Bahamas Reforms Licencing Regime

by Phillip Morton, Investors Offshore.com

30 July 2010

The Bahamas government has published details of the Business Licence Bill, 2010, which contains proposals to overhaul the islands’ licencing regime to enhance its efficiency and attractiveness to prospective investors. The Act is expected to enter into force in January 2011, in time for the next annual licencing cycle.

Under the bill, the process of applying for a licence will be greatly streamlined. The Bill proposes to eliminate the need for separate applications in respect of shop, liquor, music and dancing and other occasional licences. This will occur through the repealing of governing legislation; the Shop Licences Act, the Liquor Licences Act and the Music and Dancing Licences Act. The government explained this will eliminate the need to pay small “nuisance” fees such as, for example, BSD1 (USD1) for a shop licence; BSD100 for a wholesale liquor licence; and BSD200 for a restaurant liquor licence.

In addition, businesses will no longer need to apply for the registration of business names with the Registrar General; this will be overseen jointly by the Ministry of Finance/Business Licence Office. This will eliminate the need for businesses to pay the BSD150 fee to register a business name. Again, this will occur through the repealing of governing legislation, the Registration of Business Names Act.

Lastly, the government plans to streamline the internal approval process, in part, by providing applicants with clearer information on the supplementary information required with an application. New licences will be issued within seven working days.

The government said a comprehensive revision to the Bahamas' ‘complex and cumbersome’ annual business licence tax will also be introduced in the Bill.

Under the current system, the business licence tax rate levied on businesses is determined firstly by its size, assessed under six different categories; and then the profitability of that business, again assessed under four categories. Adding further complication, business turnover is then determined differently depending on business activity. For instance, service and repair entities may deduct direct labor and National Insurance costs when calculating profitability, while retail and wholesale merchandisers may not. Manufacturers may deduct depreciation of machinery but restaurants are not allowed the same treatment. Following this assessment process, businesses are assigned an annual business licence tax rate of between 0.5% and 1.5% of turnover.

The government said that under the new Business Licence Bill, tax rates will be assigned under a "considerably simpler and less arbitrary system", which would "therefore be subject to less manipulation”. The new system sets three general tax rates, based on the turnover of a business:

• A set fee of BSD100 per annum fee will apply to businesses with turnover not exceeding BSD50,000;
• A tax of 0.5% of turnover will apply to businesses with turnover exceeding BSD50,000 per annum, but not exceeding BSD500,000 per annum; and
• A 0.75% tax on turnover will apply to businesses with turnover exceeding BSD500,000.

In order to compensate from the removal of sector-dependent concessions, the government is to introduce special rates on certain business activities:

• A 0.5% rate is to be applied to: agriculture; animal husbandry/mixed farming; fishing/fish farms; and food/meat/fruit processing businesses; and
• A rate of 1% of turnover will apply to accountants, doctors, lawyers, architects, engineers and other similar or like professions.

Exemptions will remain in place for not-for-profit organizations, but the previous exemption granted to telecommunication companies, in respect of business licence tax payments, will be repealed in favor of a tax of 3% of turnover.

Assessing the impact of the proposed new tax structure, Prime Minister, Hubert Ingraham said that the Bill would have no effect on new businesses, who will continue to pay an annual fee of BSD100. Businesses with turnover over BSD50,000 per annum but not exceeding BSD500,000, will face a tax rate essentially unchanged at 0.5%. Finally, for firms with turnover greater than BSD500,000 per annum, the business licence tax rate will go up from an effective rate of 0.68% to 0.75%.

On a sector-by-sector basis, businesses in the agricultural, animal husbandry and mixed farming sector will see a small reduction in aggregate taxes as they go from an effective tax rate of roughly 0.58% to 0.5%. The tax rate for fishing and fish farms will go from an effective rate of roughly 0.47% to 0.5%. For food, meat and fruit processing, the tax rate remains unchanged at 0.5%. In addition, financial services companies will face an unchanged tax rate of 1%.

The Bill also introduces a number of changes with regard to enforcement. In particular, the Bill introduces a distinction between offences of a fraudulent nature and all other offences. For actions proven to be fraudulent, there will no longer be an option between a fine of BSD10,000 and imprisonment for two years. Such offences will automatically carry a prison term, which will not exceed two years.

For other types of offences such as carrying on a business without a licence, obstructing the Secretary in the exercise of his functions, or failing to maintain accounts and records as required, the penalty will be a fine of BSD5,000 plus the sum of BSD100 for each day the offence continues after the date to which the conviction relates.

In addition, in circumstances where offences are committed by corporations or firms, every director, secretary and officer of the corporation or every partner in the firm, as the case may be, will be deemed guilty of the offence and liable to a like penalty as the corporation or firm.

Finally, as announced in the 2010/11 budget, confirmed by Ingraham on July 26, the government is to continue to allow a moratorium on the payment of business licence tax by small- and medium-sized businesses with turnover of less than BSD250,000 in the 2010 and 2011 business licencing year.

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