Until recently, Belize, being a classical offshore jurisdiction, was pretending to be called as one of the most popular offshore destination, as it was a place of registration of many thousands of classical offshore vehicles (International Business Companies (IBC) and Limited Liability Corporations) by foreign investors from all over the world!
Economic Substance Legislation & end of offshore era
The Belize International Business Companies (Amendment) Act, 2018 came into force on 1st January 2019 and its provisions are almost identical to provisions of the BVI ECONOMIC SUBSTANCE (COMPANIES AND LIMITED PARTNERSHIPS) ACT, 2018
The most important details of the new legislation are:
1. An offshore company's affairs must be managed from Belize (meaning that the majority of directors must reside in Belize, board meetings must be held in Belize and all of the company's documents must be kept in Belize).
2. An offshore company should maintain its office and employ qualified personnel in Belize, unless the company can prove its tax residency in another jurisdiction and if the company is able to supply satisfactory evidence to the Minister responsible for Finance that -
(a) it is not physically present in Belize;
(b) its core income generating activities are conducted in a country where taxes under the Income and Business Tax Act would become applicable had it been located in Belize; and
(c) it is paying the rate of taxes payable in that country.
3. The international business company that is a person resident in Belize is now able to carry on business in Belize, own real estate property and conduct core income generating activities in Belize, but shall be liable to pay income tax and levy, file an annual tax return based on the requirements of the Income and Business Tax Act, and be subject to the Stamp Duties Act including the payment of stamp duty in relation to an instrument -
(i) to transfer property to or by such company;
(ii) on transactions in respect of the shares, debt obligations or other securities of such company; and
(iii) relating to the assets or activities of a company.
Here is a diagram of how an offshore company will qualify in light of the new economic substance law.
EXTREMELY IMPORTANT!
In December 2019, there have been new significant changes implemented in Belize laws which eliminate now preferential tax treatment for International Business Companies that have been exempted from assessment or payment of taxes in Belize.
The said changes provide now a presumption of tax residence in Belize for all entities registered in Belize, except for companies which are tax residents in jurisdictions outside Belize based on evidence that they are registered taxpayers in foreign jurisdictions.
The new laws require now for all Belizean companies to apply for Tax Identification Numbers (TIN) at the Belize International Corporate Affairs Registry, BICAR (former International Business Companies Registry).
Here is a list of TIN related forms and documents to be submitted by an IBC:
• Certificate of Good Standing
• Certificate of Incumbency issued by the Registered Agent (indicating directors, shareholders and IBC’ business activity)
• TR121A Non–Individual Registration Form (to be signed by a Registered Agent)
• TR111 Individual Registration Form for all directors, shareholders and employees (to be submitted with copies of Social Security Card/Passport/National ID and personal tax identification numbers where applicable). If an IBC has a corporate shareholder, it shall provide copies of Certificate of Good Standing, Certificate of Incorporation, Memorandum and Articles of Association, Certificate of Incumbency, Register of shareholders and directors.
It is very important to note that a Belizean IBC will not be able to obtain a Certificate of Good Standing until the IBC obtains its TIN in Belize.
Forms B, C and D
Please also note that the new laws and regulations in Belize require now that each offshore entity shall submit a report within nine months from the end of a fiscal year. Belizean offshore companies engaged in Relevant Activities (except holding companies) are to file Form B. Holding companies are to file Form C. Companies, which are not engaged in relevant activities, are to file Form D.
The Relevant Activities are:
- banking business
- insurance business
- fund management business
- finance and leasing business
- headquarters business
- shipping business
- intellectual property business
- distribution and service centre business
Information exchange
Please note that information provided in the Forms B, C and D will be exchanged with authorities of jurisdictions of the entities’ beneficial owners.
Business Tax
Companies that are required to have economic substance in Belize, will have to pay in Belize a Business Tax from 1.75% to 6% on gross income depending on a type of business activity, unless they can prove to Belize authorities that they pay taxes overseas.
Companies that are not engaged in relevant activities will not be required to pay taxes in Belize but will have to indicate in the Form B a jurisdiction/s where do they actually pay taxes and this information will be reported to the relevant authorities outside Belize.
Intellectual Property Assets
Section 5(4) of the International Business Companies Act, Chapter 270 of the Substantive Laws of Belize, Revised Edition 2011 (as amended by Act No. 17 of 2019) came into force on 1st January 2019, and provides that Belize International Business Companies (IBCs) shall not acquire, hold, own, or deal in any Intellectual Property Assets (“IP assets”).
However, any IBCs which were incorporated on or before 30th June 2018 (in respect of IP assets acquired up to 16th October 2017) were afforded an exemption period to be able to continue holding, owing or dealing with IP up to and until 30th June 2021 (“the grandfathered period”).
In respect of the above developments, all Belize IBCs regardless of holding IP assets or not are required to complete and provide their registered agents the Intellectual Property (IP) Assets Grandfathering Certification Programme Form (the “IPAG Form”). The Registered Agent must then submit the completed IPAG Form with the Belize IFSC on or before 31st January 2020. No further extensions will be given.
As formally stated in the regulation, IP assets include:
“Any intellectual property right in intangible assets, including but not limited to copyright, patents, trademarks, brand, and technical know-how, from which identifiable income accrues to the business (such income being separately identifiable from any income generated from any tangible asset in which the right subsists).”
An IBC that fails to comply with aforementioned requirement will face heavy penalties of up to $100,000 per case or even a forced strike off.
Tax ID & Economic Substance Implications:
Under the new Belize Economic Substance legislation all Belize IBCs are now required to have a TAX ID number (TIN).
This includes Companies that are:
• Planning to pay taxes in Belize
• Planning to pay taxes outside Belize
• Not required to pay taxes
All IBCs need to apply for a TIN number from the Belize Registry as the liability for Tax remains on the IBC until they can satisfactorily prove that they are tax resident in another country.
Having a TIN does not necessarily mean that the IBC will pay taxes in Belize. The purpose for this initiative is strictly for regulatory and tax authorities to efficiently monitor the status of IBC.
If an IBC can satisfactorily prove that it is controlled and managed outside Belize and can also prove that it is tax resident in a country outside Belize pursuant to section 3(3) of the ESA, then Economic Substance does not apply to this Company but they will still be required to have a TIN as this is a way to keep track of the IBC. The TIN number can be seen as an address for the IBC.
Latest News! The Belize Companies Act 2022
The Belize Companies Act 2022, which repeals and replaces the International Business Companies Act, Cap. 270 and the Companies Act, Cap. 250, was passed on August 5, 2022 by the Belizean Financial Services Commission (FSC).
If a Belizean offshore company (international business company) is formed under the old International Business Companies Legislation, it must be re-registered under a new act and it will be given a new, unique 9-digit company number and an E-certificate after the re-registration process is finished.
The requirements of financial records being kept outside Belize
If the accounting records of an offshore company are kept outside Belize, the company shall ensure that it keeps at its registered office some documents as the requirements of the Belize Companies Act, 2022. Documents required include:
• Relevant accounts and returns that are sufficient to show the offshore company’s transactions and financial position to be determined with reasonable accuracy;
• A written record of the physical address of the location outside Belize where the accounting records are kept.
Belize Double Taxation and Information Exchange Agreements
Australia, Countries of the Caribbean Community (CARICOM), Denmark, Denmark, Faroe Islands, Finland, France, Greenland, Iceland, Ireland, Mexico, Netherlands, Norway, Poland,, Portugal, Sweden, Sweden, United Kingdom.
