Harbour Island—with its iconic pink sand beaches and charming New England-style architecture—continues to attract buyers and investors seeking a premium real estate destination. When sellers decide to list their property, they benefit from a major financial advantage: the Bahamas does not impose a capital gains tax. This policy underscores the appeal of capital gains on Bahamas regulations, which offer a clear edge in maximizing returns. As a result, the phrase "The Bahamas is a tax haven" rings true, reflecting the country's absence of both income tax and capital gains tax at the national level.

However, as you mentioned, there are other costs associated with property transactions in the Bahamas:

• Value Added Tax (VAT): Currently, VAT is levied on real estate transactions. The standard rate is 10%, and as you correctly stated, this is typically shared equally between the buyer and the seller, meaning each party would pay 5%.
• Stamp Tax: The Bahamian government also levies a stamp tax on property transfers. This tax is usually progressive, meaning the percentage increases with the value of the property. Generally, the buyer is responsible for paying the stamp tax, but this can be negotiated between the parties.

It's important to note that while the Bahamian government does not tax capital gains, your tax obligations don't end there:

• Seller's Hometown Taxes: As you pointed out, a seller will still be subject to the tax laws of their country of residence. For example, a Canadian selling property in Harbour Island will need to consider any capital gains implications under Canadian tax law.
• U.S. Residents and Capital Gains: Specifically, for U.S. residents selling property in Harbour Island, the Internal Revenue Service (IRS) requires them to declare any capital gains from the sale. These gains will be taxed at the applicable U.S. capital gains tax rates, which vary depending on the individual's income and the holding period of the property (short-term vs. long-term).

To expand on this, here are some additional points to consider:

• Holding Period: In the U.S., the length of time you owned the property determines whether the capital gain is taxed at short-term or long-term rates. Long-term capital gains (for assets held for more than one year) generally have more favorable tax rates.
• Cost Basis: When calculating capital gains for U.S. tax purposes, it's crucial to accurately determine the cost basis of the property. This includes the original purchase price plus certain improvements made over time.
• Foreign Tax Credit: U.S. taxpayers who pay VAT or stamp tax in the Bahamas related to the sale might be eligible for a foreign tax credit on their U.S. tax return. It's essential to keep detailed records of these payments.
• Professional Advice: Given the complexities of international tax laws, both buyers and sellers of real estate in Harbour Island should seek advice from qualified tax professionals in their respective countries. This will ensure compliance with all applicable regulations and help optimize their tax situation.
• Bahamian Legal and Real Estate Practices: Engaging a reputable Bahamian real estate agent and lawyer is crucial. They can guide you through the specific legal and procedural aspects of property transactions in the Bahamas, including the nuances of VAT and stamp tax.

To summarize, the Bahamas provides a major advantage by not imposing taxes on capital gains from property sales. This favorable stance on capital gains Bahamas makes real estate transactions particularly attractive for investors.

However, sellers especially those from countries like the U.S. must still understand and comply with tax obligations in their home jurisdictions. Therefore, consulting with a professional and becoming familiar with local Bahamian tax regulations are essential steps to ensure a smooth and financially sound real estate transaction in Harbour Island.