Pysical presence in Belize
Pysical presence in Belize

For years, Belize has been known as a popular wholly tax-free jurisdiction for International Business Companies, this is, however, no longer the case for most entities.  In an attempt to meet the transparency requirements and comply with the Forum on Harmful Tax Practices (FHTP) set forth by the Organization for Economic Cooperation and Development (OECD), Belize has recently made substantial changes to its tax regime and strict economic substance requirements and has now been removed from the EU blacklist.   For more information on Belize as a corporate jurisdiction and other excellent alternative solutions and jurisdictions, please browse through our Company Registration section or Contact us for a free consultation.

Under the new Economic Substance Act (ESA), a Belize IBC, the most popular company type registered in Belize, will now be classified under two categories “included entity” with physical presence in Belize and as such a tax resident of the country and “not included entity” which does not have a physical presence in Belize, is not managed and controlled in Belize and has a tax residency in another country.

By default, any company engaged in the following business activities is classified under “included entity” for ESA purposes:

  1. Banking
  2. Fund management
  3. Finance and leasing
  4. Insurance
  5. Shipping
  6. Headquarters
  7. Distribution and service centers
  8. Holding companies engaged or having a subsidiary that is engaged in any of the activities stated above.
  9. Regulated entities under the IFSC Act

All entities engaged in the abovementioned business activities must satisfy the substance requirements in order to be classified as tax residents of Belize by demonstrating sufficient evidence that the core business activities of the company are conducted on the territory of Belize such as local operating expenditure, local employees and physical offices in the country. Furthermore, as defined in the Economic Substance Act, physical presence criteria relating to Board management and control is as follows:

  1. Sufficient number of Board of Director meetings are conducted on the territory of Belize
  2. There is a quorum of the Board of Directors present for meetings in Belize Core decisions must be made at the Board of Director meetings in Belize and recorded in the minutes of the meetings
  3. All records and minutes must be kept in Belize
  4. The Board of Directors is knowledgeable and qualified in the business activity of the company in order to competently carry out their duties

In order to attract foreign investors and prevent the mass closure of International Business Companies, the local government has introduced attractive tax incentives for IBCs that are able to comply with the above-mentioned substance requirements and as such considered tax residents of Belize.  In accordance with the newly enacted Belize Income and Business Tax Act (IBTA) an IBC classified as “included entity” will now be taxed as follows:

  • 1.75% for chargeable income exceeding 3 million BZD
  • 3% for chargeable income less than 3 million BZD

Non-included entities as well as entities that do not conduct any business activities in Belize are not required to pay taxes in Belize nor satisfy the substance requirements stated above, provided that they can provide the local authorities with evidence of their tax residence in another country in the form of a valid tax residency certificate and/or proof of tax payment in the country of tax residency.   It is worth noting that the Belize authorities will share and exchange all information received from the non-resident company with its reported country of tax residence in accordance to the OECD convention of Mutual Administrative Assistance in Tax Matters.

Furthermore, failure to comply with the substance requirements of Belize may lead to the strike-off of the company from the company registry, formal audit sanctions as well as very hefty administrative fines that can exceed $300,000 BZD.

At Arnos, we understand that complying with the complex substance requirements can be both difficult and expensive which is why we have developed a variety of packages and alternative cost-effective solutions to suit various business models.  Contact us today for a professional consultation from one of our knowledgeable and experienced corporate lawyers.

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