2015-03-19 BICA VAT Tips & Traps Freeport

Project Orca
Working document
20 February 2013
BICA
VAT Ti & TVAT Tips & Traps
March 19, 2015
Jane Adams, FCPA, FCMA
©2015 KPMG Advisory Services Ltd., a Bahamian limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative, a Swiss entity. All rights reserved.
00

Agenda
■ VAT readiness
■ Pricing impact
■ Promotional adjustments
– Volume discounts
– Marketing allowances– Marketing allowances
– Coupons
■ Deposits
■ Bonded & Non-bonded goods
■ Agent vs. Principal
■ Contract language
– Tax clauses
©2015 KPMG Advisory Services Ltd., a Bahamas company and member firm of the KPMG network of independent member firms affiliated with KPMG International. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
1

VAT readiness
■ Have you analysed the impact of Customs Duty changes on your pricing structures?
■ Have you reviewed the MoF Guidelines for VAT and the Hawksbill Creek Agreement?
Do your contracts include special credits rebates or discounts for sales and marketing;■ Do your contracts include special credits, rebates or discounts for sales and marketing;
advertising campaigns, or advertising contracts? Do they properly address the VAT
effectively from a fiscal, and compliance viewpoint?
■ Are you properly handling the VAT on marketing allowances, promotional discounts, sales■ Are you properly handling the VAT on marketing allowances, promotional discounts, sales
cancellation charges, etc.?
■ Are you declaring VAT on advance deposits?
■ Are you charging VAT on your gift cards?■ Are you charging VAT on your gift cards?
■ Do you know whether you are acting as agent or principal when charging for disbursements?
■ Do you know which common area costs relating to your building lease are subject to VAT?
2

Pricing impacts
Import VAT is applicable to
– Value
– Actual Duty
– Processing Fees
– Storage
– Insurance
– Freight
– Other charges
– Local landed charges, and
– Environmental Levy
– Fees
■ VAT should NOT become a cost of your products since it is mostly recoverable for B2B
t titransactions
■ In some cases, Customs Duties have decreased as a result of VAT thus decreasing the
purchase price for the retailer
3
■ Retailers will however need to consider cash flow impact of VAT paid on imports

Pricing impacts
4

Pricing impacts – items not eligible for VAT free treatment
5

Promotional adjustments
Rebates
■ Treated as a partial refund on the consideration for the supply?
– e.g. purchase xx volume of Tide Detergent from ABC Wholesale for $100/case
– at year end, ABC Wholesale issues volume rebate of $3/case
C id h th th b t i id di tl b th d th h thi d t■ Consider whether the rebate is paid directly by the vendor or through a third party
– Is it conditional on performing certain actions?
– Could it be considered payment for a service?
– e.g. purchase a new computer from John Bull and receive a $50 rebate from HP
■ Has the vendor issued a credit note for the value of the rebate?
6

Promotional adjustments
Coupons and gift certificates
■ VAT applies only to the value of the consideration paid for a taxable supply
■ Price discounts and/or coupons reduce the value for VAT
■ Gift certificates are not a discount
■ Gift certificates should be treated as cash
■ VAT applies to the value of the supply before a gift certificate is applied
■ VAT should generally not be collected on sales of gift certificates
7

Special situations
Deposits
■ Deposits are amounts given by a person as security for the performance of an obligation by
the service providerthe service provider
■ Deposits are not subject to VAT until:
– Deposit is forfeited
– Deposit is applied as consideration for the supply
■ No VAT applies if a deposit is refunded to the person
■ Important that documentation clearly denotes that the amount is paid as a deposit■ Important that documentation clearly denotes that the amount is paid as a deposit
■ If the documentation states that the deposit is non-refundable, it will be treated as
consideration at the time of receipt and subject to VAT
8

Port licensees
Only Port licensees may acquire goods free of VAT
■ Port licensee must hold a valid and subsisting license from the GBPA
■ Does NOT include “consumable stores”
– e.g. items for retail sale, items of food, drink and tobacco, personal clothing, footwear,
jewelry, cosmetics, alcohol.
■ Does NOT include services
■ Goods must be necessary for the dredging, construction and erection, air-conditioning,
equipping, fitting out, furnishing, landscaping, extension, completion, repair, maintenance,
l t d ti f “th P t A D l t”replacement and operation of “the Port Area Development”
■ Includes manufacturing supplies and administrative supplies
– Some consumable stores items can qualify as manufacturing supplies
– e.g. hand towels, paper napkins, toilet rolls, soap, disinfectants, cleaning materials,
crockery, cutlery, protective clothing, safety equipment, uniforms and medical supplies
■ VAT free status on imports is at the discretion of the Customs Authorities
9
■ VAT free status on imports is at the discretion of the Customs Authorities

Bonded and non-bonded goods
Important definitions*:
Port licensee a company, firm or individual that holds a valid and subsisting
license from the Grand Bahama Port Authority
Manufacturing supplies Items used in manufacturing, industrial or other production
undertaking within the Port Area
Consumable stores any article or thing imported or made available for the personal
use of any person (e.g. food, drink, tobacco, clothing, footwear,
cosmetics)
Eli ibl d ll t i l li d f t i li thEligible goods generally materials, supplies and manufacturing supplies other
than consumable stores, related to the construction and
development of the Port Area
*Please refer to detailed definitions within the Hawksbill Creek Agreement
10

When to collect the VAT on sales in the Port Area:
■ Sale by a registrant to a person who is not a Port licensee
■ Sale by a registrant of ineligible goods to a Port licensee
■ Sale of services provided by a registrant to a Port licensee
S l b i t t f d i f th l f■ Sale by a registrant of goods or services for the personal use of any person
When NOT to collect the VAT on sales in the Port Area:
■ Sale by a registrant within the Port Area to a Port Licensee of eligible goods
11

VAT paid in error
■ If VAT non-registrant – claim a refund from MoF
■ If VAT registrant – claim input tax deduction on VAT return
12

Agent vs. principal
Generally only the principal to an agreement is responsible for VAT
“A supply by an agent for a principal is a supply by the principal and a supply to an agent for a
principal is a supply to the principal except where:
■ Services are supplied by the agent to the agent’s own principal; or
■ The principal is a non-resident.” [subsection 31(10)]p p [ ( )]
Important to determine whether dealing as agent or as principal when:
■ Issuing VAT invoices or VAT sales receipts
■ Recovering outlays or disbursements as part of a supply of goods or services
– Who should claim input tax deduction?
– On what value does VAT apply?On what value does VAT apply?
13

Essential qualities of agency
Concept of “agent” determined by Common Law
Three essential qualities:
■ Consent of both the principal and the agent
■ Authority of the agent to affect the principal’s legal position
Th i i l’ t l f th t’ ti■ The principal’s control of the agent’s actions
Consider these three qualities along with other indicators to help in determining agency:
■ An oral or written agreement stating agency is helpful but not conclusive
■ Evidence of conduct (i.e. the behaviour of the parties) is a strong indicator
■ Often the person who ultimately has the legal payment obligation is the principal
14

Common area costs
Commercial leases of real property are subject to VAT
Most leases include “common area costs”:
■ Insurance
■ Maintenance
P t t■ Property taxes
■ Certain utilities
Landlord is not acting as agent for the tenant in procuring common area costs
Charges for common area costs are subject to VAT whether invoiced separately or
included with rent
15

Contract language
Existing contracts
Communicate pricing for contracts with renewals on or after January 1, 2015
■ How does VAT affect pricing?
■ Consider impact of VAT on costs including changes to Customs Duties
■ Consider impact of contract payment due date vs. date paidp p y p
Do your contracts/agreements allow for flexibility on tax rates?
Consider reps and warranties relating to taxes on business agreements
■ Are your customers/clients residents or non-residents?
Consider vendor agreements and language specifying the invoice information you require
■ e.g. “Vendor must promptly and correctly prepare and deliver an invoice setting out theg p p y y p p g
amounts properly due and ensure that the invoice conforms with the VAT Invoice
requirements under the Value Added Tax Act, 2014”
16

Contract language
Tax clauses
■ Ensure clarity whether pricing is VAT extra or inclusive
■ Ensure tax clauses allow for changes in VAT rate
■ Use caution with statements such as “VAT is inclusive” when dealing with exempt or zero-
rated suppliespp
– Statement may be considered as VAT collected in error
– Vendor may be liable to remit VAT
■ Ensure provisions are made to address VAT on debit and/or credit notes or other adjustments
to the contract price (i.e. should adjustments be VAT inclusive?)
17

Summary
It’s the little details that are vital Little things make bigIt’s the little details that are vital. Little things make big
things happen – John Wooden
If you do big things they print your face, and if you do little
things they print only your thumbs – Arthur Baerg y p y y
18

On-line resources
VAT Bahamas Homepage
– www.bahamas.gov.bs/VAT
The Bahamas Institute of Chartered Accountants
– www.bica.bs/library.php
KPMG
– www.kpmg.com
19

Thank you
Questions?Questions?

Project Orca
Working document
20 February 2013
C t tContact:
Jane Adams, FCPA, FCMAJane Adams, FCPA, FCMA
Director Tax Services
(242) 394-9975
janeadams1@kpmg.com.bs
©2015 KPMG Advisory Services Ltd., a Bahamian limited liability company and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative, a Swiss entity. All rights reserved.
2121

KPMG CONFIDENTIAL
The information contained herein is of a general nature and is not
intended to address the circumstances of any particular individualintended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely
information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be
accurate in the future. No one should act on such information
without appropriate professional advice after a thorough
examination of the particular situation.
©2015 KPMG Advisory Services Ltd., a Bahamas company and
member firm of the KPMG network of independent member firms
affiliated with KPMG International. All rights reserved.
The KPMG name, logo and “cutting through complexity” are
registered trademarks or trademarks of KPMG International.
Produced by Create Graphics/Document number: CRT026673A

2015-03-19 BICA VAT Tips & Traps Freeport

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