In December 2018, the National Assembly of Belize passed comprehensive new legislation in order to remove itself from the ‘investment blacklist’ of the OECD and other organizations. These include the International Business Companies (Amendment) Act, 2018, the Income and Business Tax (Amendment) Act, 2018, and the Stamp Duties (Amendment) Act, 2018.
Belize was an attractive investment destination in the 1990s because of the zero tax for offshore companies policy. In recent years, its attractiveness has faded due to rampant bribery and corruption. Belize’s legislative changes aim to rebuild its reputation and present the country as a more viable investment option.
However, these changes created sudden and immediate implications for current and prospective international business companies (IBCs). With the change in the business landscape comes advantages and disadvantages. Find out what the future of IBC activity and investment looks like for Belize.
Why amend existing law?
The reason for the amendments is the desire to comply with the internationally accepted transparency requirements. These requirements have been set up by institutions like the Financial Action Task Force (FATF) and the Organization for Economic Cooperation and Development (OECD). Crucially, complying with their requirements means Belize will be internationally recognized as a ‘tax haven’.
Certain advantages come with being internationally recognized. By adjusting to international standards, Belize sends a message to global businesses, namely that it has moved on from the era of questionable governing and harmful tax policies. Moreover, it raises possibilities for stable economic growth and legislation for the coming decennium. These new tax policies have mitigated issues regarding:
- Ring-fencing elements whereby the domestic market doesn’t have access to these preferential tax regimes.
- Companies benefitting from a preferential tax regime that have a lack of economic substance in the jurisdiction. That is income-generating activities that aren’t carried out from within the jurisdiction where the company is incorporated.
Advantages of the legislative changes
The advantages for investors in Belize under new legislation are numerous. Amongst others, the following elements renew Belize’s appeal as an attractive place to invest:
- Global recognition: The AFTA and OECD are internationally recognized as a measure for safe investment. These measures are seriously consulted by global businesses when selecting the country to expand to.
- The possibility to join the OECD in the future: With Colombia, Argentina, and Costa Rica seeking access and Chile already having access, it is not hard to see how popular the organization is. Countries in the OECD typically enjoy a high degree of foreign investment. Belize joining the institution would pose opportunities for growth.
- Stability regarding future changes in legislation: Now Belize has aligned its policies with international institutions, any change of its judicial agenda will be internationally consistent, and won’t come as a surprise. Moreover, it means that the business environment will be stable and thus risks are low.
- Actual taxes are still very low: With actual taxes being 1.75% on net income greater than USD 1.5 million and 3% when lower, the taxes are still considerably low.
- No risk for loss of face: After the PanamaPapers scandal, tax havens have been heavily scrutinized. When accepting the same rate of transparency as many other countries, Belize loses its negative association with this and other potential scandals. Consequently, the same applies to companies investing in Belize.
Disadvantages presented by new legislation
The disadvantages mostly have to do with other requirements regarding company formation in Belize. The new legislation states favors company residence within the country. Certain previous advantages on this matter have therefore taken a hit. Other key disadvantages include:
- Tax exemption will cease to exist: As transitional amendments state, companies that have enjoyed tax exemption before will be allowed to enjoy their exemption up till 30 June 2021. After this, taxes will be imposed on companies operating in Belize.
- Companies will have to register for a Belize tax ID number: Anyone trying to do business from Belize now requires a tax ID. As this registration process can take time and requires knowledge of the law, it may prove harmful to smooth incorporation. It is advised to call in a local partner with experience and knowledge of this process.
- Companies must maintain an office in Belize for record keeping purposes: For the purpose of record keeping, the company may utilize an office of a local partner to represent the company’s presence in Belize.
- Companies must employ a sufficient number of well-trained and qualified personnel. These have to be physically present in Belize to carry out the company core income-generating activities.
- A rented office in Belize is now required.
- Companies have to conduct their control and management activities from Belize, either directly or through a management agency. This includes a requirement that board meetings are held in Belize and at least two directors are resident in Belize.
- Stamp duty is now required.
- Companies have to file an annual tax return based on the requirements of the Income and Business Tax Act, Cap. 55.
How do these new requirements balance out for business?
When putting the advantages and disadvantages on a scale, it becomes clear different scopes see different outcomes. For existing IBCs, the change in legislation is seen as disadvantageous for their business. The ceasing of tax exemptions and requirement to register for a Belize tax ID number are costly. Companies who have already made the choice to expand to Belize are now faced with these changes, which could affect their stability.
On the other hand, companies previously hesitant to expand to Belize will gain confidence in light of these changes. By pursuing stability and international recognition, the Belize government is on the right track to restoring its reputation and investment potential. These laws will facilitate a healthy business environment in the long term. All this while keeping taxes at a minimal percentage ensures an attractive place for foreign investment.
It’s recommended that when expanding to Belize, you should engage with a local partner to stay abreast of the changing business environment. At Biz Latin Hub, our company formation and accounting experts can help you comply with the new tax requirements.
Our tailored business solutions extend across a range of market entry and back-office services, and ensure your company is set up for success.
Contact us at [email protected] today for personalized assistance.