BAHAMAS: An introduction to General Business Law: Real Estate

Introduction

The Bahamas has a strong real estate and investment market and has long been a focal point for many foreign and domestic investors thanks to its favourable climate, stable political system, strategic location and robust economy. For investors, understanding the nuances of Bahamian real estate law is crucial to navigating the market efficiently and effectively in order to maximize the opportunities and overcome any challenges as they diversify their investment portfolio.

Legislative Overview

There are key pieces of legislation that govern real estate transactions in The Bahamas which include:

1. The Conveyancing and Law of Property Act
2. The Law of Property and Conveyancing (Condominium) Act
3. The Bahamas Vacation Plan and Time-Sharing Act
4. The International Persons Landholding Act
5. The Real Property Tax Act

Recent Legislative Changes affecting Bahamian Real Estate

International Persons Landholding Act (“IPLA”)

A non-Bahamian individual or entity must obtain a “Certificate of Registration” issued by the Bahamas Investment Authority after closing a transaction where the non-Bahamian is (i) a Permanent Resident of The Bahamas or (ii) purchasing real estate in The Bahamas for the first time and intends to use the property for residential purposes, provided that the property is not undeveloped land where the non-Bahamian would become the owner of two or more contiguous acres of land.

Where (i) a non-Bahamian individual or entity holds real estate in The Bahamas and the acquisition would be their second or subsequent purchase or (ii) the purchase is for investment or commercial purposes, the non-Bahamian individual or entity would be required to obtain a “Permit” issued by the Bahamas Investment Authority.

Under the IPLA, if a non-Bahamian acquires Bahamian land without the appropriate approvals, the conveyance to the non-Bahamian can be considered null, void and of no effect and would create an issue on title. This title issue can be rectified, however, it would cause a delay in any future disposition of the property.

On 1 July, 2024, the IPLA was amended to provide that a Permit will expire if the holder fails within 180 days of the date the Permit is granted, to (i) pay the applicable Value Added Tax (“VAT”) on the conveyance and (ii) submit a notice to the Department of Inland Revenue indicating the change in ownership, usage and other particulars related to the property and pay the real property taxes.

It appears that this change was implemented to encourage (i) efficiency of transactions, (ii) the prompt payment of VAT at the closing of a transaction (or risk a potential invalidity of the conveyance due to the expiration of the Permit) and (iii) transparency as it relates to the change of ownership and the party liable for the payment of real property taxes.

Real Property Tax

Unless otherwise exempted by virtue of the Real Property Tax Act (RPTA), all persons who own property in The Bahamas are responsible for the payment of property taxes annually. In recent months there has been a strong push by the Bahamian government to ensure compliance with property tax collection which involved (i) issuing discounts on early payment, (ii) waiver of surcharges on outstanding payments, (iii) allowing payment plans on outstanding taxes and (iv) exercising its power of sale remedy available under the RPTA to encourage owners with outstanding debt to pay or risk losing the property with the Government selling it to a third party to recover the outstanding property tax debt.

The RPTA also provides that mortgagees/secured lenders are responsible for outstanding property taxes. Given that property taxes rank in priority to any other charges (including mortgages), this encourages mortgagees to either settle outstanding taxes and pass on such payment to the mortgagor by adding it to the outstanding debt owed on the mortgage, or risk the Government selling the mortgaged property under its power of sale authority.

Another attempt by the government to encourage tax compliance is by enacting recent amendments to the RPTA which include:

1. Issuing higher penalties for non-compliance or making false statements; and
2. Making directors of companies jointly and severally liable with the company for unpaid real property taxes where the company fails to pay such tax within the time prescribed and the person or company was a director (or acted as a director) at the time such tax became payable. This marks a change in risk exposure particularly for nominee corporate or individual directors thus placing greater responsibility on directors to seek out their clients to ensure accurate reporting and timely payment of taxes or otherwise risk being personally responsible for such outstanding payment.

Condo-hotel taxes

By virtue of the Hotels Encouragement Act (HEA), developers of properties may receive tax and duty concessions/exemptions on the construction of residential property that is submitted by owners to a condo-hotel rental program. As long as such units remain in the rental program and certain guidelines are complied with (eg maximum occupation by the owner being three months of the year with the unit being available for rent during the remaining nine months), there would be no real property taxes payable on such unit. This proved to be a benefit to second home owners and investors who wished to only be in The Bahamas during warmer months and also receive the benefit of rental income for the remaining nine months of the year.

By an amendment to the HEA in 2023, the Government introduced condo-hotel taxes to ensure such units were actually being rented during those nine months. The condo-hotel tax applicable to any unit is calculated at 75% of the rate of tax applicable to residential property under the RPTA (currently 0.625%) on the market value of the unit, up to a maximum of USD150,000. If the VAT on the rental income of the unit does not exceed the amount of condo-hotel tax payable on that unit, the amount payable would be the difference between the condo-hotel tax and the net VAT. Where the net VAT on the rental income of the unit exceeds the amount of the condo-hotel tax payable, no condo-hotel tax would be payable. The HEA also holds the hotel administrator jointly responsible for the condo-hotel tax thus ensuring payment through either the unit owner or the hotel operator/manager.

Current Economic Landscape

The Bahamas has continued to dominate the real estate market and has had robust activity in past years. Its luxury residential, commercial and planned community developments and mixed-use resort developments have seen significant increases which have contributed to continued interest from foreign investors who avail themselves of The Bahamas’ status as a low-tax jurisdiction (currently having no withholding, gift or inheritance taxes) while touting a robust legal and regulatory framework heavily backed by compliance and transparency legislation. The current and future economy for The Bahamas appears strong.

Conclusion

In conclusion, to ensure compliance with local legislation and to navigate the various levels of regulations relating to investing in The Bahamas, it is important that investors seek out competent and reputable Bahamian real estate attorneys early in the process to receive sound legal advice that would not only maximise but also safeguard their investment in The Bahamian market.