The Tribune

By Fay Simmons

Tribune Business Reporter

jsimmons@tribunemedia.net

Foreign vacation rental owners face an increasing tax compliance burden with the Government handing them the responsibility of ensuring VAT is both levied on the rental income and paid to the Public Treasury.

Department of Inland Revenue (DIR) officials, speaking at a Friday press conference, said foreign owners can either collect the due VAT themselves from their guests or authorise the websites that market their properties - the likes of Airbnb and VRBO - to collect the tax on their behalf and remit it to the Government.

Shunda Strachan, the Department of Inland Revenue’s acting controller, also sought to clarify the new rules for residential rentals and short-term vacation rentals depending on whether the property owner is Bahamian of foreign.

Non-Bahamians must now obtain a Business Licence to operate both residential rentals and short-term vacation rentals, and are also required to register for VAT regardless of whether the $100,000 annual turnover threshold is met. However, while Bahamian companies must obtain a Business Licence for residential and short-term rentals, Bahamian individuals do not, and only those who exceed a $100,000 annual turnover must register for VAT.

Ms Strachan said: “One of the new things in this Act has really highlighted the need for non-Bahamians, or Bahamian companies, to have a Business Licence if they are conducting residential rental. So, if you’re in that arena of renting for residential purposes, you will need a Business Licence if you are non-Bahamian or if you are a Bahamian company.

“If you’re a Bahamian individual, and you have properties that you rent for residential purposes, no, you don’t need a Business Licence. The second thing relative to rentals is around short-term vacation rentals. Bahamians in the area, or in the industry of short-term vacation rentals, do not need a Business Licence. But again, if you are a foreigner or a company, and you have a short-term vacation property that you rent, you do need a Business Licence.”

When it came to VAT, Ms Strachan added: “If you are a non-Bahamian you have to register for VAT no matter what your turnover is if you’re in the area of short-term vacation rentals. So, again, if you’re a Bahamian, and you are renting your property for short-term vacation purposes, you do not need a Business Licence and you don’t need to register for VAT unless you have attained that $100,000 turnover.

“So if you’re doing really well, and your rental properties are generating a turnover of over $100,000 and you’re Bahamian, then yeah, you need to register for VAT. But if you’re a non-Bahamian, you have to register no matter what your threshold is.”

Particia Jackson, the Department of Inland Revenue’s legal head, emphasised that the obligation to ensure VAT is collected, reported and paid lies with the owner of the short-term rental. However, they can authorise the online vacation rental marketplace that promotes their property to levy and collect the tax on their behalf.

She said: “In the case where VAT is required to be paid for vacation home rentals, the obligation is on both [owner and marketplace]. However, we’re emphasising the obligation primarily in relation to the owner of the property. So, the owner of the property must register for VAT and must report the VAT.

“However, if they have an arrangement whereby the Airbnb or whichever other platform is reporting that amount, then the owner would not be required to pay it but the obligation has primarily been placed on the owner.”

Dexter Fernander, the Department of Inland Revenue’s head of operations, explained that rental platforms are currently collecting VAT related to the listing fee and commission paid to them by property owners. The latest changes will now require the short-term rental owner to collect VAT on the entire transaction, meaning the rental income, and pay it to the Government themselves or authorise the rental platform to collect it on their behalf.

He said: “The various platforms that are working within the jurisdiction, you would see now that they are paying VAT or there’s a VAT charge on their commission. It’s not on the entire transaction. What this is enforcing is that the transaction, the rental of that night, is the obligation of the registrant to now remit that VAT that they obtain.

“So, if you’ve seeing on some of the platforms, they will only pay the VAT related to the commission that the platform is giving. So now on the total rental, it is the responsibility of that registrant to either remit that directly to us through their registration, or they can give that power to their platform operator to remit on their behalf.” This represents a shift from the former Minnis administration, which intended to collect VAT on rental income via the likes of Airbnb.

Ms Strachan, meanwhile, said there is now an application fee of $25 to reserve a trade name for non-incorporated businesses.

She said: “If you’re going into business, then you need a name; your business has to have a name. Before those fees for non-incorporated businesses were free. You came in, you requested a name from the Department of Inland Revenue, we reserved the name for you, there was no charge. Now there is a small charge of $25.”

She added that businesses which generate over $250,000 in annual turnover are now required to have an accountant’s verification, while those above $5m must submit audited financial statememts. Businesses that generate less than $250,000 no longer require an accountant certification.

“Again, we will issue guidance notes because the guidance notes will speak to the type of verification that we now require,” Ms Strachan said. “In the past, we just said an accountant’s certification is required for all businesses that generate a turnover of over $100,000.

“Now, we’re saying an accountant’s verification - or verification from an independent accountant registered with BICA - is required if your turnover is over $250,000. And from $250,000 straight on up to just under $5m will require a review. And if it’s over $5m, you will require audited financials.”