5 Jun 2014
New Bahamas VAT raises questions about charter
The Caribbean nation of The Bahamas has announced it will implement a new tax regime starting 1 January 2015. But it as yet unclear whether the tax is applicable on charters for either foreign flagged or Bahamian flagged superyachts.
The move by the government to introduce VAT is intended to address the islands’ over-reliance on import duties as a principal source of income and enable it to join the World Trade Organization.
Peter Maury, president of the Marina Operators of the Bahamas (MOB), which lobbies on behalf of both marina and yachting concerns at the government level, says that VAT will likely not be applied to charter. “We were told by the secretary of finance that VAT will not affect the charters that are booked on yachts visiting the Bahamas,” Maury said. “But we are still unsure exactly how the rate will affect local business as we have not seen the official proposal from government.”
Marina operators and charter companies have suggested that the government could exempt yacht charters from the proposed 7.5 per cent tax and instead step up collection of an existing 4 per cent charter fee that is supposed to be levied against foreign flagged yacht charters operating out of The Bahamas. The new VAT will likely be charged on dockage, electricity and other goods and services that contribute to a charter.
Maury has previously warned in Bahamian media that the uncertainty about whether the tax will be levied on yachts is steering business away from The Bahamas. “Charters are already booking for the late 2014 season and the 2015 season, and they are not booking in the Bahamas because they are worried about paying VAT on top of the charter. We already charge a 4 per cent fee. Other Caribbean countries charge zero. If we charge more, we could kiss the industry goodbye; they are not going to come here.”
But US charter brokers are not so sceptical. “I don’t think people will stop chartering in the Bahamas because of VAT,” said Ann Landry, retail charter broker with Northop & Johnson in Fort Lauderdale. “American charter clients already pay 7 per cent tax when they charter in the Florida Keys, or down to 6 per cent if they charter out of Broward County. 7.5 per cent to be able to access the beauty, tranquillity and proximity of the Bahamas will not be a deterrent.”
Shawn Laird, Charter Management Director at Northop & Johnson agreed. “The Bahamas are very popular for charter and we don’t expect the change in the country’s tax plans to affect that. 7.5 per cent is below the emotional threshold of ten per cent that we believe would cause our clients to consider other options.”
“At this stage, it is still unclear whether and how VAT will affect yachts chartering in Bahamian waters,” said Benjamin Maltby of superyacht advisory firm MatrixLloyd. “If vessels are affected, then it’s high time the sector explained to lawmakers what a significant and positive impact a visiting superyacht can have on the local economy, and all with very little impact to the (stunning) local environment. If vessels are affected, then this is certainly a short-sighted and unwelcome development. Unlike the Mediterranean, where European Union members (with a supposedly uniform VAT regime) dominate the coastline, VAT is an alien concept to most Caribbean nations. If this affects our clients, then we will be working with trusted, local specialists to minimise its impact.”
The announcement of the 7.5 per cent VAT rate and the 1 January 2015 implementation date came last week and marks a major change in the government’s plans. The government had previously set the rate at 15 per cent, with an implementation date of 1 July, 2014. While the reduced rate of VAT and delayed onset has been welcomed by some sectors of Bahamian business, the last-minute changes and delays have only added to a sense of confusion over the matter.
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