Based on the global standards on fair taxation and anti-money laundering promoted by the Financial Action Task Force (FATF), Caribbean Financial Action Task Force (CFATF), Organization of Economic Cooperation Development (OECD), and the European Union (EU), Belize has adopted the Economic Substance Act, 2019 (“ESA”) to ensure improved provisions for substantial economic presence to be fulfilled by certain commercial entities (‘entity’) that are registered and conduct business in Belize.
Which entities will be affected?
The Act applies to commercial entities which are incorporated, licensed or continued under:
(a) International Business Companies Act (Chapter. 270)
(b) International Financial Services Commission Act (Chapter. 272)
which conduct relevant activities or are tax resident in Belize.
What activities are considered as relevant?
The Economic Substance Act states the definition of “included entity”.
An “included entity” means:
(a) An entity that carries out any of the following relevant activities:
1. banking business;
2. insurance business;
3. fund management business;
4. financing and leasing business
5. headquarters business;
6. distribution and service centre business;
7. shipping business;
8. as a holding company, engaged, or where one or more of its subsidiaries is engaged in one of the relevant activities
9. all Regulated Entities under the IFSC Act.
An entity which carries on more than one relevant activity must comply with the economic substance requirements and must satisfy the economic substance test which is:
Only if the answers to (A) and (B) are affirmative and the answer to (C) is negative will the economic substance requirements apply to the entity.
Economic Substance Test
Subject to below, in order to meet the Economic Substance Test, a legal entity carrying on a relevant activity must:
• conduct core income generating activities (“CIGA”) in Belize;
• be directed and managed in Belize; and
• taking into account the nature and scale of the relevant activity, have:
an adequate number of suitably qualified full time employees;
an adequate amount of expenditure incurred in Belize; and
appropriate physical offices for CIGA.
It is possible to outsource some or all of Belize CIGA provided the legal entity is able to demonstrate that it is able to monitor and control the outsourced activities and that those activities are undertaken in Belize.
The legal entity may demonstrate Management and Control in Belize if it satisfies the following criteria:
• An adequate number of meetings of the board of directors are conducted in Belize given the level of decision making required.
• There is a quorum of the board of directors physically present within Belize during the meeting of the board of directors.
• Strategic decisions of the included entity made at the meetings of the board of directors must be recorded in the minutes of the meetings.
• All included entity records and minutes are to be kept in Belize.
• The board of directors, as a whole, has the necessary knowledge and expertise to discharge its duties.
REDUCED SUBSTANCE REQUIREMENTS FOR PURE EQUITY HOLDING COMPANIES
An included entity which engages in business as a pure equity holding company is subject to reduced substance requirements, as follows:
(a) It shall comply with all applicable laws and regulations of Belize; and
(b) It shall have adequate human resources and premises in Belize for holding equity participation in other entities and where it manages those equity participations in other entities, have adequate human resources and premises in Belize for carrying out the management.
Where a holding company engages in any relevant activity, that entity shall be required to satisfy substantial economic presence requirements in accordance with ESA in respect of the relevant activity conducted.
What is a non-included entity?
The substance requirements of the Act do not apply to any entity that does not conduct relevant activities, listed above, in Belize.
The substance requirements of the Act do not apply to a commercial entity that is controlled and managed outside of Belize and is tax resident in a jurisdiction other than Belize; however, such an entity must provide the Authority with sufficient proof that is tax resident in the jurisdiction that it asserts.
If the company is not tax resident in another jurisdiction then they are considered to be tax resident in Belize and will need pay taxes based on the Ninth Schedule depending on the business activity of the company ranging primarily from 1.75% upto 15% and in some cases 25%
The Ninth Schedule has been amended to remove the exemption for companies that make less than 54,000 Belize for annum, Rental properties that make less than 1,650 Belize per month and interest from any debentures, treasury bills, treasury notes and or bonds issued the government . They are to pay business tax at 5% as well as annual net gain is to be paid at 5%.
The Income and Business Tax Act was amended in 2019 and is now known as the Business Tax Act. which states that the companies are to pay Business Tax based on Section 107 of the ACT which states that companies are to pay taxes based on the rates set out in the Ninth Schedule . Please see highlighted section on page 4.
How an entity claims to be tax resident in another jurisdiction?
The substance requirements of the Act shall only apply to included entities that are tax resident in Belize. There is the presumption of residency for all entities registered in Belize.
Where an entity states that they are tax resident in a jurisdiction outside Belize, the Authority will have regard to where such entity is centrally managed and controlled. The entity will need to be able to provide the Authority with a letter or certificate:
(a) From or issued by the tax authority of its jurisdiction of residence, stating that the commercial entity is considered to be resident for tax purposes in that jurisdiction;
(b) Showing a clear and specific period of validity; and
(c) Showing an assessment of tax on the entity, a confirmation of self-assessment of tax, a tax demand, evidence of payment of tax, or any other equivalent document issued by the tax authority for the jurisdiction in question.
(d) There will be a prohibition for tax residency if the jurisdiction is listed in the EU Annex 1 jurisdictions.
What is the Deadline?
To file all company needs to have a Tax Identification Number (TIN).
As of today, all Belize companies, included or not included entities, should obtain a Tax Identification Number (TIN). The process to obtain this number is very simple and we are ready to assist you accordingly.
To do so we need to order new Certificate of Incumbency and Good Standing and file the relevant applications for issue of TIN.
However you have to take into consideration that if the company cannot prove by way of tax residence certificate that it is tax resident elsewhere, it has to pay taxes in Belize as described above.
How can we help you?
The most important issue is to decide whether you wish to continue with the company in Belize which means that we have to apply for TIN and pay taxes in Belize and if needed to set up economic substance in Belize. In case you decide that you do not wish to continue in Belize then we can assist with the winding up of the company or its redomiciliation to another jurisdiction.
We at Globalserve are available to discuss it with you and assist you to understand the new environment and take your decisions to best serve your interests.
You can contact us for further information and our prices for the above at the below email addresses or call us at 00357 25