Such organizations as FAFT, CFATF (Caribbean FATF), OECD, and the EU Council promote fairness of national taxation systems. Those countries that have zero or low taxes as well as those offering tax benefits also should have ‘fair’ tax systems. In simple words, they have to charge taxes.
National states that fail to dismantle their ‘preferential tax treatment’ regimes are deemed ‘uncooperative’ and they are blacklisted. Those jurisdictions that conform to most requirements and are seen to take effort to make their tax systems ‘fair’ are found on gray lists. Totally compliant countries are on white lists.
Together with other offshore jurisdictions, Belize has to comply with the OECD and EU requirements and thus the country has introduced economic substance requirements and carried out a tax reform. Below we discuss some specifics of the recent tax reform in Belize.
Beginning 2020, no income tax is levied on Belizean companies with the exception of oil companies. Instead of an income tax, companies pay a business tax. The tax is levied on global incomes of the companies.
Tax exemption regulations have also been changed. International commercial companies carrying out trade operations and other commercial activities abroad are not tax exempt. However, companies that have paid taxes in foreign countries are eligible for full or partial tax offset in Belize. Previously, all companies doing business abroad were tax-exempt in Belize.
Business tax is not charged if:
- The company is a tax resident of a foreign country (it has the company control center there). Besides, the foreign country should not be on the EU list of uncooperative countries.
- The company has not established a permanent presence in Belize.
- The company annually submits a special form to the tax service of Belize.
The form has to contain the following items:
- The jurisdiction where the company is resident for tax purposes;
- Names of all beneficial company owners who have 5% or more of the company shares;
- Tax residences of the beneficial company owners.
How is tax residence of a Belizean-registered company determined?
Tax residence of a business company registered in Belize is determined in accordance with certain criteria. The main criteria include the following ones:
- The country where the company is managed from and where strategic decisions are made;
- The country where the company personnel is located;
- The country where the company head office is located;
- Company counteragents’ countries;
- Other criteria.
A company registered in Belize is deemed a tax resident of Belize unless the company declares and proves tax residence of another country.
Companies that have not declared tax residence in other countries or those that are tax residents of uncooperative countries have to pay the business tax in Belize on their global incomes. The tax rate will depend on the business type.
How can a Belizean-registered company confirm tax residence in another country?
If a Belizean-registered company declares that it resides in another jurisdiction for tax purposes, it has to be able to provide a letter or a certificate that contains the following information:
- Confirmation from the tax authorities of a foreign country that the company is a resident of the country for tax purposes;
- Tax residence timeframes;
- Confirmations of payment of taxes in the foreign countries (receipts, bank statements, a confirmation document from the tax authorities of the foreign country, etc.).
Tax-residence in an uncooperative country cannot make a company a non-resident of Belize for tax purposes. Please note that the list of uncooperative countries can change.
If the company fails to supply proof of tax residence in another country, it will be considered a tax resident of Belize and it will have to pay taxes there and meet the economic substance requirements.
What happens if a company becomes a tax resident of Belize?
A corporate tax resident of Belize has to have economic substance in the country, pay taxes, and file financial reports in Belize.
The costs of acquiring economic substance in Belize will depend on the type of business activities that the company is involved in and the scale of its operations. These factors have a direct bearing on the required number of employees, office space, and other aspects. The Belizean regulating authorities have to see that the company has adequate economic substance in the country.
If you rent a company office and hire one employee in Belize, your costs will be around 3,500 US dollars per month. The minimum wage is 800 US dollars per month in Belize. The social security contributions will amount to around 80 dollars if the minimum wage is paid.
You also have to take the following additional costs into account:
- Professional assistance in finding an office for rent and hiring personnel;
- Registration as an employer with social security and tax services;
- Payment of taxes on reimbursement to the personnel: regardless method of reimbursement (a salary, a bonus, a commission, etc.), taxes are due;
- Keeping accounting and financial records. The records have to be available to the Belizean tax authorities on their request.
Please note that if an employer fails to pay taxes on the reimbursements paid to the staff, he or she is going to be fined. In addition to the tax, the employer will have to pay 10% of the sum or 10 dollars, depending on which sum is higher. The fine increases by 1.5% after each month of delay.
The basic rate of the business tax is 1.75%. The tax rate for professional services is 6% and it is 5% for passive income (dividends, interests, royalties) as well as for capital gains.
International business companies also have to charge a withholding tax when making payments to their shareholders/ counteragents:
15% when paying interests/ dividends and 25% when paying for special services (described as technical and management services in the law).
When does a Belizean-registered company have to acquire a local tax number?
A company registered in Belize has to acquire a tax number in the country in any case. It has to apply for a 10-digit TIN to the Company Register in Belize even if it performs all business operations in other countries and it is a tax resident of another jurisdiction.
Having a Belizean TIN does not mean being taxed automatically in Belize. Much will depend on the ability of the company owners to prove that the company is a tax resident in another (whitelisted) jurisdiction and it pays taxes there. A TIN in the country of the company domiciliation allows the local authorities to efficiently monitor the activities of an international business company and exchange fiscal information with tax authorities of other countries.
When does a Belizean-registered have to apply for a TIN? As soon as possible but prior to filing the first tax declaration in any case.
Registering a company in Belize and earning profits with its help has become a more challenging task due to the changes in global financial regulations. It is still possible to do so, however, with adequate professional assistance.
