H O R I Z O N S

Last week’s Property Tax amendment has been met with a measure of relief by local realtors. William Wong, President of BREA, told the Tribune newspaper that the move was “something we’ll live with. It’s a good compromise….We can live with this, and we’re grateful that we were able to come to a compromise on this very, very sore issue. We’ve crossed a major hurdle and need to start marketing and getting business back to the Bahamas.”

Overall, we think that since our new property tax rates are much lower than those in Florida (and comparable locations) that this is a positive change that will allow us to remain competitive while providing our government with the income it needs. However, in trying economic times it is always better to reduce taxes to encourage people to build and buy more, so it is our hope that the government will continue to re-visit this tax issue and that the cap might be re-instated sometime in the future.

It is also our recommendation that the government take action against the many Bahamian Property owners in Nassau that do not pay their taxes. This will yield a good deal of income for the government if they simply enforce the current tax codes that are already on the books.

In an attempt to make a compromise, the Government has made shome changes.  As of the recent 2009/2010 Budget, the Real Property Tax rates have been amended (yet again) and will now be as follows:

This should be the final amendment to the rates for this year’s budget, but if there’s any more news…we’ll be sure to let you know!

After our disappointment with last month’s Real Property Tax amendments, we are now once again waiting to see if the Government will make the move to reinstate the $35,000 tax cap.  The annual budget, with its tax plan is to be finalized today (Friday).  Tommy Turnquest, leader of government business in the House of Assembly told The Nassau Guardian, “We will table the bill…and it will have something to do with rates.”

Now only time will tell what the final adjustment to the tax rates will be.

Last week, the real estate industry has been abuzz with talk about the Government finally addressing the Real Property Tax and the possibility of the re-instatement of the $35,000 Property Tax ceiling.  Many realtors, ourselves included, feel that the removal of this tax ceiling has had a chilling effect on foreign investment in Bahamian property, an opinion that has now been supported by the Investment Board’s newest figures.  It has just been released that real estate permits for foreign investors (which are issued by the Investment Board) have dropped for both commercial and residential properties.  Commercial property permits have dropped by 36%, and residential property permits have dropped by 19.4%.

However, when the amendments were revealed, they did not include a reinstatement of the tax ceiling, and instead included a change to the tax structure, which is now as follows:

The Prime Minister addressed this all recently, stating that when the cap came into force in 2003 only 35 homes in the country were at the $35,000 tax level. When the tax cap was repealed there were 75 homes at this level. What he stressed was that this is a very small percentage of homes in the Bahamas and that overall tax structure can’t revolve around a few homeowners. This is a valid point, however we believe that these few home owners contribute an incredible amount to the economy, especially if they plan on building a large house and decide not to do so because of the Real Property Tax. This will result in less construction, less import duties on the build, and less growth in the sectors that maintain such homes such as landscapers, property management, housekeeping etc. In general, we believe that lower taxes help to stimulate the economy, particularly in times of world economic slowdown.

Our solution would be to reinstate the tax cap at a figure such as $50,000, and to work towards better enforcement on the paying of property taxes as so many homeowners still find ways to avoid payment on Property Tax, an unfair practice that needs to come to an end.

Here are some of our favorite, and easiest, ways to make your lifestyle more eco-friendly this summer.

1. Go Energy Efficient: Use energy-efficient appliances like Energy Star certified washers, dryers, water heaters and more.  These use less energy (10%-50% less than regular appliances) which is good for the environment and your wallet.  Also, you can make sure to unplug appliances and electronics when they’re not in use, they can still be sucking electricity even though they’re not on. 
2. Let There Be Light: Another quick fix is to replace burnt out lightbulbs with Compact Fluorescent Lightbulbs (CFLs) - these use 66% less energy and last 10x longer!
3. Keep Your Cool:  Make sure your home is properly insulated.  In the warmth of the Bahamas, insulation keeps heat out and air-conditioned cool in.  Keeping your air conditioner’s thermostat as close to 78 degrees will also save you energy and money.  To keep your home feeling cooler as the summer heats up, shade east and west windows and wait to turn on the oven or dishwasher until after dark.  Another tip: moving air feels cooler, so a ceiling fan can keep you comfortable without having to turn the A/C down those extra few degrees.
4. Save Water: Take shorter showers.  Install faucet aerators, these keep water pressure high and reduce the amount of water you use.  Install a low-flow toilet which only use 1.6 gallons per flush as opposed to older models which can use as much as 3.5 gallons a flush.  Quick tip: turn off the water while you brush your teeth - this can save up to 4.5 gallons of water!
5. Eat Smarter: Eat meals you’ve made at home instead of getting fast food or going to a restaurant.  At home you can make sure you’ve chosen organic foods (which means less harmful chemicals) and not only is this healthier but it’s also cheaper in the long run!  This also helps you to avoid all the extra packaging that goes into fast food meals, so it helps the environment.
6. Reduce Plastics: Buy in bulk. This saves you money, but also reduces the amount of packaging that’s used.  Use real plates and silverware instead of disposable plastic ones.  Use cloth grocery bags to the grocery store instead of using paper or plastic.  Use a water filter to purify tap water and take it with you in a reusable bottle instead of buying bottled water.
7. Make Educated Decorating Choices:  The paint we’re used to contains solvents and volatile organic compounds (VOCs) which create pollution and air quality issues.  Now you can buy low-VOC paints which are made by most manufacturers, and have a healthy, beautiful home.  Were you thinking about installing hardwood flooring?  Go for bamboo flooring instead.  Because bamboo quickly replenishes itself, only a few years to regrow instead of the decades it takes hardwood, it’s considered an environmentally friendly choice.
8. Try DIY Cleaning Products: The detergents and cleaning products we use daily can contain a lot of harmful chemicals and use a lot of packaging.  You can make your own cleaning products at home using ingredients like baking soda, vinegar, lemon and borax with results that are just as good as the mass-produced kinds.  Just search the internet for easy recipes and instructions.
9. Conserve Gas:  Fossil fuels are known to be bad for the environment.  Try to walk or bike to your closer destinations, it saves you money and is good for your cardiovascular health.  If work is farther, try to carpool.  Quick tips: make sure your tires are properly inflated, and try not to let it idle too long.
10. Have a Green Garden: To get a lush garden without using synthetic fertilizers, try using compost which you can even make yourself.  Try to avoid using pesticides, these toxic chemicals seep into the ground and can even get into the local water table.  If you’re having a pest problem, do a little research and see if there’s an organic way of sorting it out, for example you can pour boiling water on weeds or use beer to bait slugs.  Also, try using a push mower, the ones that are made now are a lot easier to use than the old ones your grandparents used!

As of May 26, 2009, the Emerald Bay Resort in Exuma will be closing its doors to guests and 400-500 employees will be out of work.

Janet Watts, our HGChristie agent for Exuma, has already seen some of the effects of so many residents being out of work.  Our HGChristie office there has had a few former Four Seasons employees come in showing an interest in selling their properties, but Ms. Watts is also anticipating that any former employees who are in the process of buying a home may not be able to for the time being, as financing will be falling through.  She also believes that the initial fallout of this resort closure will likely be showing itself in June and through the Summer months, as more former employees, few of whom are originally from Exuma, leave the island. 

A possible positive from this recent announcement of the resort’s closure might possibly make the overall sale of the project an easier and more appealing prospect for investors.

Overall, this does not bode well for Exuma, and we will be watching and waiting to see how the local economy fares in the next few months.

Here is some important information that we wanted to share with you.

In their latest briefing, which came out this morning, the Oxford Business Group said this:

Recent plans announced by the US to crack down on its citizens making use of tax havens have raised concerns over the long-term viability of offshore financial services. This in addition to the Organisation for Economic Cooperation and Development (OECD) including the Bahamas on its list of countries that were not as yet in full compliance with the body’s standards on fiscal transparency. However, a careful look at Washington’s proposals and at measures being taken by the government should allay at least some of these concerns, with the possibility that the situation could even be turned to the Bahamas’ benefit.

The Bahamas is in a better position than many other countries that also operate offshore financial services. In addition to its tax information exchange agreement (TIEA) in place with the US, which came into force in 2004, Nassau is also looking to seal a number of similar agreements with Canada, another of its major trading partners, and other countries in order to meet the OECD requirement of having at least 10 TIEAs in place. In late March, Prime Minister Hubert Igraham told the parliament that, “It is the intention of the government to enter into these negotiations as a matter of priority.”

On May 4, US President Barack Obama unveiled a wide-ranging programme of reforms to the US tax system, mainly dealing with companies or individuals investing or transferring funds overseas as a means to avoid taxation. Obama said the reforms, which have yet to go before Congress, would “crack down on illegal overseas tax evasion, close loopholes and make it more profitable for companies to create jobs here in the US”.

Obama said the new rules, due to come into effect in 2011, would eliminate some tax deductions for companies that earn profits in countries with low tax rates and make it illegal for US citizens to use tax havens.

As a country whose financial sector is heavily geared towards providing offshore services, the Bahamas needs to take the Obama plan seriously, as should the decision of the OECD, taken in early April, to include the Bahamas along with 37 other states on its so-called gray list of countries that had committed to meet but had yet to comply with its tax standards.

These require countries to exchange information when requested on all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes.

Currently, the Bahamas does not levy income or corporation taxes, capital gains tax, VAT, sales tax, or withholding tax on offshore operations, instead charging a sliding scale of annual fees on foreign companies, depending on their field of activity.

The country has taken a number of steps to tighten its financial regulatory and monitoring regime and bring them up to international standards. Between 1999 and 2000 the parliament approved a raft of legislation dealing with the securities industry, mutual funds, requirements for reporting financial transactions as well as establishing a financial intelligence unit to monitor activity in the sector. These acts also contain provisions authorising Bahamian regulators to pass to an overseas regulatory authority any information necessary to enable that authority to exercise regulatory functions.

While the IMF’s most recent review of the Bahamas’ financial regulation and supervision regime, released in late 2004, recommended greater co-ordination between various agencies and increased resources, it praised the country’s authorities for having made substantial progress towards establishing an effective regulatory regime.

Another issue that should be taken into account is the scope of the proposed US legislation. According to US Treasury figures, Washington misses out on $100bn a year in tax revenue from firms operating out of tax havens. However, in his address Obama said that the planned new regulations would bring $95.2bn into the state’s coffers over a 10-year period from those making use of tax havens, meaning that the US is seeking to garner less than 10% of potential tax income rather than shut down offshore activities completely.

Another possibility to limit the impact of the US proposals is for the government to levy taxes on foreign firms based in or operating out of the Bahamas, along with negotiating agreements with the US, EU and other countries to avoid dual taxation.

According to Paul Moss, the managing director of financial services company Dominion Management Services and president of Bahamians Agitating for a Referendum on the Free Trade Area of the Americas (BARF), the government needed to act to rid the country of its tax-haven image. The best way of doing this, and of getting off the OECD’s gray list, was to impose taxes on international clients.

“This system should be no more than 2% of either the gross, 3.5% of profits or 1% of funds under management. If we had a policy of 1% under management for $1trn - that would mean $10bn in revenue to the government,” Moss said in an interview with local media on May 5. “This is not as radical as some may think. The clients would no longer go running to another jurisdiction where they pay no taxes because those jurisdictions are on a list created by the OECD or the G20, which means increased scrutiny and delay.”

Having most of the pieces in place to meet international regulatory requirements and with the government committed to developing a network of TIEAs, the Bahamas has a solid basis from which to work in order to protect its standing as a financial centre.

For more information like this, visit www.oxfordbusinessgroup.com.

This past weekend was the Bahamas 2^nd Annual Real Estate Expo.  We had a great booth that was chock full of real estate info for all the attendees to enjoy, and we hosted three developers for presentations on their premier communities: The Balmoral from Nassau, The Crossing from Abaco, and STAR Island from Eleuthera.  BREA also hosted some seminars on topics for both real estate professionals and the general public which included topics on how to improve your real estate technology, to how to choose a mortgage. 

We noticed that attendance was down a bit from last year, but we feel that this was reflective of the slowing in the market as a whole, since this is such a wonderful forum for the public to learn more about the Bahamas’ real estate market.

As an update on our previous comments:

Last Monday, U.S. President Barack Obama has officially lifted the restrictions that had previously existed on travel to Cuba.

There have been restrictions on travel to Cuba (for Americans) for 47 years now, with the most recent being that only Americans with immediate family in Cuba being allowed to visit, and even then only being allowed to visit once every 3 years. There was also a limit of $100 a month that could be sent to family members in Cuba.

Now, President Obama has made it so that extended family (as distant as 2nd cousins) can visit, and there are no limits on the frequency of travel, or on the amount of money that can be sent to family in Cuba.  Castro calls this a “positive but minimal” change, but this policy change will infuse the Cuban economy with some much needed money.

Also, according to a CNN/Opinion Research Corp. poll, 71% of Americans think the U.S. should re-establish diplomatic relations with Cuba, and 64% think the US should lift the travel ban for all Americans.

But how will this effect The Bahamas?  We think that it will have a very minimal effect on the Bahamian economy in the initial years but that it might have an effect at a later date as they get their tourism product together. Especially as the trend since the implementation of the embargo has been a gradual easing of the travel restrictions.

Yesterday evening, the G-20 and its group, the Organisation for Economic Co-operation and Development (OECD) released a Progress Report on the status of implementation of the international tax standard.  This document (the so-called “Black List”) is more complicated than it sounds, and identifies to varying degrees, the countries which are, or are not, co-operating with the OECD’s efforts to create financial transparency in regards to taxes.  This is supposed to, in theory, encourage countries to co-operate when another country is trying to collect taxes and get a true reckoning of a citizen’s income. 

The Bahamas, and many of its main financial centre rivals, were placed on the “Grey List”, a middle-ground of sorts, which means that the government has “committed to the internationally agreed tax standard, but have not yet substantially implemented” those agreements.  This places us virtually on par with countries like Bermuda, Monaco, Switzerland, and Singapore (to name just a few).

However, we feel that the Bahamas, and its counterparts, have a different tax structure than those concerned with tax havens, and that the world (as represented by the G-20) should not use tax neutral countries as scapegoats for their own financial woes.

We welcome your thoughts and comments on this.