The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian registered agents and offices must starting this year submit annual declarations on all their corporate clients’ real estate deals and holdings as part of a crackdown on VAT evasion.

Attorneys and financial services executives yesterday voiced alarm over planned reforms to the VAT Act that they argue are “so bureaucratic”, will “overly burden” registered agents given their existing regulatory obligations, and effectively amount to government agencies “abdicating their responsibilities”.

They spoke out when approached by Tribune Business over previously little-noticed legal changes that were tabled with last week’s Budget, which mandate that - starting in 2024 - law firms, financial and corporate services providers and all others acting as registered agents must submit an annual “real property declaration” on all their corporate clients.

This declaration must be submitted regardless of whether they are Companies Act entities or International Business Companies (IBCs), according to the VAT (Amendment) Bill 2024. The reforms are designed to tighten the regulatory net and prevent the evasion/avoidance of VAT due on high-end real estate sales worth over $1m - a revenue stream that the Prime Minister last week said has under-performed.

The “real property declaration”, which will be legally required through inserting a new section 47B into the VAT Act, mandates that all corporate entities must notify their registered agent within 15 days of a real estate transaction closing regardless of whether they are buyer or seller.

Then the registered agent, or the Registrar General if a company has no such agent, must “submit a declaration” to the VAT comptroller by December 31 every year on all their corporate clients’ real estate dealings over the previous 12 months.

“The declaration shall include whether or not the company holds or has sold, transferred, assigned or otherwise disposed of an interest in any real property over the last 12 months,” the Bill stipulates. The declaration must also include “the nature of the company’s interest in, and other particulars as prescribed by the comptroller of all real property” bought and sold that year.

And, finally, the “declaration” must also supply “particulars as prescribed by the comptroller of all changes in the legal or beneficial interest of any of the shares” in domestic companies or IBCs over the prior 12 months. This appears designed to prevent persons evading VAT on real estate sales by transferring the subject property’s ownership to a company, then selling the latter’s shares to the purchaser.

The Government has for more than two decades sought to plug such loopholes, but Michael Halkitis, minister of economic affairs, last week said it suspected that wealthy home buyers and their advisers are using sophisticated company structures, including the “layering” of trusts and entities domiciled in other jurisdictions, to avoid paying tax on multi-million dollar properties.

The Prime Minister, in his Budget communication, revealed that the Government had at end-March 2024 received just $15.1m of its $190.3m full-year target for VAT levied on real estate deals worth $1m and over. The initial figure amounted to just 8 percent of the total, and Philip Davis KC said it was inconsistent with the volume of permanent residency and international persons landholding permits being issued.

Reaction to the “real property declaration”, which places the regulatory burden and compliance burden on law firms, financial and corporate services providers and others who act as registered agents, was decidedly mixed. One attorney said the move “narrows the margin” to a land registry and system of registered land, which would solve the Government’s concern by acting as a one-stop shop deal repository.

“Wow,” exclaimed Thomas Dean, attorney and partner at the Dupuch & Turnquest law firm, when told of the reforms. “It’s going to be an extra cost for the client and going to be extra work for the attorney, but in any event if the carriage of the transaction is done as it’s supposed to be done those documents will be filed in time anyhow.

“That eliminates the loophole of attorneys and their client purchasers holding documents that are not necessarily stamped. It’s a move, but another financial responsibility that the client has to bear. That means for every company that holds land, every year you are going to submit a declaration of real property. It seems like it’s across the board.

“It’s narrowing the margin of not having a registered land system and a land registry. This is geared towards the collection of taxes. It would be easier if they had a registered land system. That alone would let you know where we are. Once again it’s turning the registered agent or registered office into a government reporter, auditor and collection agent.”

Paul Moss, president of Dominion Management Services, which also acts as a registered agent, described the proposed reforms as unnecessary and a further impediment to The Bahamas’ ease of doing business as he called on the Bahamas Financial Services Board to “object” to the real property “declaration”.

“That is so bureaucratic. It’s nonsense. It’s foolishness,” he told Tribune Business. “Ninety-nine point nine (99.9) percent of the companies under our jurisdiction are not companies dealing in real estate that way. They’ll be dealing in financial transactions, not real estate transactions.

“They’ve over-burdening the registered offices and agents who are already over-burdened with all these filings for beneficial ownership, the common reporting standard (tax information exchange) and CESRA (economic substance reporting)..... I don’t know what to say. This country is getting very bureaucratic.”

Mr Moss argued that the “real property declaration” is unnecessary if the Department of Inland Revenue (DIR) were to properly perform its job. He asserted that it already has everything necessary to pursue VAT real estate evaders as, when obtaining a real property tax assessment number, all land and building owners have to submit their identities, contact details and other information.

“It just seems to me to be burdening people when they have the information,” the Dominion Management Services chief said. “They can get on the phone, call people and say they have not paid or are late. It’s ridiculous, adding to the burden, man, adding to the burden. I hope the BFSB objects to it. It’s burdening us with too much.

“They really have to stop, and they’re talking about ease of doing business in the country? This is adding to the bureaucracy of it. It’s ridiculous, man. It’s crazy. It’s crazy. I don’t know where they [the DIR] to manage this. It’s up to them. I wonder what they’re doing.

“I hope they take those amendments out of there. It makes no sense to put the burden on registered offices. It should be on the Department of Inland Revenue. They cannot abdicate their responsibilities and put it on the private sector to do their jobs.”