In a landmark decision, the Bahamian government will impose a Value Added Tax (VAT) on goods and services at private islands operated by cruise lines. This initiative, set to commence on March 1, aims to align the operations of cruise line private islands with those of local businesses.
Bahamian Government Announces Taxation Overhaul
A new tax reform, which ends a nine-year VAT exemption and affects major cruise lines, was announced by the Bahamian government and confirmed by the Bahamas’ Financial Secretary of the Ministry of Finance, Simon Wilson, in The Tribune, the Bahamas’ 155-year-old news outlet.
The change intends to place cruise line private island activities on equal footing with local Bahamian businesses by introducing a standard 10 percent VAT rate on all passenger transactions.
The affected islands include notable destinations such as Royal Caribbean’s Perfect Day at CocoCay and Disney Cruise Line’s Castaway Cay.
Wilson told The Tribune, “When we implemented VAT originally we were under the impression given to us by the cruise lines that any commercial activity on the private islands was an extension of the package purchased [by passengers] on ship – they were indistinguishable. That’s not the case.”
He went on to say, “The private islands are much bigger, much more diverse in their operations, and they actually compete with Bahamas-based businesses for onshore excursions.”
The revenue implications of this VAT implementation are unclear due to limited financial data from the private islands. However, the move underscores the government’s intention to increase transparency and fairness in the tourism sector.
Compliance and Industry Adaptation
Cruise lines must register for VAT if they own a private island or surpass $100,000 in annual taxable sales.
The VAT will apply to a wide range of services, including food and beverage offerings, recreational activities, equipment rentals, and spa services. Even lease agreements for space usage or goods and services provided by separate corporate entities operating on the islands fall under the VAT.
Furthermore, transactions such as cabana rentals, shore excursions, and the sale of recreational activities supplied by Bahamian vendors to cruise passengers will attract VAT. This stance comes after previous attempts to adjust VAT treatments for private islands were not enacted.
The cruise industry has until February 16 to provide feedback on the VAT changes, although Wilson anticipates the March 1 implementation date will stand.
Impact on Cruise Lines and Passengers
Owned and operated by some of the world’s major cruise lines, the private islands in the Bahamas are now facing a new financial landscape due to the upcoming VAT changes. The VAT introduction is expected to increase cruise lines’ operational costs, potentially affecting customer pricing.
Read Also: Bahamas Plans New, Increased Taxes For Cruise Guests
Given the industry’s advanced booking practices, typically 12 to 18 months, cruise lines may absorb these VAT costs initially, as altering prices for already booked cruises could prove difficult.
Among the islands impacted are Castaway Cay, a 1,000-acre island exclusive to Disney Cruise Line passengers; the 140-acre Perfect Day at CocoCay, a Royal Caribbean International lease since 1990; Great Stirrup Cay, a 250-acre island in the Berry Island chain owned by Norwegian Cruise Line; and MSC Cruises’ Ocean Cay Marine Reserve.
Half Moon Cay, once Little San Salvador, was purchased by Holland America Line in 1997 to serve as a 2,400-acre private retreat and is also affected. Owned by Carnival Corporation, Holland America shares the island with Carnival Cruise Line and Princess Cruises.
Cruise lines will benefit from input tax credits for certain purchases and zero-rated port-side supplies, offering some relief amidst these changes.
