Belize-Us Tax Treaty: What You Need To Know

Belize is a popular destination for US expats, with its stunning reefs, tropical jungles, and ancient Mayan heritage. However, it's important for US citizens living in Belize to understand their tax obligations in both countries. While Belize is considered a tax haven due to its simple and confidential offshore company incorporation process, it does not have a tax treaty with the US. This means that US expats in Belize may face double taxation on their income and social security contributions. US citizens are taxed by the IRS on their worldwide income, regardless of where they live or work, while Belize taxes residents on their worldwide income and non-residents on income sourced within the country. Understanding the differences between the tax systems of Belize and the US is crucial for expats to ensure compliance and optimize their tax situation.

US citizens living in Belize must pay taxes in both countries

Belize is a popular destination for US expats, thanks to its stunning natural beauty, friendly locals, and low cost of living. However, US citizens living in Belize must navigate the tax obligations of both countries.

Firstly, it is important to understand the residency requirements of Belize. To qualify as a resident of Belize, you must have lived in the country for at least a year, without leaving for more than 14 days during the tax year. Alternatively, you can apply for temporary residency if you have investments in the country worth at least 500,000 Belize dollars. Foreigners are considered tax residents of Belize if they spend over 183 days a year in the country or hold a permanent residency visa.

As a US citizen or resident, you are required to file a US tax return every year, regardless of where you live or earn your income. This means reporting your worldwide income to the Internal Revenue Service (IRS), even if it was all earned in Belize. The IRS form for this is Form 1040, and it is due by April 15th, with an automatic extension for expats until June 15th, which can be further extended to October 15th upon request.

In addition to US tax obligations, you may also need to file a tax return in Belize. Belize has a territorial tax system, meaning you are only taxed on income earned within the country. If you are a resident of Belize and have taxable income exceeding the annual threshold, you must file a tax return. Taxable income includes income from employment, business, self-employment, rental income, and investment income. The primary tax form for Belize residents is Form BTS203 – Income Tax Return for Employees, and the tax deadline is March 31st of the subsequent tax year. Both residents and non-residents pay a flat income tax rate of 25% on taxable income, and those earning under 26,000 BZD are exempt from income tax.

There are several exemptions and exclusions available to prevent double taxation on the same income. For example, the Foreign Earned Income Exclusion allows US citizens to exclude up to $100,000 of foreign-earned income from US tax if they are Belizean residents. Additionally, the Foreign Tax Credit gives a $1 tax credit for every dollar of tax paid in Belize. These exemptions can be combined if necessary.

It is important to stay informed and up to date on your tax obligations in both countries to ensure compliance and avoid penalties.

Belize is a tax haven

In the early 1990s, the Belizean government began the process of becoming a tax haven, taking cues from the legislative practices of many Caribbean countries to create an environment that would attract offshore companies. The government's primary objective was to eliminate taxes on a wide range of income sources, including dividends, interest, capital gains, and revenues earned offshore. To achieve this, the country established the International Business Companies Act (IBCA), the Trusts Act, and the Offshore Banking Act in 1996. As a result, Belize is considered one of the most corporate-friendly nations globally, with a simple and fast-tracked incorporation process, tax-free status, and no reporting requirements.

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. Belize does not share information with international taxing authorities, providing corporations and individuals with confidentiality. This makes it an attractive jurisdiction for setting up trusts and funds, as it offers protection from taxation on earnings from abroad.

In addition to the tax benefits, Belize is also desirable for its affordable banking fees due to the lower cost of living in the country. The country also boasts political and banking stability, and English as an official language. However, it is important to note that U.S. residents must still report earnings to the Internal Revenue Service (IRS) unless their company does business solely in Belize.

US expats in Belize must file taxes if income exceeds certain thresholds

US citizens or residents living in Belize are required to file a US tax return annually, regardless of their income source or location. This means reporting worldwide income to the Internal Revenue Service (IRS) and filing taxes if it exceeds certain thresholds. These thresholds vary based on filing status and age, and they are adjusted annually for inflation. For instance, in the 2023 tax year, the threshold for single individuals under 65 years was $12,950, while it was $14,700 for those 65 or older.

In addition to US tax obligations, US expats in Belize may also need to file a Belizean tax return. Belize has a territorial tax system, meaning individuals are taxed only on income earned within the country. If income is sourced outside Belize, it is generally not subject to Belizean taxes. However, there are certain categories of individuals who are required to file taxes in Belize regardless of their income level. These include individuals who are directors or officers of a Belizean company, receive dividends or distributions from a Belizean company, own property in Belize, or are beneficiaries of a trust established in the country.

Belizean residents are generally required to file a tax return if their taxable income exceeds the annual threshold, which includes income from employment, business, self-employment, rentals, and investments. Both residents and non-residents pay a flat income tax rate of 25% on taxable income, and those earning below $26,000 BZ are exempt from income tax.

While Belize does not have a tax treaty with the US, US expats can still benefit from tax credits and exclusions to reduce their tax liability. These include the Foreign Earned Income Exclusion, Foreign Housing Exclusion, Foreign Tax Credit, and Refundable Child Tax Credit.

There is no totalization agreement between Belize and the US

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. Belize also has very few tax treaties with other governments.

The United States has entered into agreements, called "totalization agreements," with several nations to avoid double taxation of income with respect to social security taxes. These agreements are considered when determining whether an individual is subject to U.S. social security/Medicare tax or the social security taxes of a foreign country.

Belize does not have a totalization agreement with the US. This means that US expats in Belize are required to pay into both countries' social security funds. US citizens or residents who are self-employed in Belize will need to declare a weekly estimated income to cover social security tax, calculated at a rate of 7%.

US citizens and residents are required to file a US tax return every year, reporting their worldwide income to the Internal Revenue Service (IRS), even if they earn all their income in Belize. Additionally, if they have foreign financial accounts with a total value exceeding $10,000 at any point during the year, they must file a Foreign Bank Account Report (FBAR).

US citizens in Belize with foreign financial accounts over $10,000 must file an FBAR

Belize is considered a tax haven, allowing individuals and corporations to legally reduce their tax liabilities. While Belize does not have a tax treaty with the US, US citizens with foreign financial accounts in Belize must still comply with specific tax requirements.

US citizens living in Belize are subject to US tax obligations and must file a US tax return annually, reporting their worldwide income to the Internal Revenue Service (IRS). Additionally, they may also be required to file a tax return in Belize if they have income sources within the country.

One crucial requirement for US citizens in Belize with foreign financial accounts is the need to file a Foreign Bank Account Report (FBAR). The FBAR, or FinCEN Form 114, is a filing requirement for Americans with overseas registered financial accounts, including bank and investment accounts, pensions, and even cryptocurrency accounts. The requirement applies to individuals with foreign financial accounts exceeding $10,000 in total at any time during the year. This threshold applies to the individual rather than to any single account, so expats must aggregate the balances of all their foreign accounts to determine if they need to file.

US citizens in Belize must file the FBAR by October 15 in the year following the tax year (currently, the deadline is April 15, with an automatic 6-month extension). The form can be filed online using the BSA E-Filing System, and individuals must provide details such as the name and address of the financial institution, account name and number, account type, and maximum balance during the year.

It is important to note that penalties for not filing the FBAR can be significant, starting at $10,000 per year for unintentional errors. Therefore, US citizens in Belize with foreign financial accounts exceeding $10,000 should ensure they understand their FBAR filing requirements and stay compliant with US tax laws.

Frequently asked questions