By Lowtax Editorial
08 December, 2015
With its International Business Company legislation, low taxes, favourable business environment, lack of regulatory restrictions and a generally pro-business government, Belize remains a popular jurisdiction in which to form an offshore company or wealth management structure, as well as the destination of choice for thousands of retirees from North America and Europe. This special feature summarises Belize the country, and its company and tax regimes.
Where Is Belize?
Belize lies on the East coast of Central America in the heart of the Caribbean Basin, bordering on Mexico to the North, Guatemala to the West and South, and flanked by the Caribbean Sea to the East. At Belize is 14,300 square miles, Belize is slightly smaller than the US state of Massachusetts and its population was an estimated just under 350,000 in July 2015.
A Brief History of Belize
The British began to settle Belize in the seventeenth century, largely in order to fell and export tropical hardwoods, particularly mahogany. After a long period of disputed ownership between Spain and England, marked as well by slave revolts, Belize became the British Colony of "British Honduras" in 1871.
Universal suffrage was introduced in 1954, and self-government followed in 1964. The country's name was changed to Belize in 1973 and in 1975 the United Nations ruled over a long-standing territorial dispute with Guatemala in Belize's favour. The country became independent within the Commonwealth in 1981.
The Government of Belize
Belize has a democratic, bi-cameral legislature based on the Westminster system. Queen Elizabeth II of Great Britain is the titular Head of State, represented by Governor General Sir Colville Young since 1993.
The 31-member House of Representatives is elected by direct popular vote to serve a five-year term. The Governor-General appoints the member of the House of Representatives who is leader of the majority party to be prime minister. The Governor-General appoints the 12-member Senate from six members on the advice of the prime minister, three on the advice of the leader of the opposition, and one each on the advice of the Belize Council of Churches and Evangelical Association of Churches, the Belize Chamber of Commerce and Industry and the Belize Better Business Bureau, and the National Trade Union Congress and the Civil Society Steering Committee.
The two main political parties are the People's United Party or PUP and the United Democratic Party or UDP, led by current Prime Minister Dean Barrow. Elections to the House of Representatives were last held on November 4, 2015, and gave 19 seats to UDP with 12 seats to PUP.
Belize's Legal System
Belize has a legal system based on common law. There is a Supreme Court, and the chief justice is appointed by the Governor-General on the advice of the prime minister.
The Caribbean Court of Justice has replaced the Judicial Committee of the Privy Council as the court of last instance for members of the Caribbean Community (Caricom) and also serves as an appeal court in both civil and criminal cases from common law courts in these member states.
The Economy of Belize
After 1986 the Belizean economy improved dramatically, in part because of the adjustment program implemented by the government. Tourism became a major contributor to growth and internal reform coincided with the recovery of the world economy, in particular the revival of the sugar market.
Between 1986 and 1990, the Belizean economy grew at an average annual rate of more than 10 percent, with inflation averaging only 2.8 percent. However, in the early 1990s, regional economic problems and the world-wide recession combined to undermine the economy. A tough austerity program in 1997 resulted in an economic slowdown that continued in 1998. The trade deficit grew, mostly as a result of low export prices for sugar and bananas. But the government's expansionary monetary and fiscal policies, initiated in September 1998, led to sturdy GDP growth averaging nearly 4 percent in 1999-2006.
Traditionally, the economy has been reliant on the sugar and banana industries. However, the government is tackling economic problems caused by reduced access to privileged markets by encouraging foreign investment in manufacturing and the development of mass tourism.
The Government has also encouraged an offshore financial sector to develop, and there is a variety of offshore schemes, including IBC legislation, a modern trusts law, and an array of free zones and investment incentive schemes (detailed below).
GDP growth was, 3.8 percent in 2012 and 1.5 percent in 2013 and 3.6 percent in 2014.
The currency is the Belizean dollar, fixed at BZD2 = USD1.
Exchange controls are in force such that only the Central Bank of Belize and authorized dealers may deal in foreign currencies. A foreign exchange permit must first be obtained from the Central Bank to pay for goods and services procured outside Belize. Central Bank approval is also required to secure a loan outside Belize denominated in a foreign currency. There are however no exchange controls for 'offshore' companies (see below).
The Business Environment of Belize
There is a favourable business environment in Belize, with few regulatory restrictions and minimum of red tape.
The Philip Goldson International Airport is two hours' flying time (daily flights) from Miami, New Orleans or Houston. There are reliable shipping and air cargo services to and from Europe, United States of America, Central America and the Caribbean.
The Belize telephone system is one of the best in the region, with a modern fibre-optics network. Belize Telemedia was renationalised by the Government in 2009 and is the dominant supplier of telecommunication services in Belize.
However, there are controls on land ownership by foreigners in excess of half-an-acre in a town or 10 acres in the country. But the Minister of Natural Resources issues licenses if a satisfactory development plan is presented or is in existence.
Belize is a member of the Caricom and its Single Market and Economy.
Belize Companies and Their Uses
Belizean laws allow for the following categories of business ownership:
- Private Companies
- Limited Liability Partnership
- Limited Life Companies
- Joint Ventures and Cooperatives
- Sole Proprietor
- Public Investment Companies
- International Business Companies
- Trust Funds
However, almost all offshore or foreign businesses use the International Business Company (IBC) or Trust forms, sometimes in combination. Belizean IBCs are specifically exempted from any form of income tax, capital gains or transaction tax.
Under the International Business Company Act 1990, an IBC is formed by filing Articles and Memorandum of Association along with the required fees. The following are the main characteristics of an IBC:
- There is no minimum paid up capital requirement, and capital may be expressed in foreign currency;
- An IBC may issue bearer shares and shares of no par value; but bearer shares must be held in the custody of a local registered agent;
- Subscribers may include an individual, a corporation or a trust;
- A company may have nominee shareholders using local licensed registered agents;
- There is a minimum of one director, who can be an individual or a corporation;
- A secretary is not required (but can be useful);
- Each company must maintain a Registered Agent and a Local Registered Office using licensed individuals or companies - these are the only details about an IBC that are available on the public file;
- There are no requirements for an IBC to file details related to shareholders or directors or for the filing of audits or accounting reports;
- No meetings are required of directors or members;
- There are no exchange controls for an IBC;
- Foreign companies may continue (re-domicile) as Belizean IBCs, and vice versa.
The IBC act prohibits an IBC from:
- Carrying on business with persons resident in Belize;
- Owning an interest in real property situated in Belize, except lease property for office purposes;
- Carrying on banking business;
- Carrying on insurance or reinsurance business;
- Carrying on the business of providing registered agents/offices for companies.
Otherwise, a Belize IBC may engage in any activity that is not unlawful in Belize.
Any IBC can conduct its business in any foreign currency it may choose free of the Belizean government regulation or restriction.
Among the many uses of IBCs are:
- to establish securities trading accounts in the United States, Canada and Europe, either directly or through Belizean intermediaries;
- to hold title to real estate in jurisdictions other than Belize;
- to collect commissions, royalties or dividends or to re-invoice trade transactions.
As mentioned above, under the International Business Company Act of 1990, IBCs are exempt from most types of taxation. Therefore, this section is of more relevance to companies trading within Belize.
The Income Tax (Amendment) Act, 1998 introduced a new method of corporate taxation, under which a turnover tax known as the Business Tax is levied on most types of company income at various rates.
The Business Tax is payable on a company's receipts, defined as: "all revenues, whether in cash or in kind, or whether received or accrued, of a person or entity carrying on a trade or business or practising his or its profession or vocation in Belize without any deduction whatsoever".
The local subsidiaries of foreign companies do pay the Business Tax, but they are also assessed to Corporate Income Tax at 25 percent on their profits (as was the case before) and the Business Tax is treated as an advance against Corporate Tax (this is to preserve tax credits in their home countries).
Local companies are charged Corporate Income Tax at 25 percent on their chargeable income, and if the corporate income tax payable is less than the business tax paid for the year, the business tax paid will be treated as a final income tax. The excess of any business tax paid can be carried forward as an expense to the next basis year.
Business Tax rates vary according to the type of business concerned. They range from 0.75 percent on income from radio, on-air television and newspaper business up to 25 percent on income derived from management fees, rental of plant and equipment, and charges for technical services paid to a non-resident.
There is a 15 percent withholding tax on payments of dividends and interest to non-residents. However, effective January 1, 2011, dividends paid to shareholders by entities licensed to provide telecommunication services that offer "real time voice services" are exempt from tax.
A 15 percent Value Added Tax, which provided the Government with some 30 percent of its tax revenue, was abolished in 1999 in favour of a sales tax, which in turn was replaced with a 10 percent General Sales Tax in July 2006, subsequently increased to 12.5 percent in April 2010.
Generally, non-Belizeans in Belize pay tax only on income derived in Belize. There are no capital gains or inheritance taxes in Belize.
The rate of tax on chargeable income is 25 percent.
The Commercial Free Zone Act 1994 established a Commercial Free Zone at Corozal to attract foreign investment. The Zone provides facilities for various activities including manufacturing, processing, packaging, warehousing and distribution of goods and services.
Businesses established in the Free Zone are free of foreign exchange restrictions and receive a range of other benefits including duty exemptions and tax holidays.
Goods and supplies entering and leaving the Free Zone for commercial purposes are exempt from import or export duties, quotas, stamp duties and revenue replacement duties.
Income tax is charged at between 2 percent and 8 percent on Free Zone businesses, but these rates can be reduced by up to 2 percent through tax credits earned by the employment of Belizean workers.
Additionally, three locations have been designated as Export Processing Zones (EPZs) under the Export Processing Zone Act. The San Andres EPZ occupies 28.5 acres of land in the northern section of the country, only eight miles away from the Mexican border, right next door to NAFTA. The other two Zones are both located approximately nine miles from Belize City, the country's commercial capital. The EPZ adjacent to the Philip Goldson International Airport covers four acres, while the Price Barracks EPZ covers 14 acres.
In the EPZ, facilities are provided for activities in manufacturing, processing, packaging, warehousing and the distribution of goods and services. In fact, amendments made to the legislation in 1994 provide investors with the added option of constructing their own facilities and developing infrastructure within an EPZ, including independent utility installations. This option enables an EPZ to enhance its economic development, since it does not necessarily have to use the electricity or telephone facilities provided by the two local monopolies, Belize Electricity Limited and Belize Telemedia Limited, respectively.
Other benefits of locating in the EPZs include full import and export duty exemptions; exemptions from capital gains tax, property and land taxes, excise, sales and consumption taxes, taxes on trade turnover, on foreign exchange and transfer tax; tax holidays of 20 years with an option to extend and deduct losses from profits following the tax holiday period; and dividend tax exemption in perpetuity. As of April 2010, a 5 percent sales tax is charged on all goods and services imported into an EPZ.
Tax Treaties and Agreements
Belize has double tax treaties with the Austria, the United Kingdom and the countries of the Caricom.
Belize has also signed tax information exchange agreements with 18 countries, of which the following are in force: Australia, France, India, Ireland, Mexico, the Netherlands, the UK and the seven Nordic states (Denmark, Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden, although the TIEA with Sweden was not in force at the time of writing).
Belize signed the Convention on Mutual Administrative Assistance in Tax Matters on May 29, 2013, with the Convention entering into force in the jurisdiction on September 1, 2013. In October 2015, Belize signed the Multilateral Competent Authority Agreement (MCAA). In joining the MCAA, countries commit to automatically exchange tax information with other nations' tax authorities under the OECD's new tax information exchange standard, the Common Reporting Standard. By November 2015, a total of 74 territories had signed up to the deal.
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