Federal Taxes: Us Expat Belize Tax Exemptions

Belize is a popular destination for US expats due to its stunning natural environment, low cost of living, and favourable tax system. While US citizens and residents are required to file a US tax return every year, regardless of where they live or work, there are several exclusions and exemptions that can prevent double taxation on the same income. Understanding the differences between the tax systems of the two countries is crucial for expats and individuals with financial ties to both.

Foreign Earned Income Exclusion

As an American citizen living in Belize, you are still required to file a US tax return every year, regardless of your income or where you live and work. This means that you must report your worldwide income to the Internal Revenue Service (IRS).

The good news is that if you are paying income tax in Belize, there are various exclusions and exemptions available to prevent you from paying tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion (FEIE). This allows you to exclude the first $100,000 of foreign-earned income from US tax, provided you can prove that you are a Belize resident.

To qualify for the FEIE, you must meet one of two tests: the bona fide residence test or the physical presence test. For the former, you must show that you are a bona fide resident of Belize or another country for an uninterrupted period that includes an entire tax year. For the latter, you must be physically present in Belize for at least 330 full days during 12 consecutive months.

In addition to the FEIE, you can also claim a tax credit for any income taxes you've paid in Belize. This is called the Foreign Tax Credit (FTC). The FTC gives you a $1 tax credit for every dollar of tax you've paid to the Belizean government. You can claim the FEIE and the FTC together if you qualify for both.

Even if you don't owe any tax to the IRS, if your income is over $10,000 (or $400 if you're self-employed), you still need to file a federal tax return. It's important to stay compliant because the US and Belize governments share taxpayer information, and penalties for incorrect or incomplete filing for expats can be steep.

Foreign Tax Credit

As a US citizen or green card holder, you are required to file a US tax return annually and report your worldwide income to the Internal Revenue Service (IRS), regardless of where you live or work. This means that if you earn over $10,000 in income or just $400 in self-employment income, you must file IRS Form 1040. Expats get an automatic filing extension until June 15, which can be further extended to October 15 upon request.

Belize has a territorial tax system, which means that you are only taxed on income earned within the country. If you are a US citizen or resident and pay income tax in Belize, you can take advantage of the Foreign Tax Credit (FTC) to reduce your US tax liability. The FTC is a dollar-for-dollar credit against US taxes for any income taxes paid to a foreign government. For every dollar of tax you've paid in Belize, you get a $1 tax credit against your US tax bill. This credit can be combined with the Foreign Earned Income Exclusion (FEIE), which allows you to exclude up to $100,000 of foreign-earned income from US tax if you can prove that you are a Belizean resident.

It's important to note that even if you don't owe any tax to the IRS, you are still required to file a federal tax return if your income exceeds the minimum thresholds. The US and Belizean governments share taxpayer information, and the penalties for incorrect or incomplete filing for expats can be steep.

Belize's tax residency requirements

Belize is considered a tax haven, allowing individuals and corporations to legally reduce their tax liabilities. The country has a territorial tax system, meaning individuals are only taxed on income earned within the country. This also means that foreign income is not taxed and is tax-exempt.

To become a tax resident of Belize, there are two residence statuses available: the Permanent Residence status and the Qualified Retired Person (QRP) status.

The Permanent Residence status implies that an individual can be employed in Belize, whereas this is not the case for QRPs. To obtain this status, an individual must have legally resided in Belize for at least one year. All visitors with a valid international passport and/or visa obtain a 30-day tourist entry permit upon arrival. If an individual wishes to stay longer than 30 days, they must renew their permit at an immigration department office before the expiration date, for each additional month (11 renewals in total covering a period of one year). During this year, the individual can leave Belize as many times as they like but cannot leave the country for 14 or more consecutive days.

To apply for the Permanent Residence status, the individual must first apply for a work permit, even if they do not intend to work in Belize. The work permit can cost up to USD 1,000 and the individual must demonstrate "valuable skills" to the immigration department. Once the individual has proof of residing in Belize for one year, they can apply for the Permanent Residence permit, which takes around four months to process. The whole application process costs less than USD 1,000.

The QRP status is open to residents of the US, Canada, the EU, and all countries of the Commonwealth. To maintain this status, the individual needs to reside in Belize for four weeks in any given year. To obtain the QRP status, the individual must have a monthly income of at least USD 2,000 originating from sources outside Belize. This income can come from pension funds, investments, real estate, etc. The QRP application can be completed within four to six weeks.

US Federal Taxes in Belize

US citizens and green card holders who earn a minimum of $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where they live or where their income is generated.

If a US citizen is paying income tax in Belize, there are various exclusions and exemptions available to prevent double taxation on the same income. The Foreign Earned Income Exclusion, for example, lets US citizens exclude the first $100,000 of foreign earned income from US tax if they can prove that they are a Belize resident. The Foreign Tax Credit also gives a $1 tax credit for every dollar of tax paid in Belize.

It is important to note that the US and Belizean governments share taxpayer information, and Belizean banks pass on US account holders' account info to the IRS. Therefore, it is crucial to stay compliant with tax obligations in both countries.

US citizens' worldwide income tax

US citizens and resident aliens are required to file a US federal tax return and pay US taxes on their worldwide income, regardless of where they live or where the income is generated. This includes income earned in Belize, which is considered a tax haven.

The US is one of the few nations that imposes taxes based on citizenship rather than residency. This means that US citizens and resident aliens living in another country are still taxed on their worldwide income and must report all taxable income to the Internal Revenue Service (IRS). The only way to avoid this is to renounce US citizenship.

The tax year in the US is the calendar year, and taxes are due by April 15, with an automatic two-month extension for those living outside the US, until June 15. A further extension to October 15 can be requested.

There are various exclusions and exemptions available to prevent paying tax on the same income to both the IRS and another country. These include the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit. The FEIE allows US citizens to exclude around $100,000 of foreign earned income from US tax if they can prove foreign residency, while the Foreign Tax Credit gives a $1 tax credit for every dollar of tax paid to the country of residence.

It is important to comply with these regulations to avoid legal and financial consequences.

US expats' tax obligations in Belize

As a US citizen or resident, you are required to file a US tax return every year, regardless of where you live or work. This means that you must report your worldwide income to the Internal Revenue Service (IRS), even if you earn all of your income in Belize.

The good news is that if you are paying income tax in Belize, there are various exclusions and exemptions available to prevent you from paying tax on the same income to the IRS.

US Taxes

If you earn over $10,000 (or just $400 of self-employment income), you must file IRS Form 1040. While any US taxes due are typically due by April 15th, US expats get an automatic two-month filing extension until June 15th, which can be further extended until October 15th upon request. If you have overseas assets worth over $200,000, excluding your home if it is in your own name, you also need to file Form 8938.

If you had at least $10,000 in one or more foreign bank and/or investment accounts during the tax year, you must file FinCEN Form 114, also known as the Foreign Bank Account Report (FBAR).

Belize Taxes

Belize has a territorial tax system, which means that you are only taxed on income earned within Belize. If you are a resident of Belize, you are generally required to file a tax return if you have taxable income that exceeds the annual threshold. Taxable income includes income from employment, business or self-employment, rental income, and investment income.

Non-residents who earn income from Belize are also required to file a tax return, including those who earn income from employment or business activities in Belize, as well as those who earn rental or investment income from Belizean sources.

Belizean residents are taxed at a flat rate of 25% after the personal exemption, which changes regularly and depends on individual circumstances. The Belizean tax year is the same as the US, following the calendar year, and tax returns are due by March 31st.

Tax Exemptions and Credits

The Foreign Earned Income Exclusion (FEIE) lets you exclude the first $100,000 of foreign earned income from US tax if you can prove that you are a Belizean resident. The Foreign Tax Credit (FTC) gives you a $1 tax credit for every dollar of tax you've paid in Belize, and these exemptions can be combined.

Compliance

It is important to adhere to filing requirements to avoid penalties and other consequences. The US and Belizean governments share taxpayer information, and Belizean banks pass on US account holders' account info to the IRS. If you are a US citizen, green card holder, or US/Belizean dual citizen, and you didn't know you had to file a US tax return, the IRS Streamlined Procedure allows you to catch up on your filing without paying any penalties.

Frequently asked questions