Int’l firms hit with 3.5% spike in cost of remitting profits
BTC, Commonwealth Brewery and international banks operating Bahamian subsidiaries are among those companies who will be subject to a 3.5 percent increase in the cost of remitting profits out of the country as a result of a new tax on the repatriation of profits imposed by the government.
Minister of State for Finance Michael Halkitis yesterday clarified an amendment to the Stamp Act highlighted by Guardian Business on Friday, which had caused considerable concern among practitioners in the financial, legal and real estate sectors who feared their transactions would be impacted.
One realtor yesterday suggested that the imposition of such a cost upon funds repatriated by foreign real estate investors selling assets in this country would have been “absolute suicide” for The Bahamas.
While real estate transactions and international banks are in fact not intended to be caught in the amendment’s net, said Halkitis, companies earning Bahamian dollars who then want to convert and remit those funds abroad will be.
As such, this would include banks such as Scotiabank, Royal Bank of Canada and others who earn significant Bahamian dollars in this country and may seek to convert and repatriate those, as well as Commonwealth Brewery, whose parent company is in the Netherlands, and BTC whose parent company, Cable and Wireless, is U.K.-based.
Companies such as Atlantis, who do much of their business outside of The Bahamas – selling rooms in the U.S. to U.S.-based customers via their website – or involving foreign currency in The Bahamas, would also be affected by the increased conversion fee, although to a lesser extent.
“The first $500,000 converted for repatriation will attract a lower fee of 1.5 per- cent. After that, it will be a five percent conversion rate,” said Halkitis of the act’s effect on profit repatriation.
Section 4(b) of the Stamp (Amendment) Bill 2013 calls for the insertion of a new item into the Stamp Act, which would apply a five percent duty on any amount above $500,000 “remitted or transferred outside of The Bahamas”, whether in the form of a “bill of exchange, draft, money order, mail transfer of money, traveler’s check or letter of credit”. This applies in the case that such funds are being sent to a “related party where such payment represents dividends or profits or payments for services to be rendered by the related party”.
In Friday’s Guardian Business, legal and financial practitioners both expressed concern that the change in the fee would apply to real estate transactions or international bank’s repatriations of profits, and added that clarification was being sought.
It now appears that these fears, although valid based on the non-specific wording of the amendment, were unfounded.
Halkitis said that despite the conversion fee, taxation on international companies remains very low compared to international averages, adding, “Our analysis shows we are still taxing anywhere from a third to a half of what they do in the region.”
Speaking to the tax adjustments overall in the 2013/2014 budget, the minister reiterated that the government “tried to balance a few things getting fiscal house in order without overburdening people” and feels that the changes introduced will be “moderate” in their impact.
Halkitis added that the government has not made any specific projections of what this amendment will bring in for the government in terms of revenue since they cannot control when and how much money companies will decide to repatriate.