Explanation of New business Licence Tax Calculation
Business licence tax is an annual tax paid to obtain a licence to operate a business in or from within The Bahamas for a specific year. The amount that is currently being charged is not a double tax or advance tax. It is still a payment for one year, but the basis of calculation has changed.
Before 2023, business licence tax was calculated based on the turnover of a business during the prior year1. For example, tax paid for operating a business in 2020 was calculated using the turnover of the business for the year 2019. As of 2023, the basis of taxation has changed from turnover in the prior year to turnover in the current year2. Since a business licence is obtained at the beginning of the year, the tax is first estimated based on turnover in the previous year (Business Licence Annual Estimate or “BLAE”), and adjusted at the end of the year when the actual turnover for that calendar year is known (Business Licence Annual Actual or “BLAA”).
Therefore, at the beginning of 2023, all businesses were required to pay an “estimated tax” for the renewal of their licences for 2023 based on their “estimated turnover” for 20233 (i.e. turnover for 2022)4. If actual turnover for 2023 was greater than turnover in 2022, then the business would have a balance to settle 20235. For example, if ABC Ltd had turnover of $200,000 in 2022, ABC Ltd would have paid an estimated tax of $1,000 for their 2023 business licence (i.e. 0.5% of$200,000). However, if ABC Ltd’s actual turnover for 2023 was $230,000, then the actual tax for 2023 would be $1,150 (i.e. 0.5% of $230,000). ABC Ltd would, therefore, have a balance of $150 for 2023 (i.e. the actual tax of $1,150 less the estimated tax of $1,000 paid at the beginning of the year). This balance is paid when ABC Limited files their Business Licence Annual Actual (BLAA) for 2023.
Similarly, if ABC Ltd actually earned $180,000 in 2023, ABC Ltd’s actual tax for 2023 would be $900 (i.e. 0.5% of $180,000). This means that ABC Ltd would have a credit of $100 (i.e. the difference between the actual tax of $900 and the estimated tax of $1,000 that was paid at the beginning of the year). When ABC Limited files their BLAA for 2023, a $100 credit would be reflected, and this credit is rolled over and applied to tax payable for 20246.
We, therefore, reiterate that there is no double tax or advance tax being collected. Every business is required to pay each year for only one calendar year. The calculation of the amount of tax payable for a given year has simply shifted from prior year turnover to current year turnover.
1 See definition of “turnover” in section 2 of the Business Licence Act, 2010 as amended up to 2020 which references the “prior financial year”.
2 See the amendment to the definition of “turnover” in section 2(f) of the Business Licence (Amendment) Act, 2022 which now references the “year of assessment”. See also the definition for “year of assessment” in section 2(g) of the Business Licence (Amendment) Act, 2022. Similar provisions are in the new 2023 Act. See the reference to “year of assessment” in section 32(1) of the Business Licence Act, 2023 and the definition of “year of assessment” in section 2.
3 Section 26(3)(c) of the Business Licence Act, 2023.
4 Section 35(1) of the Business Licence Act, 2023. See also the definitions of “estimated tax” and “estimated turnover” in section 35(7).
5 Referred to in the Act as an “unpaid tax”. See section 26(3)(b)(ii) of the Business Licence Act, 2023 and also the definition of “unpaid tax” in section 35(7).
6 Section 35(3) of the Business Licence Act, 2023.