The past few decades have seen Belize grow in stature as an offshore tax haven jurisdiction that had aspects of privacy and tax effectiveness. Unfortunately, this led to significant pressure being placed upon the Belizean government from the OECD. Subsequently, recent changes now mean that the Belize IBC Taxation regimes have changed significantly.
I know what you are thinking…you formed this Belize IBC with the view to minimizing or avoiding tax and even the corporate agent told you it was a good plan. Unfortunately, they were wrong and likely misleading you as to the future use of the IBC.
As mentioned, international pressure has continued to be brought to bear upon Belize, and, desperate to get off the OECD’s watch list, the government moved the goalposts, and you are now subject to tax on your IBC profits.
It’s a bitter pill to swallow but it’s worthwhile learning from the recent changes with the view to developing a more robust offshore structure in the future.
What Were the Changes in Regards to Belize IBC Taxation
Initially, Belizean IBCs were not subject to any form of corporate taxation or capital gains regimes as long as they did not derive any locally sourced income. In this sense, Belize was a true tax haven and offered the sort of privacy and tax effectiveness that entrepreneurs sought.
However, under pressure from the OECD, Belize enacted new laws in 2018, and to come into force on the 1st of Jan 2019, which sought to levy a corporate income tax on IBCs. The new International Business Companies Act introduced a corporate headline rate of 25% for general business and a different set of rates for IBCs operating within the Designated Processing Areas (DPA) of 1.75% (up to 3mil) and 3% (over 3 mil).
This news was received relatively badly by the offshore sector and the number of inquiries received about Belize entities dropped by around 80% overnight. However, luckily cooler heads prevailed, and the Belizean government clarified that income derived offshore, away from Belize, would not be taxed under any circumstances.
Obviously, there are some exceptions to the above but surely this means that Belize is back on the radar as an offshore center. Unfortunately, that seems not to be the case at this point in time.
Will I Have to Start Paying Tax?
The short answer is that, at the time of writing, there is no process in place for Belize IBCs to need to lodge a tax return. As long as your corporate income is derived offshore, and not locally, then you are not liable for taxation.
Unfortunately, what this does mean is that there is likely to be further scrutiny from Belize upon the IBCs and there are already reports of requests for financial statements being made by the regulator. Request for annual financial statements is tantamount to an audit and we are now seeing reports of this on a more regular basis.
In fact, in the near future, you could see further changes as the OECD continues to pressure the smaller tax-havens to alter their business practices and start harmonizing their taxation systems to the desired minimum 15% corporate tax. Subsequently, I expect Belize to continue to change towards greater accountability and visibility within their offshore sector with moves such as increased regulatory costs and a fully public register of companies.
Are Belize IBCs Still Worth It Given the Belize IBC Taxation Changes ?
There remain limited reasons for an individual looking to offshore their business to consider Belize. The recent taxation changes are simply one reason to avoid the island nation. Additionally, banking has become almost impossible to source for a newly formed Belize IBC and most international institutions are now declining them routinely.
Probably one of the few reasons to consider Belize is if you are involved in the Foreign Exchange (Forex) business and need an appropriate license. Belize remains one of the easier Forex licenses to obtain and has, therefore, become one of the bucket shop locations of choice. If you are looking at starting an FX brokerage, then this may be a reasonable choice for your first stop in the licensing process.
Unfortunately, for everyone else, Belize is probably not as useful a tax haven as it once was. Its reputation is just too damaged to be seriously considered for a realistic offshore setup. I would recommend you look to other locales before you consider Belize as, currently, they really are the bottom of the barrel reputation-wise.
Will I Be Subject to Belize IBC Taxation ?
In conclusion, as it stands currently, Belize IBC Taxation remains as it largely was before the changes were enacted in 2019. You can still rely upon a zero-tax rate on all income sourced away from Belize but be prepared for requests of financial statements and to prove that your IBC should not be subject to tax.
Moving forward, you would be wise to consider where you base your offshore company as it is likely that further changes could be coming courtesy of the OECD. Increased taxation, public registries, disclosure, and further tax information-sharing agreements are likely to come into force in the next 18-24 months.
Ultimately, the usefulness of a Belize IBC is declining every year and it is clear that time is nearly on the clock for the offshore jurisdiction. Therefore, make sure you have a contingency plan in place for the inevitable changes that are sure to come.