Compliance ‘onslaught’ on substance demands5 min read
* Corporate Bahamas ‘caught off guard’ by new filing
* System challenges to meet today’s ‘EU law’ deadline
* Firms brand exercise ‘utter pain’ and ‘more red tape’
By NEIL HARTNELL
Tribune Business Editor
Accountants are urging the Government to extend today’s deadline for corporate Bahamas to meet substance reporting requirements amid “a last-minute onslaught” from stunned firms racing to comply.
Craig A. ‘Tony’ Gomez, the Baker Tilly Gomez accountant and partner, yesterday told Tribune Business that many companies in both the domestic and international segments of the Bahamian economy appeared to have been “caught off-guard” by the need to file the “annual declaration” demanded by the Commercial Entities (Substance Reporting) Act 2018.
This law, part of legislation passed to meet the European Union’s (EU) demands that Bahamas-based companies have a physical presence and conduct real business, for the first time requires all incorporated entities and legal partnerships to complete a so-called “substance reporting form” and obtain an “entity identification number” (EIN) by today.
The penalties for failing to do so can be harsh, reaching to a $15,000 “administrative fine in certain circumstances” as well as a $1,000 daily penalty that can be levied for “ongoing” non-compliance. The latter could also see a company struck from the registry at the Registrar General’s Department.
Philip Galanis, the HLB Galanis managing partner, yesterday backed Mr Gomez in disclosing that his firm and other accountants were encountering challenges in filing their clients’ substance declarations “on a timely basis” due to problems connecting with the Department of Inland Revenue’s (DIR) ‘substance reporting portal’.
Arguing that the information technology (IT) infrastructure was “not as robust and accessible as it should be”, and that “quirks” were likely still being addressed as this is the first such annual filing, Mr Galanis urged the Government to extend today’s deadline and give corporate Bahamas more time to comply.
Noting that many companies appeared to have been blindsided by this latest imposition, Baker Tilly’s Mr Gomez told this newspaper: “The deadline is tomorrow [today] so everybody is getting into gear. This applies to both domestic and international entities.
“All of a sudden everyone is calling. All these firms have been caught off-guard. Because the Act was passed in 2018 and nobody moved, many companies have relaxed. Someone in the Ministry must have awakened and said: ‘Let’s get this thing going’.
“Over the last month everyone and his brother have been rushing, consulting with accountants and professional advisers to help them comply.. Let me tell you something; it’s not the past few weeks. All of a sudden there’s an onslaught of domestic and international businesses,” Mr Gomez revealed.
“Let’s just say we have received active inquiries to get this done, and provide guidance and interpretation on complying with the requirements of this legislation. We’ve seen a very active level of inquiries that have not all materialised into business, but all of a sudden persons are keenly aware of the law that has been enacted with a deadline of tomorrow, December 31.”
Ministry of Finance guidelines state that the substance reporting requirements apply to “all incorporated entities and legal partnerships in The Bahamas”, including non-profit groups and those with legal partnership agreements, and those registered at the Registrar General’s Department.
As a result, the Act and its reporting/declaration requirements apply to all entities incorporated under the Companies Act, including registered foreign entities; International Business Companies Act; Partnership Act; Partnership Limited Liability Act; and Exempted Limited Partnership Act.
Even corporate vehicles “100 percent owned by one or more natural persons ordinarily resident and domiciled in The Bahamas, and conducting its ‘core income generating activities’ in The Bahamas”, must obtain the EIN number and submit the annual substance declaration and report by year-end.
“As things stand currently, entity registration and initial reporting must be completed no later than December 31, 2020. Hence time is of the essence,” one advisory seen by Tribune Business warned.
Backing Mr Gomez, his fellow accountant, Mr Galanis told this newspaper: “That’s exactly what I’m seeing; a lot of last minute requests. A lot of it has to do with getting the relevant information from the Registrar General’s Department and the Department of Inland Revenue.”
Revealing that inquiries with his colleagues suggested that the whole accounting profession was challenged in meeting the year-end deadline on clients’ behalf, he added: “I don’t know what’s going to happen. I hope the Government may give an extension. They need to give an extension, no question about it.
“I’m not sure the system is as robust as it should be, and a lot of firms are experiencing difficulties filing on a timely basis. I don’t think anybody has issues providing the information, but we need the right environment and infrastructure to facilitate it. That’s where the deficiency is, I think. It’s not as robust and accessible as it should be.
“Both these problems have created significant difficulties for people completing filing on time. I don’t think this is isolated; I think this is a common problem across the entire industry. Because this is the first time they’ve rolled it out, there are bound to be quirks,” Mr Galanis continued.
“This is the first time this level of disclosure has been required, and you don’t want to mislead or give inaccurate information. It isn’t as easy as it may appear. All these things are taxing our ability to get things done as quickly as we’d like to. I don’t think there’s a question about willingness to do it. That’s not a question at all. It’s more having the infrastructure available to facilitate it being implemented.”
Mr Galanis said trying to complete the substance declaration filing over the Christmas holiday brought additional challenges, as staff at many vital government agencies were away, worsening the difficulties caused by the COVID-19 pandemic.’
One executive yesterday voicing frustration with the Government’s system was Rick Lowe, Nassau Motor Company’s (NMC) operations manager/director, who said he had sent at least four requests for the substance reporting form to the Ministry of Finance’s portal since November 12 but had yet to receive a response.
“It’s just more red tape for nothing” he told Tribune Business. “An absolute utter pain. If you are going to the Government site and doing what they’re asking, sending a request and not getting an answer, how are you supposed to respond? There’s the threat of fines and big jail terms. Who wants that? It’s just ridiculous.”
Marlon Johnson, the Ministry of Finance’s acting financial secretary, could not be reached for comment before press deadline last night.