By NEIL HARTNELL From Tribune242

A Bahamian software developer yesterday revealed he was forced to domicile in the Cayman Islands to prevent VAT and Business License fees “killing” his competitiveness.

Bruce Raine, International Private Banking Systems (IPBS) principal, told Tribune Business that his company’s experience showed that the Government needed to enact multiple, far-reaching economic reforms that extend way beyond the Commercial Enterprises Bill.

IPBS, which develops specialist software for the international financial services industry, straddles two of the sectors targeted by the Bill – financial services and technology.

But, while welcoming the legislation and its ‘fast track’ work permit process as “a step in the right direction”, Mr Raine argued it was not enough by itself to attract foreign direct investment (FDI) from such sectors.

He said “the bigger problem” was the Bahamas’ high costs for doing business, together with a tax structure that undermined the price competitiveness of companies such as his when compared to international rivals.

Pointing out that IPBS was involved in a high margin, value-added sector, Mr Raine said it was at a competitive disadvantage versus overseas rivals when selling software to Bahamas-based financial services providers because it had to pay 7.5 per cent Value-Added Tax (VAT) on the deal.

Foreign competitors faced no such tax burden, he added, with the Bahamas’ Business License fees further undermining IPBS’s cost competitiveness. To escape these pressures, Mr Raine said he was forced to establish a Cayman Islands-based company to own IPBS’ software, and handle all sales and licensing functions.

IPBS’s development functions remain in the Bahamas, but Mr Raine said he “couldn’t see” how foreign-owned technology companies targeted by the Bill would be attracted here unless such issues were corrected. “What I had to do to get around VAT and Business License fees was to domicile a company in Cayman, and that company owns it [the software]. We license and sell it out of Cayman,” the IPBS chief told Tribune Business.

“We develop it here, but can’t sell it as a Bahamian product to a Bahamian bank, asset manager or mutual fund companies. You would have to add VAT to it, and have had these huge Business License fees. Cayman has a flat Business License fee.

“If I can’t see the competitiveness of being in the Bahamas as a Bahamian, I don’t know how foreigners are going to see it. If someone is coming here to develop and sell software, I can’t see how they’re going to do it unless they’re VAT ‘exempt’ or ‘zero rated’. These are the things that kill it.”

Mr Raine said he had considered moving IPBS from Nassau to Freeport, but abandoned the plan when he realised VAT was also levied in the Port area.

He pointed out that 7.5 per cent VAT on a $200,000 software system totalled $15,000 – a significant cost that foreign rivals did not have to charge to Bahamas-based financial institutions.

“I looked at one time domiciling in Freeport, but some of the things the Government doesn’t understand, and never has,” Mr Raine told Tribune Business. “I thought I could do it up in Freeport, but it was not possible because you’ve still got VAT up there.

“I’m in the business of developing software and selling it at a high price. Here’s my problem. My competitors around the world, if they want to sell a system to a bank or asset manager in the Bahamas, they don’t have to charge VAT. I would have to charge VAT.”

While praising the Government’s efforts to innovate via the Commercial Enterprises Bill, Mr Raine said it only fixed one aspect of the Bahamas’ ‘ease of doing business’ woes – certainty surrounding the granting of work permits.

“I see the inherent problems for someone coming in to do business here,” he added. “We have high electricity costs, and Business License fees are a monster. We’ve got to reduce the cost of doing business.

“These things have to happen, otherwise no one is going to come here if they have to pay for electricity, and pay for office space and staff. They’re [the Government] creating the mechanism, but whether we have the product to sell I don’t know.

“It’s [the Commercial Enterprises Bill] the fundamental level of legislation for people to come in, or even think about coming in, but next we have to find out how to reduce the cost of doing business in this little country. That’s the bigger problem,” Mr Raine continued.

“It’s a great idea, and hopefully people will come, but as soon as they come they’re going to say: ‘How much is it going to cost me to run this office for a month with security?’ All these little things are what’s killing this country, I’m sorry to say. There are other things we need to fix.”

Mr Raine said exchange control liberalisation was vital to enabling Bahamian businesses to compete with foreign rivals when it came to the cost of, and access to, capital.

He added that ‘quality of life’ issues would also impact investor decisions on whether to invest in the Bahamas, questioning whether any thought had been given to addressing Nassau’s ‘rush hour’ traffic congestion that results in tremendous productivity losses.

For more on this story go to: http://www.tribune242.com/news/2017/dec/01/software-developer-tax-woe-drove-us-to-cayman/

IMAGE: The Economic Times