New Year comes with long-awaited changes in Belize tax system.
In 2015 the Organization for Economic Cooperation and Development (OECD) and G20 countries designed the base erosion and profit-shifting project (BEPS). Belize is a member of the Inclusive Framework on BEPS; consequently, until the end of December 2018, it had to amend legislation to comply with BEPS requirements.
At the end of 2018 the Government of Belize passed amendments to three important Acts, amending the International Business Company (IBC) Regime to territorial taxation as of 1st of January 2019:
- the International Business Companies Act;
- the International Business Companies Act;
- the Stamp Duties Act.
The key changes include:
- Belize residents can own IBC;
- IBCs with certain business activities can be considered tax residents of Belize;
- IBCs can without limitation engage in business with Belize residents.
Given the global transformation of the banking environment, these changes may deliver new opportunities to classically known “offshore” companies. The new law amendments address two significant shortcomings, that prevented companies from the opening of the bank accounts, which are:
Abolishment of zero taxation regime. It is a common practice for banks to recognize zero tax companies as high-risk entities, which results in increased compliance costs and complicated "know your client" procedures. Because of that, the majority of banks prefer to refuse to accept tax heaven companies as new clients. From now on Belize has territorial taxation regime for both, local and foreign companies.
The requirement to file annual tax returns, accounting records, and audited accounts. As a part of risk assessment procedures, in most cases banks require the provision of an up to date Certificate of Good Standing. In order to verify the financial standing and soundness of the company, submission of company`s financial statements and audited accounts is a mandatory requirement.
It is very likely that recent amendments will alienate Belize entities from being perceived as "shell companies," i.e., companies without real business substance, place of business, and the requirement to keep and submit proper financial statements.
In overall, we consider the tax reform as good news, which will open up much more extensive opportunities for Belize companies in the opening of bank accounts. It will also improve the reputation of Belize as a modern finance centre and will ease regular daily business operations between Belize entities and companies registered in other countries.
What is BEPS?
An inclusive framework is a group of countries that committed to putting in place minimum standards that are aimed to prevent tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity. In other words, BEPS is a project that stops jurisdictions from providing IBCs with low or even no tax regimes instead requires that all companies, domestic and international, pay the same rate of tax.
BEPS project is an action plan of 15 Articles, which equip governments with domestic and international instruments to address tax avoidance, ensuring that profits are taxed where economic activities generating the profits are performed and where the value is created.
Key Changes in Belize IBC regime changes as of January 2019 are summarized below:
IBC registration regime has been extended to Belizean residents and subsequently physical presence granted to the IBCs with specific business activities.
Definition of "person resident in Belize" has been amended by removing the exemption of an IBC and subsequently including an option for IBC to be considered a resident. The Amendment Act has widened the scope of resident companies by including all IBCs managed and controlled within Belize and by defining that those companies with activities licensed by the Financial Services Commission Act (relevant activities), will be considered physically present in Belize, allowing companies with any other lawful operations to decide to become physically present in Belize. Note that, when a company has taken steps to comply with the physical presence requirement, it shall remain in fulfilling this position for at least five years.
The IBC Amendment Act removes the restrictions from international business companies to carry on business with Belizean residents and removes the prohibitions concerning ownership of real property in Belize, by amending and substituting section 5 of the IBC Act.
IBC Act has removed exemptions from taxes and duties:
PART XII, Exemption from Tax in the IBC Act has been substituted with PART XII, Income Tax and Other Taxes and Duties.
This part of the IBC Amendment Act sets out provisions for the companies that are considered resident in Belize:
- Liable to pay applicable taxes as at rate specified in the Income and Business Tax Act;
- Must file an annual return based on requirements of the Income and Business Tax Act;
- Shall be subject to the Stamp Duties Act.
Banking requirements for physically present company
Amendment of section 134 (1) provides guidelines for a company physically present in Belize concerning bank accounts, i.e., that such companies may maintain US dollar account in a domestic branch of a foreign or international bank located in Belize. And further that company under 134 (1) will have to submit a monthly report to the Central Bank of Belize, and such monthly report shall include all transactions in dollar accounts held by the company and sales and purchases of the company.
Income and Business Tax Amendment Act sets out the rate of tax for companies, provisions for a tax regime for companies engaged in certain business activities as well as exempts from tax the interests and dividends from specific trade or business.
Dividends, paid or received, or Interest, paid or earned on bonds is tax exempt in both cases when IBC in Belize has a physical presence or does not.
The rate of tax for international business companies:
- 1.75% of the chargeable income amounting to a sum greater than three million Belize dollars derived from business operations, and such tax shall be payable in the currency of the United States of America (US$);
- 3% of the chargeable income amounting to the sum of three million of a lesser amount in Belize dollars derived from business operations, and such tax shall be payable in the currency of the United States of America (US$);
Where a company is engaged in a trade, business, or profession where the revenue or income is derived outside of Belize, the company shall not be liable for payment of income tax in Belize.
Following companies may be required to be audited by an independent audit firm under IFRS:
- an international business company with receipts of at least $6,000,000 United States dollars (US$)
- a company operating in a designated processing area with revenues of at least $500,000 Belize dollars
- any other appropriate entity which meets at least two of the following criteria:
- entities listed on an approved stock exchange;
- entities undergoing through a restructure and liquidation or proposing to sell all of its assets through an auction;
- entities regulated by the International Financial Services Commission;
- entities and organizations subject to prepare consolidated financial statements; or
- any other business entities.
Exclusion from the charge of duties:
Stamp duties amendment act (2018) clarifies, that stamp duty will not apply to Belize International Business Company, which does not have a physical presence in Belize, does not own land, stock, bonds, or other property in Belize other than stock or other securities in another International Business Company.
- A company owning Intellectual Property (IP) assets which have been in existence at 30 June 2018, need to apply to the IFSC for a determination on its status whether it can continue to exist under the prior regime. Once the status is determined, income may be subject to tax under the new regime (this requirement expires 30 June 2021 if allowed by the IFSC);
- Existing IBCs under an activity licensed by the IFSC, former IBC regime expires 30 June 2021 after which they are subject to tax;
- IBC incorporated on or before 16 October 2017 (provided there are not IP assets acquired from a related party), continue to benefit under the prior IBC regime up to 30 June 2021 only on the core income generating activities; all other income must be subject to taxes under the new regime;
- IBC incorporated on or after 17 October 2017, are captured under the new IBC Amendments and are subject to tax.
A transition period of at least 12 months will be approved, before the full enforcement of some of the new requirements, such as tax compliance, audit requirements and physical presence requirements.
The table below summarizes vital tax and requirement factors for IBCs with physical presence and without:
|Factor||With physical presence||No physical presence|
|Tax resident in Belize||Yes||No|
|Residency and property ownership||Not restricted||Not restricted|
|Subject to Income and/or Business Tax||Yes||Subject to tax if income/receipts sourced from Belize, otherwise not subject to tax|
|Dividends (paid or received) on bonds||Tax exempt||Tax exempt|
|Interest (paid or earned) on bonds||Tax exempt||Tax exempt|
|Stamp duty||No, unless IBC owns property in Belize other than shares in another IBC||No, unless IBC owns property in Belize other than shares in another IBCt|
|Conduct business internationally||Yes||Yes|
|Conduct business within Belize||Yes||Yes|
|Tax-resident in Belize||Yes||Yes|
|Physical presence||Mandatory for licensees of the International Financial Service Commission (IFSC)||Optional for others not having an IFSC license|
|Exchange control permit||Yes||No|
|Filing requirement||File annual tax return, pay monthly business tax||File annual tax return if income/receipts sourced from Belize. Otherwise optional to file the annual tax return|
|Audit requirements||May be required by the Commissioner of Income Tax if annual receipts are at least $ 6.000.000||May be required by the Commissioner of Income Tax if annual revenues are at least $ 6.000.000|
|Certificate of Good Standing (CGS) requires tax compliance||Yes||Yes|
Please do not hesitate to contact our Belize office or your usual representative, should You require more information!
Suite 508, Marina Towers
Belize, Central America
Tel. +501 2230 843
Fax: +501 2233 029
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