Belize Ibc: Tax-Free Or Tax Haven?

Belize is a tax haven that allows individuals and corporations to legally reduce their tax liabilities. Belize's International Business Companies Act (IBCA) has made incorporating offshore companies simple and tax-free, with no reporting requirements. However, recent changes to the Belize Corporate Law mean that it is no longer a tax-free jurisdiction. While IBCs headquartered in Belize pay no taxes on profits earned outside the country, they are now required to file annual tax returns and pay taxes on income generated within Belize.

Belize IBCs and tax residency

Belize is a small Central American country with a fairly interesting approach to taxation. The country has been trying to establish itself as an offshore banking centre for several years, and its International Business Company (IBC) structure allows residents to run international businesses tax-free, provided certain conditions are met.

At the end of 2018, the Belizean government ratified amendments to its legislation to meet transparency requirements set by the OECD. These changes have impacted the country's tax regime, including the abolition of the tax exemption regime. As of January 2019, all Belize IBCs, regardless of tax residency, are liable for income taxes when conducting business within the country. They are also subject to stamp duties if the IBC owns property in Belize other than shares in another IBC. IBCs are also required to file annual tax returns and may need to submit audited reports under certain conditions.

Despite these changes, Belize remains an attractive option for businesses due to its low tax rates. IBCs with gross receipts of over 3 million Belize dollars are taxed at 1.75%, while those with lower receipts are taxed at 3%. Additionally, IBCs are no longer restricted from owning property or holding interests in any Belize company, allowing for more flexibility in business operations.

It is important to note that to qualify as a tax resident in Belize, an individual must spend at least 183 days in the country during a calendar year. This qualification brings with it the requirement to file tax returns annually, unlike non-tax residents.

Tax exemptions for non-resident companies

Belize is a popular jurisdiction for offshore company formations. While it is no longer a tax-free jurisdiction, it still offers many tax advantages to businesses and individuals.

International Business Companies (IBCs) headquartered in Belize pay no taxes on profits earned outside the country. IBCs are only taxed on income earned within Belize. If an IBC generates income that is taxable abroad, the company is exempt from paying taxes in Belize. However, they are still required to fill in the IBC-BTAX-RETURN FORM with 0 and attach relevant evidence, such as a letter from the proper tax department or copies of receipts for payments made.

Additionally, there is no requirement for IBCs to have a Tax Identification Number (TIN) or to file annual tax returns. They are also not subject to double taxation treaties with any other country.

It is important to note that IBCs cannot carry out business with residents of Belize or own local real estate. They must also have at least one shareholder and one director, but there are no residency or citizenship requirements for these positions.

The Limited Liability Company (LLC) is another type of entity that offers tax advantages in Belize. LLCs may avoid multiple taxation while still limiting the liability of its members to the extent of their contributions to the company. LLCs are not required to file annual tax returns or audited accounts, further reducing their tax obligations.

Tax treaties with other countries

Belize has been considered a tax haven, allowing individuals and corporations to legally reduce their tax liabilities. Belize has a small number of tax treaties with other governments, which can be used to weaken financial privacy protections.

Belize has 14 Double Tax Treaties (DTC) and 14 Tax Information Exchange Agreements (TIEA) with various jurisdictions. The DTCs are with the following countries: Antigua and Barbuda, Austria, Barbados, Dominica, Grenada, Guyana, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Switzerland, Trinidad and Tobago, the United Arab Emirates, and the United Kingdom. The TIEAs are with: Australia, Belgium, France, the Netherlands, the United Kingdom, Finland, Sweden, Denmark, Norway, Iceland, Ireland, Greenland, the Faroe Islands, and Portugal.

In addition, Belize has signed and ratified the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which came into force on 1 August 2022.

Belize also has a 1947 Double Taxation Arrangement with the UK, which was amended in 1973 and remains in force. This agreement covers surtax, income tax, and profit tax. A Tax Information Exchange Agreement with the UK, allowing for the exchange of information, was signed in 2010 and entered into force in 2011.

Tax compliance for US residents

Belize International Business Companies (IBCs) are subject to tax if their income or receipts are sourced from Belize. They must file an annual tax return and pay monthly business tax. However, if an IBC's income is generated from sources outside of Belize, it is not subject to taxation in Belize.

Regarding tax compliance for US residents, the US government taxes its citizens and residents on their worldwide income, regardless of where they live. This means that US citizens or residents must file a US income tax return, reporting all income, even if they live and work in a foreign country. This requirement applies even if the individual has no income from a source within the United States. US citizens or residents living abroad generally need to file income tax returns and pay estimated taxes in the same way as taxpayers residing in the US. They may still be eligible for various tax benefits, but the eligibility rules can be complex. Some of the benefits they can claim include the exclusion of certain income earned overseas, the exclusion or deduction of some foreign housing expenses, and the foreign tax credit if they paid income taxes to a foreign country and are subject to US tax on the same income.

To ensure tax compliance, US residents or citizens living abroad can refer to Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad, and the IRS website for US Citizens and Residents Abroad. They may also need to familiarise themselves with the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010 to target non-compliance by US taxpayers using foreign accounts. FATCA requires foreign financial institutions to report information about financial accounts held by US taxpayers to the IRS. US residents or citizens with foreign financial accounts may need to report these accounts to the IRS, depending on their value.

Belize's tax code and offshore income

Belize is considered a tax haven, allowing individuals and corporations to legally reduce their tax liabilities. The country's tax code defines offshore income as dividends, capital gains, earned interest, and revenues. Dividends paid by offshore companies incorporated in Belize to non-citizens are also tax-free.

In the early 1990s, the Belizean government began the process of becoming a tax haven, eliminating taxes on a wide range of income sources, including dividends, interest, capital gains, and revenues earned offshore. To create a tax-free environment, the country also eliminated its stamp duty—a tax charged to certify the veracity of documentation for the incorporation of companies, trusts, and foundations.

The country's International Business Companies Act (IBCA), Trusts Act, and Offshore Banking Act facilitate a simple and swift incorporation process, granting tax-free status with no reporting requirements. International Business Companies (IBCs) headquartered in Belize pay no taxes on profits earned outside the country. They are, however, required to file annual tax returns if they generate income.

The Trusts Act provides a permanent exemption from personal and business taxes on earnings generated by assets in a trust. Estates also receive comprehensive exemptions from taxes related to inheritance, succession, and gifting.

The Offshore Banking Act allows financial institutions with a minimum of $25 million in capital to apply for an unrestricted license, enabling them to operate without local regulation. Smaller institutions can obtain a limited license by meeting a $15 million capital requirement.

Belize's tax laws offer several benefits to businesses and individuals seeking to form an offshore company, including total tax exemption, simplified incorporation, no residency or citizenship requirements for directors, no requirement to file or audit accounts, and the ability to maintain bank accounts in other tax havens.

However, it is important to note that U.S. residents must still report earnings to the IRS unless their company conducts business solely in Belize. Additionally, while Belize does not share information with international taxing authorities, providing confidentiality, this also means there are few tax treaties with other governments.

Frequently asked questions