Belize Economic Substance Self-Assessment Tool

As is well known, Belize underwent a significant overhaul in 2019. As a result, the territorial taxation concept for international business companies (IBC) and the economic substance rules (ES rules) have been developed concurrently. Since then, Belize's corporation and tax laws have evolved, and numerous concerns about their interpretation and implementation have surfaced.

Regarding corporate formation, Belize has been one of the booming locations. Investors have been drawn in and taken a call due to the company's established procedures and flexible tax regulations.

So what are the impacts of the economic substance Belize regulations on offshore company formation in Belize? Let’s find out.

Which businesses fall under the ES requirements' purview?

It is vital to have comprehensive knowledge of the firm's operations and the makeup of its income to understand how Belizean ES regulations relate to a specific IBC company.

The list of pertinent activities created by the Economic Substance Act, Belize (Act No. 15 of October 11, 2019, hereafter referred to as the Act) must then be compared with such information. The following essential activities comply with Section 5 of the Act:

The banking, insurance, and money management industries;

Shipping, except owning pleasure or fishing vessels, 

financing and leasing (providing a loan with interest and leasing of any property other than land), 

headquarters business, distribution and service center business (this is defined as the acquisition of goods from foreign affiliates and their sale to third parties, as well as the provision of services to foreign affiliates), and 

holding company business if subsidiaries of a holding company are engaged in.

Reduced Materiality Standards for Pure Equity Holding Companies (PEHC)

IBC

IBCs that are Pure Equity Holding Companies (only hold investments with value and only receive dividends, capital gains, or associated incidental pay) are subject to lower material requirements as follows:

(A) It will concur with all relevant laws and regulations of Belize;

(b) It will have adequate human resources and space in Belize for holding value interest in various elements. When interacting with those value corporations in various elements, it will have enough space and HR in Belize to handle administration.

PEHC IBCs are viewed as having fewer material requirements. However, this needs to be clarified, and the International Financial Services Commission should provide regulatory recommendations (IFSC).

Holding Companies

Companies are not dependent upon the financial substance enactment when such a company possesses substantial resources (for example, land, vessel, and so forth) or maybe just has a bank account and isn't associated with a significant movement.

Here’s a guide on the Benefits of Belize Company Formation with a Bank Account.

IBCs Leading on Relevant Activity with Outside Control, Management, and Tax Residence - Exemption from Economic Presence

The generous monetary presence won't matter to any IBC controlled and overseen outside of Belize and is a tax occupant in a jurisdiction other than Belize. This is demonstrated when the IBC can furnish the IFSC with a letter or certificate expressing that the IBC is viewed as an inhabitant for tax purposes in that jurisdiction.

Further explanation on what establishes a significant monetary presence in Belize should come as regulatory guidelines given by the International Financial Services Commission (IFSC).

What governs the taxation of IBC companies?

The restriction that only IBC revenue from Belize 2019 was implemented in 2019. The two forms of taxes can tax foreign income. Subsection 6 of Section 21 of Section 21 of the Income and Business Tax Legislation, introduced on December 20, 2018, created this premise. Learn more about the offshore IBC guide.

But afterward, Act No. 25 of December 23, 2019, which modified the taxes of IBC businesses, was adopted. As a result, except for firms in the petroleum industry, all domestic and IBC companies no longer pay corporate income tax. Instead, business Tax (BT) is a new tax levied on all profits earned by IBC enterprises, including those with Belizean and foreign sources.

The standard BT tax rate for trade and business is 1.75 percent, and there are additional tax rates for certain activities, like 6% for professional services, 3% for licensed financial assistance offered to non-residents, etc. The total receipts, or revenues, without any reduction for operating expenses, are the BT tax base.

The first 75,000 Belizean dollars (or 37,500 US dollars) of a company's annual income from trading activities is exempt from taxation by BT. In addition, the first 20 000 Belize dollars made from a business providing professional services are not subject to tax by BT.

Additionally, whenever an IBC firm pays dividends or interest to non-residents, it is obligated to deduct the proper amount of withholding tax and send it to the Belizean government. The withholding tax rate on dividends and interest is 15% unless lower withholding tax rates are specified under double tax avoidance agreements between Belize and other countries.

How Can We Help You?

The main issue is to choose whether you wish to proceed with the company in Belize, which implies that we need to apply for TIN and pay taxes in Belize and, if necessary, set up financial substance in Belize.

If you conclude that you don't wish to proceed in Belize, we can help with the company's ending or its re-domiciliation to another jurisdiction.

We at Business Setup Worldwide are accessible to talk about it with you and help you to comprehend the new climate and make your choices to serve your inclinations best. Contact us today for more information.