After introducing the VAT tax on charter contracts on foreign-flagged vessels in the Bahamas’ government, a series of more or less truthful rumors and news followed.
Below we shed light on this subject, trying to answer some simple questions with the information we have collected.
What kind of tax is it? When did it come into effect?
The new taxation provides for the imposition of a VAT rate of 10% on all rental contracts for yachts and boats carried out by foreign companies operating in the country. The date chosen for this taxation is July 1, 2022. Therefore, all warranties signed before are not subject to its payment.
What is the purpose of the tax according to its creators?
One of the main aims pursued by the government with this measure is creating a more efficient and fair tax system, trying to ensure that a larger share of the revenue comes from those who can afford to contribute the most.
Also, according to the government, this is an essential step in favor of competition, as charter operators resident in the Bahamas have always been subject to various taxes, such as commercial license fees, VAT, and any immigration taxes due for foreign crew members. Taxes to which foreign nautical operators have permanently been exempted.
Therefore, introducing the 10% rate is seen as a way to level the taxation, up to now too often in favor of large foreign companies and to the detriment of Bahamian operators. A disadvantage that, again, according to the Nassau government representatives, has usually found tacit approval by the marina operators that benefit from the presence of foreign yacht charters.
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What does it mean for foreign yacht charters operating in the Bahamas?
As we said, the 10% VAT rate is applied to the value of all contracts relating to nautical charters in the Bahamas.
This means that all companies that rent yachts for charter travel must pay this tax periodically, and the already existing rental tax is equal to 4% of the contract’s total amount.
All interested yacht owners must therefore register via a dedicated web portal to become a VAT reporting company and receive a Bahamian tax number. They are also required to make quarterly VAT payments, like all other activities in the country.
As withholding agents, foreign yacht charter operators are ultimately required to charge VAT to their customers.
What do those against the provision claim about?
Those who oppose this provision argue that this tax is unfair, as it is applied to the same amount on which the 4% tax is already calculated. Therefore, “double taxation” is obtained by using 10% VAT on the same contract.
Also, according to the opponents, this measure triples the tax rate for foreign yacht rental, bringing it from 4% to 14%. Peter Maury, Association of Bahamas Marinas president (ABM), warned that these reforms threaten to deal a severe blow to an industry that in 2021 directly contributed $ 122 million to the country’s economy.
Detractors argue that a 350% increase risks jeopardizing thousands of Bahamian jobs in marinas and other businesses dealing with these yachts, losing several market shares of this strategic sector to other destinations such as the Caribbean, where taxation is often 0%.
According to some, such a high tax threatens to undo the increase in the market share that Bahamas’ boating was able to gain immediately after the COVID-19 pandemic. The marina industry had made “leaps and bounds” in efforts to bring more boats and yachts to the Bahamas, creating jobs and business opportunities for the locals. Efforts that risk being thwarted by the tax squeeze.
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What was the government’s response to the VAT increase?
The Minister of Economy, Michael Halkitis, responded to the criticisms by arguing that this measure will not be burdensome for the state coffers: “We have carried out checks, and we have discovered, for example, that if you charter in the Mediterranean Sea, the average VAT is 22 percent while we only charge 10 percent. That’s why we think it won’t make any customers run away ” and again: “We don’t think so. We think, and I say here, that people have had a windfall gain for a long time at our expense, and we feel it is time to get what we think is our fair share. We have a beautiful environment and must preserve and maintain it. You must pay a tax to charter a yacht anywhere else in the world.”
However, it may be misleading and inappropriate to compare the Bahamas with the Mediterranean Sea because of its great distance.
The real challenge for the Bahamas yacht charter industry is probably located only a few nautical miles away and is called the Caribbean.
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