BAHAMAS Trends and Developments Contributed by: Richard Horton and Emma Van Wynen, Alexiou, Knowles & Co.
Introduction Shipping has always been central to The Bahamas. What began as a haven for pirates, wreckers and smugglers evolved into a colonial trading post and a Prohibition-era trans-shipment hub, with each period helping to establish the island nation as a strategi - cally positioned maritime jurisdiction. Located at the crossroads of major Atlantic and Caribbean shipping routes, and close to the eastern seaboard of the Unit - ed States and the Panama Canal, the same geog - raphy that first attracted seafarers to The Bahamas now supports a sophisticated legal and regulatory framework governing modern shipping, admiralty and maritime commerce. Over time, the Bahamas has established itself as a premier and internationally respected flag state, with the Bahamian Ship Registry ranking among the larg - est open registries globally and providing ship-owners with the convenience of registering their vessels under the Bahamian flag through any of the Bahamas Mari - time Authority (BMA) offices in London, Nassau, New York, Hong Kong, Piraeus and Tokyo. The Bahamian flag maintains “White List” status under the Paris and Tokyo Memorandums of Understanding (MoUs), reflecting The Bahamas’ adherence to international maritime conventions and its commitment to admin - istrative and safety standards across its fleet. Bolstered by a legal system based on English common law, The Bahamas continues to attract ship-owners and other investors seeking a stable and predictable jurisdiction. A tax-neutral environment, The Bahamas has also seen sustained growth in both private and charter yacht sectors, driven by demand for reputable registration and flexible ownership structures. These developments have been accompanied by ongoing legislative and regulatory reform, most recently in the areas of port authority governance and environmental compliance, as the jurisdiction continues to align with evolving international standards. Department of Inland Revenue’s Attempt to Charge VAT on Judicial Sale of Vessels Contrary to well-established admiralty principles both in The Bahamas and throughout international prac - tice, in 2023 the Bahamian government launched an unprecedented attempt to impose value-added
tax (VAT) on the judicial sale proceeds of two Crys - tal Cruises motor vessels known as the M/V Crystal Symphony and M/V Crystal Serenity (the “Vessels”). The Vessels were arrested in Bahamian waters in February 2022 and were soon thereafter sold on a pendente lite basis for the combined sum of USD128 million. Roughly four months after the Vessels’ sale, the Office of the Attorney General, acting alongside the Department of Inland Revenue and the Comptrol - ler of VAT, issued a notice to the Admiralty Marshal assessing VAT on the transaction in the amount of USD11.6 million. The government’s position stunned members of the jurisdiction’s maritime and legal sec - tors. If it had succeeded, the assessment would have constituted one of the single largest VAT claims ever advanced in The Bahamas and risked creating uncer - tainty for the jurisdiction’s ship financing and enforce - ment landscape. At the heart of the government’s case was the con - tention that VAT was chargeable because the Ves - sels’ sale occurred within The Bahamas and involved Bahamian-flagged vessels. This argument departed from long-standing admiralty principles under which judicial sales of vessels have never been character - ised as taxable commercial transactions or treated as attracting VAT. Attorneys representing the mortgagee bank and various other creditors engaged in a multi- year litigation dispute in connection with the Vessels, with many practitioners sharing a common goal of safeguarding the integrity of Bahamian admiralty juris - prudence, specifically in the face of the government’s novel position. Ultimately, in a highly anticipated ruling delivered in February 2024, the Supreme Court of The Bahamas confirmed that VAT does not form part of the Admi - ralty Marshal’s recoverable expenses arising from a court ordered sale of vessels. In its decision, the Court endorsed established admiralty precedents and found no basis under Bahamian law or international maritime practice to support the inclusion of VAT as a Marshal’s expense, nor any authority indicating that judicial sales have historically been subject to VAT. The Court further ordered the release of the full USD11.6 million, which had been held in a joint
72 CHAMBERS.COM
Powered by FlippingBook