The International Persons Landholding Act, 1993
The repeal on the 1st January, 1994 of The Immovable Property (Acquisition by Foreign Persons) Act drew a sigh of relief from many attorneys and real estate agents. For years, these professionals had complained that the Act made the acquisition of land in The Bahamas by foreign persons cumbersome and that it acted as a deterrent to legitimate investment.
The International Persons Landholding Act 1993 encourages foreigners or companies owned by them to purchase a second home in The Bahamas as this area was thought to have the most significant potential. If a foreigner acquires a single family dwelling or vacant land to be used in the construction of such a dwelling then he no longer need obtain a permit from the Government (specifically the Investments Board) prior to the purchase. He need only register the acquisition subsequently with the Investments Board.
Permanent residents of The Bahamas and foreigners who inherit property in the Bahamas are now treated more kindly. In neither case are they to obtain a permit before acquiring land but must merely register subsequently.
The foreigner will require a permit however if (1) the property is undeveloped land and of five acres in size or larger, or (2) the property is not a private residence, or it is not intended for development as such.
Failure to obtain a permit will render the acquisition null and void but the foreigner will be entitled to recover all monies paid in consideration of the acquisition less any legitimate deductions. If a permit has been granted for the acquisition of land and the intended usage changes then the permit must be varied by the Board otherwise it will be invalid.
A registration certificate or permit must be included along with title documents to be recorded in the Registrar General's Office otherwise the recording will be null and void.
The new act is not intended to be a stumbling block for legitimate credit transactions. It provides that licensed banks, trust and insurance companies who acquire an interest in or take possession of property under a Court Order must register that acquisition or fact of possession. Acquisition by way of foreclosure under a mortgage or of land acquired by an authorized foreign state will not require a permit but must be registered.
Foreigners are not required to obtain permits, register leases or letting agreements unless they are for trade or business purposes and the term can exceed 21 years.
In line with its policy of actively encouraging foreign investment, the government has included in this Act a provision that a foreigner no longer pays a double rate of stamp duty. He now pays the same single rate as a Bahamian.
Furthermore, a foreigner who owns a home in the Bahamas may now obtain an annual home owner resident card upon application and payment of a fee to the Director of Immigration. The Card authorizes the entry of the holder and his immediate family. Their stay in the Bahamas is authorized provided there are no restrictions for policy reasons or under the Immigration Act.
Schedule of Fees
Application for registration - $25.00
Application for permit - $25.00
Certificate of registration:
(a) the value of the property is $50,000 or less - $50.00
(b) the value of the property is over $50,000 but under $101,000 - $75.00
(c) the value of the property is $101,000 and over - $100.00
Home owner resident card - $500.00
Rules Governing Sales
GROSS PRICES: A price given to a broker by an owner shall be deemed to be gross and the broker shall charge the regular commission on such price.
NET PRICE: Acceptance of Net listings by brokers is not allowed.
WHEN COMMISSION IS EARNED: A commission on a sale is earned and payable when, through the agency of the broker, the minds of a seller and a buyer have met on the terms of sale, as evidenced by a cash deposit or written agreement.
BUYING REAL ESTATE: The same commission rates and rules which apply to sales apply to purchases in which a broker is employed to purchase property, and the broker shall collect a commission based on the total cost to the purchaser if he or she is authorized to buy property at public auction, forced sale or private sale (Article 13, part 2, Code of Ethics).
OPTIONS TO BUY PROPERTY SECURED BY BROKER: If a consideration, cash or otherwise, has been paid for an option arranged by a broker and the option is not exercised, the broker shall charge the principal granting the option one-half of the consideration received, but in no event shall this amount exceed the sales commission to which the broker would have been entitled had the option been exercised. If a broker is engaged by a prospective purchaser to secure options, the broker shall have an agreement in advance for compensation by the prospective purchaser, and he or she shall charge compensation accordingly, whether the options are exercised or not the same commissions rules and customs which apply to exchange.
EXCHANGE OF REAL ESTATE: Commission shall be paid by each owner on full sales price of each property and shall be stated in the exchange contract.
The New Government Stamp Tax And Vat On Property Conveyance
There have been a number of legislative changes in 2014/15, one of the most significant being the implementation of Value Added Tax (“VAT”). VAT is a form of indirect consumption tax charges on the supply of goods and services. This article will explore the impact of VAT on real estate transactions in The Bahamas.
VAT was implemented on 1st of January 2015 at a rate of 7.5% and is governed by the Value Added Tax Act, 2015 (the “VAT Act”), Value Added Tax Regulations, 2014 (the “VAT Regulations”.)
In June, 2015, the Ministry of Finance, VAT Department implemented VAT Rule #2015-025 (Real Estate) (the “VAT Rule”) in an effort to provide clarity relating to VAT on real estate.
When considering the purchase of a property in The Bahamas, there are various professional services involved that will now incur VAT. These include fees for appraisals, title search fees, legal fees and real estate commissions.
Although not a professional fee incurred during the purchase of a residential property, a buyer needs to bear in mind that homeowner association fees are also subject to VAT.
VAT and Stamp Duty
According to the VAT Rule, VAT is chargeable on all conveyances or real property valued at more than $100,000. In assessing the value of the property, the VAT Comptroller may consider the purchase price and the appraisal value of the property and the VAT Comptroller has the authority to choose the higher value. Real property valued at $100,000 and under is exempt from VAT.
For the avoidance of doubt please note the following:-
1.Conveyances include the sale, lease, assignment or other transfer of real property from an owner/s to another.
2.Real Property includes, but is not limited to:
a) Vacant land
b) dwellings for first time owner-occupiers whether or not valued over $100,000;
c) Commercial buildings
e) tenements or any other structures attached to the land;
f) time-shares; and
g) any buildings constructed for sale by contractors who are also the owners;
Prior to the implementation of VAT, Stamp Duty was charged on the value of the consideration (either the purchase price or the appraisal value) as per the following schedule:
The Vat Rule notes that first time homeowners who are exempt from Stamp Duty will also be exempted from VAT.
Consider the following examples:
Value of Consideration Stamp Duty
$0 - $20,000 4%
Greater than $100,000 10%
Subsequent to the implementation of VAT, the Stamp Duty rate changed to a flat 2.5% with a 7.5% VAT being charged in lieu of the former Stamp Duty rate on transactions above $100,000.
The VAT Rule notes that first time homeowners who are exempt from Stamp Duty will also be exempt from VAT.
Consider the following examples:
Property Value Tax Payable Pre-Vat Tax Payable Post-VAT
$ 80,000 8% Stamp Duty 2.5% (2.5% stamp duty + 0% VAT)
$150,000 10% Stamp Duty 10% (2.5% stamp duty + 7.5% VAT)
$500,000 (first home owner) 0% Stamp Duty 0% (0% stamp duty +0% VAT)
Based on the examples considered, we can see that the total tax payable varies based on the value of the property; however once a transaction is over $100,000 there is no change to the tax due for conveyances of real property. There is however the additional VAT payable on the professional services rendered that relate to the transaction.
With regard to processing payments, VAT is paid first to the VAT Comptroller, who determines the basis on which the VAT should be paid. Once this is completed, the 2.5% Stamp Duty is paid to the Public Treasury.
Who is responsible for the VAT?
The VAT Rule paragraph 31 states that the VAT tax invoice will be issued to the purchaser, which has led to some belief in the market that the purchaser is solely responsible for the VAT at 7.5% and that the vendor is solely responsible for the Stamp Duty (reducing the vendor’s tax burden).
However, the VAT Comptroller has clarified this issue by indicating that while the VAT Rule states that the purchaser will be invoiced for the VAT, the VAT Rule does not stipulate how a vendor and purchaser shall decide to share the payment.
Typically stamp duty was split (50/50) between the vendor and purchaser (unless otherwise agreed). This clarification means that the total tax split of stamp duty and VAT can still be maintained.
On a positive note, if a purchaser is a VAT registrant, that purchaser can claim the VAT payment as an input credit, provided that the property is exempt from the payment of VAT.
Courtesy of GSO/Glinton, O’Brien, Sweeting Darron S. Pickstock
The statutes provide for a general assessment of real property by the Chief Valuation Officer of the Commonwealth of the Bahamas. This applies to Bahamians and non-Bahamians owning real property in the Bahamas not exempt from taxation as indicated in "Remarks". "Bahamian" is defined as a citizen of The Bahamas or a company registered under The Companies Act in which at least 60% of the shares are owned beneficially by Bahamians. The returns are due on or before December 31 each year and must be filed with the Chief Valuation Office.
Owners must file a Declaration of Real Property. The return must be signed by the owner and witnessed by an "authorized person", defined as a magistrate, attorney, registered medical practitioner, bank officer, minister of religion, justice of the peace or notary public within the Bahamas or similar person outside of the Commonwealth. Such forms may be obtained from the Chief Valuation Officer.
Property is assessed before October 15. The Chief Valuation Officer, if it appears that any property subject to assessment has not been assessed, may assess the property retroactively to a maximum of 10 years at the required amount.
The Chief Valuation Officer is required to publish before October 15 (once in the Gazette and once in a daily newspaper published and circulated in The Bahamas), a notice stating that:
1. Copies of the assessment lists are available to the public at the Treasury and office of the Chief Valuation Officer;
2. Assessment notices for each owner of property liable to tax are available at places specified in the notice,
3. Five days after the notice's publication, a notice of assessment is deemed served on every owner of property subject to tax.
4. A notice of assessment may be sent by mail to any owner of property by the Chief Valuation Officer after publication in the Gazette
5. Any other matters deemed necessary by the Chief Valuation Officer, with the Minister's approval.
Objection to a notice of assessment must be made in writing to the Chief Valuation Officer, within 30 days of service of the notice, stating grounds upon which the objection is made. The Chief Valuation Officer may request that the tax levied be paid in whole or in part at the time of objection.
Taxes are due within 60 days of the date on which the assessment notice is deemed to have been served. Also, payment of one or more quarterly installments must be made within those 60 days. These payments should be made to the Public Treasury in Bahamian or US dollars, preferably as a bank draft or international postal order. Personal cheques are not accepted unless bank certified. Foreign cheques must be bank-certified and drawn on a bank in the US or The Bahamas.
The rates of tax on real property are as follows:
In respect of owner-occupied property:
- The first $250,000 of market value is tax exempt
- More than $250,000 and not exceeding $500,000 of market value is Â¾%
- More than $500,000 and not exceeding $5,000,000 of market value is 1%
- More than $5,000,000 of market value is .25%
In respect of unimproved property other than unimproved property exempt by virtue of Section 39 of the Real Property Tax Act:
- First $7,000 of market value is $100
- More than $7,000 of market value 1Â½%.
In respect of any other property:
- First $500,000 of market value is 1%
- More than $500,000 of market value is 2%
Market value is defined as the amount the property would realize, if sold in the open market, without any encumbrances or restrictions. If the return is not filed, the owner is guilty of an offense, and upon conviction thereof, may be fined. Persons knowingly making false statements may be liable to fines, imprisonment, or both fines and imprisonment. If the tax is not paid on or before the last day the tax becomes due, a surcharge will be added.
In the case of an extension of time, the Chief Valuation Officer may postpone the date on which the tax is payable in a particular case, by notice in writing.
Property owned by Bahamians and situated in the Family Islands is exempt from property tax. Property approved as commercial farm land (by the Minister of Agriculture and Marine Resources, and the Minister Finance) may be eligible for property tax exemptions.
Unimproved property owned by Bahamians, meaning property without physical additions or alterations, or any works benefitting the land which have not increased the market value thereof by $5,000 or more;
Places of religious worship; school buildings and their gardens and playing areas;
Property owned by foreign governments;
Property owned by foreign nations used for consular offices or residences of consular officials and employees;
Property used exclusively for charitable or public service from which no profit is derived
What are the costs involved in buying or selling property?
A typical sale, called a "Gross Sale", assumes that the vendor (seller) will be responsible for the payment of:
1. The real estate agent's commission. The commission on the sale of developed property is 6% of the gross sales price. The commission on the sale of undeveloped property is 10%.
2. One half (1/2) of the Government Stamp Tax (tax on the conveyance of real property). This is a graduated tax. The total amount of the tax is :
o Value up to $20,000 the rate is 4%
o Value greater than $20,000 and is less than or equal to $50,000, the rate is 6%
o Value greater than $50,000 and is less than or equal to $100,000, the rate is 8%
o Value equal to or greater than $100,001, the rate is 10%
3. The vendor's legal fees. Legal fees on a conveyance of property are usually 2 ½% of the first $500,000, 2% of the next $500,000, 1% of the next $4,000,000 and ½% thereafter.
The Purchaser will be responsible for:
1. 1/2 of the Government Stamp Tax as set out above,
2. The purchaser's legal fees as detailed above.
3. Recording fees on the conveyance and other closing documents which need to be recorded.
4. Payment of the permit under the International Persons Landholding Act, if applicable.
In the event that the sale is a "Net Sale" the purchaser would be responsible for payment of all of the above mentioned fees (both vendor and purchaser).
Schedule of BREA Commission Rates, "Minimum Rates" Sales Commissions
All real estate commissions in the Bahamas are based on the total gross sales price of property, not on equities or partial payments.
DEVELOPED PROPERTY: - 6% of the sales price
FARMS, GROVES, AND UNDEVELOPED PROPERTY: - 10% of the sales price. Minimum commission is $100.
BUSINESS OPPORTUNITIES: - 10% of total sales price, including inventory. If property is also sold at the time of sale of business, use applicable rate for property.
CAR PARKS: - 10% of total sales price.
LEASEHOLDS:- For the selling of leaseholds, the charge shall be 6% of any consideration, paid by the purchaser for the leaseholds plus the regular brokerage commission on the unexpired portion of the lease, calculated as a new lease.
DEFERRED SALES COLLECTIONS: - On collection of deferred payments, 2 ½ of the amount collected. When the broker has a mortgage service agreement, this condition need not apply. The minimum charge is $1.00 per collection.
Leasing & Renting
Leasing and Renting Definitions
1. GROSS LEASE:
A gross lease is one in which the landlord agrees to pay all charges against the property leased which are normally incurred through ownership.
2. NET OR FULL REPAIRING LEASE:
A net or full repairing lease is one in which the tenant assumes payment of all property charges, including the rents, taxes, insurance, all service maintenance and repairs.
3. PERCENTAGE LEASE:
A percentage lease is one in which the payment is measured in full, or in part, or is dependent upon the gross business in dollars, transacted by the tenant through the use of the property.
4. WHEN COMMISSION IS EARNED:
A commission on a lease is earned when, through the agency of the broker, the terms of the lease have been agreed upon as evidenced by a cash deposit or written agreement.
BUSINESS PROPERTIES: On month-to-month, summer, winter, or yearly tenancies, the rate of commissions shall be 10% of the total rental. The minimum commission shall be $50.00.
a. On leases up to 30 years the charge shall be not less than 10% of the rental for the first 5-year period or part thereof; 5% of the rental for the next 5-year period or part thereof; and 3% of the rental for the next 20-year period or part thereof.
b. Leases for 30 years or longer shall be treated as sales. If the lease is a net lease, the value of the property shall be the fair market value as of the date of execution of the lease, and the commission shall be the applicable rate for that type of property.
c. Net leases for under 30 years: The annual taxes and insurance on the property shall be added to the annual rental and the sum of these shall be used as the basis for computing the commission as provided in Paragraph 1 above.
d. On Percentage Leases with Minimum Guaranteed Rental: The broker shall charge the same commission that would be received if the minimum guaranteed rental were a fixed, straight rental for the full term of the lease. Furthermore, the broker shall charge a percentage commission on all additional rental paid to landlord by tenant during the term of the lease. The percentage to be charged on the additional rental for any given year of the lease, shall be the percentage applied to the minimum guaranteed rental for the same year. The commission is to be paid as the additional rentals are received by the landlord.
e. Straight Percentage Lease without Minimum Guarantee: The broker shall charge a percentage commission on all rentals received in any lease year. The percentage to be charged on the excess rental for any lease year shall be the same percentage that was applied for that year to the rental on which the initial commission was computed, payable as payments are received by the landlord and an agreement covering these payments shall be made in writing at the time the lease is executed.
f. Leasing Fees - Agriculture Leases: The commission for leasing agricultural property shall not be less than 10% of the total rent. If the lease is on a crop-sharing basis, the commission shall be computed upon the cash rental value of the real property. If the Realtor elects to collect the commission when the crop-share is received by the landlord, the commission shall not be less than 10% of the landlord's share of the gross rental.
g. Option To Renew Lease - Within Six Months:
1. If the lease gives the tenant an option to renew or extend the term, and the tenant exercises said option and/or remains in the premises or leaves it temporarily for six months or less and returns beyond the time specified in the original lease then the landlord shall pay the Realtor an additional leasing commission computed at the same rate that would have applied had the renewal period been a part of the original term.
2. If any lease for a shorter period than 5 years does not contain an option to renew, and the tenant renews his lease for a fixed time or remains in the premises on a month-to-month basis, the Realtor who negotiated the original lease shall be considered the procuring Realtor for the renewal or extension period up to a total term of 5 years, and the landlord shall pay said Realtor a leasing commission computed at the same rate as if the renewal period had been a part of the original term.
3. Residential Leasing Commission Schedule: a) Individual Unit - A fee equivalent to one (1) month's rent on a one (1) year lease. b) Multiple Unit - 10% of gross annual rent up to and including Bah$100,000 and 8% of anything in excess. c) A fee shall be charged for lease renewals and extensions exercised equivalent to 50% of the fees for the one (1) original period.
5. OPTION OR FIRST REFUSAL TO PURCHASE:
If a lease contains an option or first refusal to purchase, the Realtor shall collect the regular leasing commission and, in addition, shall have a written agreement from the landlord agreeing to pay full sales commission in the event the property is sold under the option or first refusal rights in the lease.
6. CANCELLATION CLAUSE IN LEASE:
If a lease contains a clause permitting cancellation by tenant without penalty, the Realtor may charge only for the non-cancelable term of the lease. If the tenant continues in possession then the period beyond the cancellation date shall be considered as a renewal or extension. If the lease contains a clause permitting cancellation by the landlord, the Realtor shall charge for the full term of the lease.
A Realtor shall handle each lease or sub-lease as a new transaction, and shall charge the established rental commission on total gross rent.
What You Need To Know About Immigration
Bahamian immigration rules are designed with the view that everyone wants to immigrate to the tiny Bahamas - which, if this were to occur, would sink under the weight. Consequently, while tourism and investment are encouraged, true immigration is possible but tightly controlled. Visas, work permits and residency permits are available.
Everyone entering The Bahamas MUST fill out an embarkation-disembarkation card usually provided by the travel agent, airline or ship. Non-residents surrender the specified part when departing.
All persons entering the Bahamas are required to have a valid passport.
The following persons are not required to have visas when entering the Bahamas:
- British Commonwealth citizens and landed immigrants of Canada, for visits not exceeding 30 days if in possession of Form 100.
- US Citizens entering as visitors for a stay not exceeding eight months.
- Alien residents of the US who, upon arrival, are in possession of their national passports and US alien registration cards and work or residence permits for visits not exceeding 30 days.
- Nationals of a variety of countries whose visits do not exceed three months (check with the Department of Immigration for this extensive list).
- Persons in possession of a valid residence or work permit issued by the Director of Immigration (provided a visa is not required by departing country).
- Persons in transit, including stateless persons in possession of a valid refugee or stateless person's travel document, provided they are in possession of valid passports and tickets to some destination outside the Bahamas and that their stay, while awaiting onward passage on the first available ship or aircraft, does not exceed three days. This exemption does not apply to Haitian or Dominican Republic citizens, who must possess visas even in direct transit by air.
All other persons require visas. If in doubt, check with the Bahamas Department of Immigration. Persons seeking visas to enter the Bahamas should contact the nearest Bahamian consular office.
The Bahamas Constitution and the Bahamas Nationality Act, 1973, detail the acquisition and loss of citizenship. Persons born in The Bahamas before July 10, 1973, or outside The Bahamas to a Bahamian father became Bahamian Citizens on Independence Day, July 10, 1973, as did most persons registered as a citizen of The Bahamas under the British Nationality Act of 1948. Persons born in The Bahamas after Independence are citizens if either parent is a Bahamian citizen and are entitled to register as a citizen if born here, subject to interests of national security or public policy, by making application within 12 months after his or her 18th birthday. Persons born legitimately outside The Bahamas after July 9, 1973 to a Bahamian mother and illegitimate children born outside The Bahamas to Bahamian women are entitled to apply between the ages of 18 and 21 years subject to interests of national security or public policy. Any woman married to a Bahamian is entitled to be registered as a citizen upon application provided she is still married to that person and subject to interests of national security or public policy.
Others who are not entitled to be registered or naturalized by virtue of an existing status may apply for citizenship under the Nationality Act. Residence for a period, English proficiency and the intention to make The Bahamas a permanent home are among the qualifications.
Spouses or dependents of work permit holders, resident homeowners, spouses or dependents of citizens, and independent economic residents, may apply for annual residency status. Applicants for annual residency status must show evidence of financial support, in addition to submitting other documentation as required by the Department of Immigration. Fees vary, with spouses of Bahamians paying a one-time fee of $250 (no charge for dependents) , for a spousal permit to reside and work, to $500 per year for the annual residence permit for a non-Bahamian second home owner.
Those who wish to settle in The Bahamas by investing in property, retiring here or opening a business usually apply for this status. Accelerated consideration for Permanent Residency can be obtained with a minimum property investment of $500,000. Applicants must be of good character, show evidence of financial support, and say in writing that they wish to live permanently in The Bahamas. Wives and dependent children (under age 18) usually resident in a household can be endorsed on the certificate when the original application is made or later, subject to conditions which may be made by the Immigration Board.
Persons with this status prior to the Immigration Act (1975) continue to hold the status automatically. Spouses of Bahamians can receive a Certificate of Permanent Residence with the right to engage in gainful employment at any time for females and after five years of marriage for males. Permanent residency can be revoked for cause including divorce. Cost of Permanent Residence is $10,000 before issuance, with endorsements free.
The Bahamas Government tries to ensure that Bahamians are given fair consideration for employment. A work permit application is not considered if a suitably qualified Bahamian is available or if the prospective employee is already in the country and entered as a visitor. If the Immigration Board considers the prospective non-Bahamian employee will be an asset to the Bahamas it reviews the application, but only after the prospective employer advertises and interviews locally and obtains a certificate from the Labour Exchange stating there is no qualified Bahamian registered who could fill the post. Permits for longer than one year may be given for key personnel on contract, often with an endorsement that the employee will be replaced by a Bahamian or will train a Bahamian to perform the job in a specified time.
Each work permit is for a specified person and job. Work permit fees range from $500 to $12,500 depending on the job category.
Courtesy of The Bahamas Real Estate Association