The Tribune

• Attorney’s 18 months trying for client’s Business Licence

• ‘Avoidance’ if tax payment and registration not kept simple

• Extra costs may be ‘too high a barrier’ for some owners

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must avoid earning “the reputation that it is too hard to do vacation rental properties” with all the extra tax and regulatory obligations it is imposing on the industry, an attorney warned yesterday.

Andrew O’Brien, the Glinton, Sweeting & O’Brien partner, told Tribune Business that imposing extra bureaucracy and red tape which is both costly and time-consuming could set “too high a barrier” for some owners as he revealed that he has thus far spent 18 months trying to obtain a Business Licence for one foreign client.

Acknowledging that taxation of rental income has become increasingly accepted worldwide, he added that the absence of online and other “simple” mechanisms where owners can register and pay due taxes would only encourage “avoidance” and non-compliance.

Mr O’Brien said he and other Bahamian professionals are “still digesting all of our legislation”, and reforms unveiled both during the Budget and before. Tax officials last week said foreign vacation rental property owners should be registered to pay VAT on their revenue earnings and possess a Business Licence “from day one” and “the first dollar”. VAT registration is a requirement for overseas owners regardless of how much rental income they earn.

Speaking at a Bahamas Hotel and Tourism Association (BHTA) Board of Directors meeting, the Department of Inland Revenue (DIR) representatives said the requirements for Bahamian vacation rental owners are less onerous. They will only have to register for, and charge, VAT if their annual rental earnings meet or exceed the $100,000 threshold, while a Business Licence will only be required if the property in question is operated and held under a corporate entity.

Mr O’Brien said this implies a “switch” from the Government’s previous position where it intended that vacation rental websites, such as Airbnb and VRBO, would levy and collect 10 percent VAT on the rental income that their Bahamian listings earned from clients.

These online marketplaces would then remit the taxes collected to the Government. The former Minnis administration amended the VAT Act in the initial 2021-2022 Budget to bring this into effect, expanding the tax regime beyond simply imposing a levy on the listing fees charged by Airbnb and its competitors, but this newspaper understands this never implemented in practice.

Mr O’Brien, confirming that he, too, believed this was never executed, added that the latest changes appear to shift the burden for levying, collecting and paying VAT on vacation rental income from the online marketplaces to the property owners themselves. The Department of Inland Revenue officials last week said they have compiled a database of close to 10,000 Bahamas-based vacation rental properties from information available via the likes of Airbnb.

Detailing his particular compliance struggles on behalf of clients, Mr O’Brien said he was still trying to obtain a Business Licence for one foreign vacation rental owner despite starting the process some 18 months ago. “As part of the Business Licence, you have to get a letter from the National Insurance Board (NIB) that says you are either up-to-date or not owing anything,” he recalled.

“We applied to NIB for that, and included a copy of our permit from the Bahamas Investment Authority which said the purpose of the permit was a rental. They said: ‘We don’t care, we want to see a letter from the BIA stating that the company has permission to rent from a business standpoint. It was a case of choosing the path of least resistance, and we sent it back to the BIA and they issued it.

“But we still, a year-and-a-half later, are trying to get a Business Licence for someone.” Mr O’Brien said the NIB approval and confirmation was required even though his client did not directly employ anyone in The Bahamas, and was therefore not responsible for making contributions, since they planned to use third-party contractors.

Shunda Strachan, the Department of Inland Revenue’s acting controller, last week pledged that the tax collection agency is “working on simplifying the processes” after Mr O’Brien warned the same BHTA meeting against creating “cumbersome” procedures for vacation rental owners.

The Glinton, Sweeting & O’Brien partner yesterday told Tribune Business: “The bottom line is we need to keep the process simple or people are going to be encouraged to avoid it. It’s expensive, or will add additional expense from someone out of the country, and they will have to hire a law firm or accounting firm to do that. Someone in The Bahamas is going to have to perform that function. If it’s something that can be done online or streamlined, then compliance will go up.”

Referring to the seeming switch from vacation rental marketplaces to owners when it comes to tax compliance, Mr O’Brien added: “The other major item is that we just want to make sure the Department of Inland Revenue doesn’t try to collect VAT from owners who were using Airbnb or some form of marketplace prior to July 1 because the legislation called for those entities to be collecting VAT.

“Just to keep it simple, I hope the Department of Inland Revenue takes the position that we’re not going to try and claw back, and hold owners responsible, who were relying on the prior legislation.” The Government may well still rely on the likes of Airbnb to collect VAT on clients’ rental incomes, and pass these taxes on to the Government, with homeowners now responsible for registration and Business Licence fee payments.

Regardless, the burden on vacation rental owners will increase - it is just to what extent. “It is a lot more administration, and we’ll see how the market accepts that,” Mr O’Brien added. “It might be just too high a barrier for some to bother renting, which will have a waterfall effect on everything else and real estate sales.

“I think everyone will accept that if you’re making money from a service, the Government deserves its share and, where it’s generated, can tax rental income. Conceptually, it’s not a hard sell, but we need to make it as easy as possible for people to do so. We’ve got plenty of room for improvement. We’re certainly heading in the right direction, but I hope the Department of Inland Revenue takes a flexible approach as all these new obligations are created.

“It’ll take a little bit of time, but once a jurisdiction gets a reputation that has a long-term effect. I think we just need to be cautious that we’re not going to allow the reputation that it’s too hard to do business in The Bahamas if you own vacation rental properties.”