys, speaking on condition of anonymity, backed up Mr Gottlieb’s concerns and warned that the increased bureaucracy/red tape and associated delays were striking at the heart of foreign investor confidence - the ability to monetise investments and access their funds.

One attorney said the Central Bank’s requirement that a properly stamped and recorded conveyance be produced was adding four to six weeks to the approvals process where foreign real estate sellers were involved.

Another revealed that the stamping ‘turnaround time’ at the Department of Inland Revenue and Public Treasury was seven and three days, respectively, provided there were no objections to the sales price or other factors.

With a stamped conveyance likely available to the Central Bank some six weeks after a deal’s closing, the attorney said it then frequently took between four to six weeks to record the relevant documents at the Registry of Records.

As a result, it is now taking between two to three months before the Central Bank gives exchange control approval for the proceeds of a real estate sale to be remitted to foreign owners.

“I can understand why they’re doing it,” Mr Gottlieb told Tribune Business, “but that doesn’t sit well with foreign sellers, as they have to wait for the funds to be remitted to them. They also have to wait until the purchaser’s law firm carries out the transaction, which means it’s outside their control.

“In one situation, I had to wait two-three months to remit funds to a foreign investor, and that’s not going to work well in the future. I fully understand the need to tighten up revenue collections, but we have to find ways of doing so without shooting ourselves in the foot.”

Terence Gape, senior partner at Dupuch & Turnquest, told Tribune Business that VAT’s imposition on real estate transactions had created “sheer hell” for attorneys in trying to close deals where foreigners were involved.

Describing the situation as “a total disaster” and “unbelievable”, Mr Gape confirmed: “The Central Bank will not approve the transit for the conversion of funds until they get the conveyance, which is way after the closing. It’s totally ridiculous.

“I’ve written letters to the Central Bank, the head of exchange control, until I’m blue in the face. If a foreign investor is selling his property to a Bahamian, he must wait for the conveyance to be stamped and recorded before the Central Bank approves and he gets paid.

“That’s three to five months after the closing. There’s no country in the world that does that to people. I’ve been complaining until I’m blue in the face. What kind of investor confidence are you trying to engender?” Mr Gape continued.

“I had one where the Bahamian buyer was applying for the first-time buyer Stamp Duty exemption. That takes time, and the money was not available until nine months after the man sold his house - foreigner to a Bahamian. Unbelievable.”

Attorneys are not the only Bahamian professionals impacted. Bill Thompson, of Abaco Real Estate Agency, recently told Tribune Business that it took five months for the Central Bank to issue the necessary exchange approval for a transaction involving a foreign client selling a land parcel to a Bahamian.

To reduce the ‘red tape’, Mr Gottlieb urged the Government to reverse the VAT Act changes of 2015, which imposed the 7.5 per cent levy on real estate transactions. This replaced, and reduced, the amount of Stamp Duty charged, and he called on the Minnis administration to go back to the previous position where that was the only tax imposed.

Doing so, the Abaco-based attorney explained, would eliminate the additional layer of bureaucracy created as a result of the Department of Inland Revenue having to stamp conveyances separately from the Public Treasury.

“VAT has introduced another layer of bureaucracy,” he said. “To get a document stamped you have to get it stamped by the Department of Inland Revenue for VAT or marked ‘exempt’, and then go to the Treasury.

“I’ve had instances where the VAT Department had no problem stamping the document based on the conveyancing price, but then the Treasury required an appraisal. All this makes it difficult to complete transactions and allow transactions to flow.

“In the long run it’s not going to result in increased revenue. I don’t know if this attributable to the negatives surfacing among foreign investors, but those I’ve spoken to are not happy at all and want to get out.”

Mr Gottlieb then revealed how it took him 10 months of negotiations with the Department of Inland Revenue before it relented, and stamped as VAT ‘exempt’, a transfer of land from a husband to a wife where no purchase price was paid.

Such transactions are exempt from the 7.5 per cent levy, but he recalled: “The Department of Inland Revenue refused to stamp this document as VAT exempt. It took me 10 months of arguments, going back and forth with the Ministry of Finance, before they finally relented and stamped the document as VAT exempt.

“Can you imagine how well that’s sitting with foreign investors? I something is going to be done to make that easier.” 

He also called on the Government “not to treat every other conveyance as being suspect; that the price expressed therein is a potential fraud”.

“That’s what we’re experiencing now,” Mr Gottlieb told Tribune Business. “We provide a conveyance, and they don’t accept the price that’s been negotiated in good faith between the parties, plus the appraisals that have been done. It’s very unsatisfactory and never used to be like this.”

And, rounding off the obstacles facing foreign investors, the former MP said sellers were reacting furiously to the Central Bank’s decision to impose a 1.5 per cent levy on the remittance of their sales proceeds - something it can do by law, but which it has only started enforcing after a year of inactivity.

“Due to the amendments to the Stamp Act in 2016, but never enforced until very recently, the Central Bank’s exchange control department has implemented a policy where any funds remitted out of the country to a non-resident - even if the monies are paid by a non-resident in foreign currency - you’re going to have to pay 1.5 per cent to remit the funds,” Mr Gottlieb told Tribune Business.

“What’s unacceptable is that no advance notice was given. They started doing that two to three months ago. What makes that so ridiculous is that you can get around it. Attorneys, where there is a foreign seller and purchaser, have to direct the purchaser to pay the seller the net proceeds out of the Bahamas.

“It underscores how ridiculous that policy is. It creates another negative impression as far as foreign investors are concerned. It’s another hurdle that has to be dealt with. It’s another example of how difficult it is to do business in the Bahamas.”

Mr Gape described the 1.5 per cent levy as “the kiss of death” for the FDI-driven real estate market segment, while Mr Gottlieb said the increased red tape was consuming more and more of his time in trying to complete transactions - as opposed to originating new ones.

“Every day we have a challenge to get documents stamped and matters resolved,” the latter said. “It takes up a tremendous amount of time to deal with this, and it’s unfair for small firms like mine as we don’t have the resources to deal with that.

“It’s a tremendous burden on a firm like mine because of the amount of time that has to be spent dealing with these things, and completing transactions before moving on to the next one. I’ve spent an incredible amount of time on this.”