The VAT rate in The Bahamas in 2025 is 10% for most goods and services. This is the standard rate that applies to the majority of business transactions in the country. In addition, a reduced rate of 5% applies to specific essential items — including unprepared food sold in licensed food stores, medications, medical supplies, baby and adult diapers, and feminine hygiene products — effective April 1, 2025. The Bahamas also has zero-rated and exempt categories, each with different implications for your business. Understanding which rate applies to your sales and purchases is essential for accurate VAT compliance and filing through the OTAS portal.
The Standard 10% VAT Rate in The Bahamas
The standard VAT rate in The Bahamas is 10%. This rate was reduced from 12% effective January 1, 2022, as part of the government's broader fiscal policy adjustments. Before 2022, the rate had been 12% since being increased from the original 7.5% rate introduced when VAT launched in January 2015.
The 10% standard rate applies to the vast majority of goods and services sold in The Bahamas. Unless a supply specifically qualifies for the reduced rate, zero-rating, or an exemption, it is taxed at 10%. This includes retail sales, professional services, construction services, telecommunications, restaurant meals, and most other commercial activities.
As a VAT-registered business, you must charge 10% VAT on your standard-rated sales and report this as output VAT on your return. You can then deduct the input VAT you paid on business expenses related to those taxable sales. The difference — output VAT minus input VAT — is what you owe to the Department of Inland Revenue each filing period.
The Reduced 5% VAT Rate in The Bahamas (Effective April 2025)
Effective April 1, 2025, The Bahamas introduced a reduced VAT rate of 5% on specific essential goods. This is a significant change for businesses that sell these items, as it reduces the tax burden on everyday necessities for Bahamian consumers.
The 5% reduced rate applies to the following categories:
- Unprepared food sold in licensed food stores (groceries, raw ingredients, uncooked items) - Medications and medical supplies - Baby diapers and adult diapers - Feminine hygiene products
It is important to understand the distinction between unprepared food and prepared food. Unprepared food — groceries you buy to cook at home — qualifies for the 5% rate when sold in a licensed food store. Prepared food — meals served at restaurants, takeaway food, and ready-to-eat items — remains subject to the standard 10% rate.
How Does VAT Work for Restaurants and Food Businesses in The Bahamas?If your business sells reduced-rate items, you must apply the correct 5% rate on those sales and report them separately on your VAT return. Mixing up the rates is one of the most common errors the Department of Inland Revenue sees in filed returns.
How the Reduced Rate Affects Your VAT Return
When you file your VAT return through the OTAS portal, you must report your reduced-rate sales separately from your standard-rate sales. The return has distinct boxes for each rate category, and the Department of Inland Revenue expects these to be accurately separated.
Your output VAT on reduced-rate sales is calculated at 5%, while your output VAT on standard-rate sales is calculated at 10%. Your input VAT — the VAT you paid on business purchases — can be claimed against both, subject to the normal rules. If you sell a mix of standard-rated and reduced-rated goods, you do not need to apportion your input VAT between the two taxable categories — apportionment only applies when you have exempt supplies alongside taxable ones.
Zero-Rated VAT in The Bahamas: 0% With Input VAT Recovery
Zero-rated supplies are taxed at 0% VAT. This might sound the same as exempt, but the difference is critically important for your business finances. When you make zero-rated sales, you charge no VAT to your customer, but you can still claim back the input VAT you paid on expenses related to those sales.
Zero-rated supplies in The Bahamas include exports of goods and services, international transportation services, and certain specific medical products. If your business is primarily an exporter, this means you may regularly receive VAT refunds from the Department of Inland Revenue — because your output VAT is zero, but you are still incurring input VAT on your domestic business expenses.
Do I Charge VAT on Exports from The Bahamas?However, as of July 2025, VAT refund eligibility has been tightened. Refunds are now restricted to businesses where at least 50% of their supplies are zero-rated or reduced-rated. If you do not meet this threshold, excess input VAT credits must be carried forward to future filing periods rather than claimed as a refund.
Can I Get a VAT Refund in The Bahamas?Zero-rating is one of the most advantageous VAT positions a business can be in, because it allows full recovery of input VAT while your customers pay no tax. Understanding whether your supplies qualify for zero-rating is essential.
Exempt Supplies: 0% VAT With No Input VAT Recovery
Exempt supplies are not subject to VAT at all — you do not charge VAT on them, and they do not appear as taxable supplies on your VAT return. However, unlike zero-rated supplies, you cannot claim input VAT on expenses related to your exempt activities.
This is the key distinction between zero-rated and exempt, and it is the single most consequential classification decision for many Bahamian businesses. Getting it wrong can mean either overclaiming input VAT (which triggers audits and penalties) or failing to claim VAT you are entitled to recover.
Zero-Rated vs Exempt VAT in The Bahamas: What's the Difference?Exempt supplies in The Bahamas include residential rental for periods exceeding 45 days, certain educational services, and specific financial products. If you rent out a residential property on a lease longer than 45 days, that rental income is exempt from VAT. But short-term vacation rentals (under 45 days) are standard-rated at 10%.
Does My Airbnb or Vacation Rental Need to Be VAT Registered in The Bahamas?If your business makes both taxable and exempt supplies, you must apportion your input VAT. You can only claim input VAT on the portion of your expenses that relates to your taxable activities. The Department of Inland Revenue provides guidance on acceptable apportionment methods, and getting this calculation right is essential for accurate filing.
Summary of All VAT Rates in The Bahamas for 2025
Here is the complete picture of VAT rates in The Bahamas as of 2025:
The standard rate is 10%, which applies to most goods and services. The reduced rate is 5%, effective April 1, 2025, which applies to unprepared food in licensed food stores, medications, medical supplies, baby and adult diapers, and feminine hygiene products. The zero rate is 0% with input VAT recovery, which applies to exports, international transportation, and certain medical products. The exempt rate is 0% without input VAT recovery, which applies to residential rent over 45 days, certain educational services, and specific financial products.
Every Bahamian business must correctly identify which rate applies to each product or service it sells. Applying the wrong rate is not just an accounting error — it is a compliance issue that can result in assessments, penalties, and interest from the Department of Inland Revenue.
If you are unsure which rate applies to a specific product or service, consult the Department of Inland Revenue's published guidance or seek professional advice. Accurate classification from the start saves significant time and money at filing time.
Key takeaways
- The standard VAT rate in The Bahamas is 10%, reduced from 12% in January 2022.
- A 5% reduced rate applies to essential items including unprepared food, medications, diapers, and feminine hygiene products from April 1, 2025.
- Zero-rated supplies (0%) allow input VAT recovery; exempt supplies (0%) do not — this distinction is critical for your bottom line.