Legislative amendments in 2018
Towards the end of 2018, the Government of Belize proposed significant amendments to their laws to comply with the EU and the OECD (BEPS) requirements. We decided at that time not to distribute any official legal update on those amendments because:
1) a detailed and thorough analysis of the amendments introduced showed that the laws had not been finalized and many of their provisions contradicted each other;
2) the legislative amendments also left many “grey areas” making it impossible to guide our clients properly on solutions available within the legislative framework; and
3) it was obvious to us that further legislative amendments were coming in the next 3-4 months, which would somehow set the record straight, and this is exactly what happened just now.
In summary the proposed amendments outlined in December 2018 foreshadowed that for the international businesses, Belize companies that required any form of Special License in Belize would, moving forward, have to show substance in Belize, pay taxes in Belize, and, in short, be subject to all relevant Belize laws. Requirements for substance for companies which are not subject to licensing under IFSC Act, were not put forward and Belize IBCs continued to enjoy their offshore status as before.
The amendments of 2018 have quite heavily affected IP companies, which should have ceased to exist in Belize by July 2021.
It is worth noting that these amendments of 2018 didn’t work for Belize to avoid the “EU black list”.
INTERNATIONAL BUSINESS COMPANIES (AMENDMENT) ACT, 2019
Within a month of Belize being included into the “EU black list”, the Government of Belize proposed further amendments to the International Business Companies Act (the Act was published on 27 March 2019 and became effective on 1 April 2019).
General amendments include:
- Belize IBCs are now allowed to do business with Belize residents, own land in Belize, hold shares in Belize domestic companies and can be owned by Belize residents;
- Belize IBCs are now within Belize’s domestic tax regime and will thus be required to file annual tax returns and are subject to the Belize Income and Business Tax Act; the rate of tax under the domestic tax regime is tied to the business activity and type of income;
- All Belize IBCs must now comply with physical presence requirements in order to establish economic presence in Belize;
- Grandfathering provisions apply up to 30th June, 2021 in regards to tax liability.
Belize residents can now hold shares and/or beneficial interests in Belize IBCs, do business with Belize IBCs, and Belize IBCs can now own land and other property in Belize, hold shares in Belize domestic companies and can operate and carry out core income generating activities in and from within Belize.
Income and Business Tax Act
The December 2018 amendment included provisions that effectively subjects the IBC to the Belize Income and Business Tax Act (the Tax Act). IBCs must now file tax returns and pay the appropriate taxes to the Belize income tax department. Since Belize IBCs are now required to pay taxes, they must obtain a Tax Identification Number (TIN) from the income tax department. The process for applying for a TIN includes completing the application form and providing the tax department with information on the structure and activities of the company, its directors and shareholders. Registered Agents will be able to apply for TINs on behalf of their clients and will be allowed to sign the application form as the local representative of the company. It is anticipated that Belize IBCs will only be liable for tax on Belize sourced income. Clarification on this key point is imminent.
Physical Presence Requirements
The December 2018 amendment provided for physical presence mandatory for IBCs holding a licence from the IFSC but optional for all other IBCs. This amendment was not sufficient as EU required substance for all IBCs. In response, the IBC (Amendment) Act No. 1 of 2019 (March 2019 amendment) was passed and came into force as of 1st April, 2019.
With the passing of the March 2019 amendment, all Belize IBCs must meet physical presence requirements and comply with regulations to be put in place addressing physical presence. The December 2018 amendment together with the March 2019 amendment provides that physical presence include the following aspects which will all need to be complied with:
1. Sufficient and adequate amount of suitably qualified persons carrying out its core income generating activities from within Belize;
2. Expenditures consistent with the size of business;
3. Control and management activities conducted from Belize; and
4. Keeping of records in Belize;
The March 2019 amendment does provide a carve-out for “pure equity holding” companies, which is defined as a company which:
(a) is a holding body;
(b) has as its function the acquisition and holding of shares or equitable interests in other companies;
(c) holds equity participation and earns only dividends and capital gains; and
(d) does not carry on any commercial activity;”
IBCs classified as pure equity holding companies will not be required to comply with physical presence requirements. Instead, these companies will only need to ensure that they comply with corporate filing requirements under the IFSC Act and the Income and Business Tax Act and will need to have adequate personnel in place to manage the equity holding. Such adequate personnel will be satisfied via the company’s IBC Agent so long as the Agent retains record of the equity participation or holdings of the company. These companies will still be required to file annual tax returns but will not pay tax if there is no income or if the only income is dividends and capital gains.
As it relates to the tax regime, a grandfathering period was allowed for in the December 2018 amendment. All IBCs incorporated on or before 16th October 2017 will continue to benefit from tax exemption up to 30th June, 2021 and their first annual tax filing will be due on 31st March 2022.
All IBCs incorporated on or after 17th October, 2017 immediately fall within the tax regime and should file their first annual tax return by 31st March, 2020. These IBCs will also need to obtain a TIN as soon as the income tax department allows for TINs to be issued to IBCs. Please note that grandfathering provisions apply only to tax exemption and not to physical presence requirements.
One last important change to the Belize IBC Regime is the abolishing of the holding of Intellectual Property assets. The IBC (Intellectual Property Asset Prohibition) Regulations 2019 came into force on 1st January, 2019 and strictly prohibits the holding of IP assets by Belize IBCs. These regulations, however, also incorporate grandfathering provisions utilizing the same timeline as the grandfathering provisions for taxes on IBCs.
Companies incorporated on or after 17th October, 2017 are strictly prohibited from acquiring, holding, owning or dealing with any IP assets. Companies incorporated on or before 16th October 2017 that hold IP assets, may apply to the IFSC for a determination on whether they qualify for grandfathering. If the IBC is approved for grandfathering, this simply means that the company will have until 30th June, 2021 before it must dispose of all IP assets being held.
Physical Presence Regulations are in their final drafting stage and are expected to come into force before or by June. As soon as these are passed, we will provide a copy of these here on our Blog Site, together with guidance noted that all interested persons can view and reference.
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