Non-profit Organization and VAT in the Bahamas
This article discusses VAT filing obligations for Non-Profit Organizations (NPOs) and Domestic Bahamian Companies and provides insight into annual business filings for incorporated companies. It also takes a brief look at business licence renewal in Bahamas requirements for “trading as” companies.
Non-Profit Organization “NPO” are organizations which are established for the purposes of promoting civil, social and charitable causes and provides public benefits.
Persons wishing to create a non-profit organization must submit their memorandum and articles of association, written rules or any document constituting or governing its activities for approval to the Attorney General and Registrar General, respectively.
Generally speaking, a NPO is tax exempt under the Value Added Tax Act “the Act” and Value Added Tax Regulations “the Regulations”, but there are instances where this exemption may not apply, which will be discussed later on in this article.
Most goods and services are subject to a 12% VAT rate, some goods and services are zero rated, meaning zero percent rate of VAT applies, some goods and services are exempt from VAT.
The First Schedule of the Regulations list different goods and services which are zero rated, but no business is absolutely zero rated.
Approval Necessary for Non-Profit Organization to Be Exempted for VAT
The VAT Act and Regulations sets out the requirements for a NPO or “charitable” organization to be exempted from VAT. It must firstly be noted that for an organization to be considered a NPO it must be approved, if approved, a licence or a certificate of registration will be issued to the organization recognizing that it is an approved NPO. If a NPO does not obtain approval, then that organization will not be considered a charitable organization under the VAT Act and Regulations.
Criteria to be Considered as NPO Under the Regulation
Part I, Regulation 5 of the Act states what the requirements are for an organization to be considered a charitable organization as follows:
- The Minister may, in the Minister’s discretion, pursuant to section 58 of the Act approve as a charitable organisation a society, association or other organisation that:
- is carried on for purposes other than for profit or gain to a proprietor, member or shareholder of such organisation;
- under its memorandum, articles of association, written rules, or other document constituting or governing its activities is:
- required to utilise any assets or income solely in furtherance of its aims and objects;
- prohibited from transferring any part of its assets or income directly or indirectly so as to profit a person other than by way of the:
- provision of a charitable assistance;
- payment in good faith of reasonable remuneration to an officer or employee for services rendered to such organisation; and
- on its winding-up or liquidation, required to give or transfer to another society, association, or other organisation, having similar objects its assets remaining after the satisfaction of its liabilities.
- An organisation approved by the Minister pursuant to subsection (1) must:
- be organised exclusively to carry out, and in fact carry out, relief of poverty or educational, charitable, social welfare, civic improvement, or similar activities, in the public interest;
- b. not involve itself in partisan political activities;
- not receive more than 50% of its funds from one person or organisation or from a group or organisation that does not deal with each other at arm’s length;
- disburse annually more than 50% of contributions received towards the attainment of activities referred to in paragraph (a);
- not make its annual disbursement quota referred to in paragraph (d) by the exchange of gifts between other approved charities, persons, organisations or other legal persons;
- be in compliance with any laws in The Bahamas governing charities; and
- be resident in The Bahamas during the tax year.
Any organization recognized as an approved organization by the Minister and is in alignment with the above requirements of Part I, Regulation 5 of the Regulations will be exempted from VAT in accordance with the Second Schedule Part I section 13 of the Act.
Note must be made that to be exempted the services provided must relate directly to the charitable function and services, further, VAT must not be charged for exempted services.
Since charitable organizations received most of their income from donations and not services and goods then such donations are not subjected to VAT.
Should A NPO Register for VAT?
Section 19 of the Act provides for Mandatory Registration in the following circumstances:
- NPOs are not exempted from the law. Generally speaking, there is no requirement a NPO to register for VAT. However, each situation must be considered on its unique standing.
- NPOs usually receive donations and do not usually carry-on business as do other regular companies where taxable goods and services are offered in exchange for money to the public.
- However, should a NPO find itself in a situation where it involves taxable activities, then the NPO should register in accordance with the law if the sale of those goods reaches the threshold of $100,000.00, or is expected to reach the threshold within 365 days.
An example of a taxable activity may be where the organization decides to open a convenient store or merchandise store to sell goods to the public if this should happen the NPO should register per section 19 of the Act if it meets the requirements of section 19 of the Act.
Note that if the store operates on a regular and continuous basis, all the items sold will be subject to VAT.
NPO Must Register in Order to Receive Refunds
Section 19(10) of the Act provides that to claim a refund a NPO register.
If a NPO wishes to receive a VAT tax refund, it must in accordance with the Value Added Tax Rules 2015 apply to the Comptroller to be registered, the Comptroller will then issue a Taxpayer Identification Number (TIN).
NPOs’ can claim a refund on utilities services inclusive of electricity, water, telecommunications, they may also receive refund on construction and repairs to occupied premises. It should be noted that the claimed refund must not be less than $500.00.
Annual Obligations and VAT for Private and Public Companies “Domestic Companies”
Companies formed under the Companies Act 1992 “the Act” can be private companies limited by shares or by guarantee, or can be public companies, whose shares are intended to be distributed to the public.
Annual Obligations for Private and Public Companies
There are mandatory requirements under the Act which every company incorporated under the Act must comply with, the requirements are as follows:
- Every company incorporated under the Act must file a statement with the Registrar in accordance with section 58 of the Act. This statement is filed 14 days after the last annual ordinary meeting and should include: A list of the members of the company, names addresses and occupation of members, number of shares held by each member among other things.
- Every company incorporated under the Act must in accordance with section 59(1) of the Act, file a beneficial declaration before January 1st of each year. This declaration must declare whether or not 60 percent of its shares are beneficially owned by Bahamians.
- Every company incorporate under the Act must in accordance with section 65 (1) of the Act conduct an annual general meeting which must also be filed with the Registrar.
Section 125 provides that members of the company shall in each year, by resolution of appoint an auditor; however, this requirement may be dispensed for a private company per the provisions of section 126 of the Act where it states that ninety percent of the registered shareholders of a private company may resolve not to appoint an auditor.
Annual Fee Obligations
The Act provides that annual fees should be paid to the Registrar by January 1st of each year. Schedule 3 provides that where 60 percent or more shares are beneficially owned by Bahamians the annual fee is $350.00. Where less than 60 percent of shares are not beneficially owned by Bahamians the annual fee is $1,000.00.
In addition to the obligatory fees for the Registrar, where companies are carrying on business in the Bahamas there is also an annual business licence fee.
What Does Companies Have to Do as It Relates to VAT?
Any business which falls under section 19 of the VAT Act must register. Section 19 provides as follows:
- At the end of twelve or fewer months have obtained a turn-over from the taxable activity in excess of the threshold; and
- at the beginning of 365 days, you reasonably suspect that your taxable activities will exceed the VAT threshold.
Hence, if a company/business provides goods and services referred to as “taxable activity” and falls within the threshold amount of $100,000 there is a mandatory requirement to register. Once the business realizes that is meets the requirements of section 19 of the Act, it must register within 14 days.
There is also a voluntary option to register under section 20 of Act for VAT even if the company does not meet the requirements.
The benefit of voluntarily registering is that the company may wish to apply for a refund for VAT which they were charged from suppliers. If a company is not registered, they cannot claim a refund.
Registration Must Be Completed Online
To register for VAT a business must visit the government’s online site here and create an account. The documents required are:
- Valid and current Business Licence;
- Letter of good standing from NIB;
- Certificate of Good Standing from Registrar General’s Department; and
- Bank Verification letter.
A Return for VAT
Businesses are required to file their returns online within 21 days at the end of each tax period. The VAT period depends on the annual turn-over figures:
- If it exceeds $5 million, the VAT period is monthly: or
- If it is less than $5 million, the VAT period can be quarterly.
Note that a request to file monthly can be made by sending a letter to the Controller. You can also check our general information on company formation.
Annual Obligation for Trade As
A business licence is granted to a person/s wishing to carry on business within The Bahamas.
All business licence expires on the 31st of December of each year. Upon the expiry of the business licence the business must pay an annual fee this fee varies for existing business and is based on the type of business and the annual business turnover figures as per the First Schedule of the Business Licence Act.
As it relates to VAT, ‘trading as’ are under the same obligations as incorporated companies.
This article is written by Attorney Carisma Sands-Rolle an Associate at Capital Law Associates, Chambers. Mrs. Sands-Rolle is a qualified member of The Bahamas Bar and prior to joining Capital Law Associates she worked at the Attorney General’s Office of The Bahamas. She was instrumental in assisting with drafting legislation and acting on behalf of the Government of The Bahamas as a legal officer within the AG’s Office. Mrs. Sands-Rolle is a proficient attorney whose area of interest is the full gamut of Corporate and Commercial Law.
To reach the author please contact our offices at (242) 6775265 or 6 or email email@example.com.
Are you interested in our article? Read also about non profit organizations in the Bahamas.
Please note that legal articles provided by this Firm are to be used for general information only. Each circumstance is different and the law as stated within an article may not apply directly or completely to your circumstance. In this regard we highly recommend that legal professiona assistance be obtained to ensure you are properly advised.