A timeline overview
In March 2019, the EU Code of Conduct Group (COCG) moved Belize to the list of non-cooperative jurisdiction for tax purposes due to concerns relating to preferential tax treatment under Belize IBC regime and insufficient economic substance requirements for companies claiming tax exemption of foreign income.
In November 2019, the European Council agreed to remove Belize from the list of non-cooperative tax jurisdictions to the grey list as the jurisdiction committed to undertake necessary reforms to remove harmful features of its foreign-sourced income by the end of 2019.
Belize then made amendments to Belize International Business Company Act and tax legislation to improve its tax regime for international business companies, as well as passed a new Economic Substance Act to enhance substance requirements for entities doing business in Belize.
On 18 Feb 2020, The Council completely removed Belize together with 12 jurisdictions from the grey list.
Entities subject to the Belize Economic Substance
Entities that fall within the scope of the Economic Substance Act are called “Included Entity”. According to the Act, “Included Entity” comprises of:
IBCs regulated under Belize International Financial Services Commission Act; or
IBCs carry 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 center business;
(7) shipping business;
(8) as a holding company, engaged, or where one or more of its subsidiaries is engaged in one of the activities listed above.
It should be noted that Belize IBCs that is controlled or managed outside Belize and is not tax resident in Belize are not required to comply with the Economic Substance and are called as “non-included entity”.
Uncertain whether your company is subject to Belize ES rule? Try our online Belize Economic Substance Self-Assessment Tool
Much like BVI economic substance legislation, Belize “included entity” is required to meet economic substance in terms of two aspects: core income-generating activities (CIGA) and substantial presence in Belize.
For specific, an “included entity” must:
- Conduct core income-generating activities in Belize. CIGA is specified differently in the Act depending on the type of “relevant activities”; and in assessing whether CIGA is conducted in Belize, the following criteria will be considered:
- Amount of annual operating expenditure
- Number of qualified full-time employees
- Physical offices
- Not outsource its core income-generating activities outside Belize. However, an included entity may outsource its CIGA to a Belize licensed person called a managing agent.
- Demonstrate substantial economic presence in Belize in terms of:
- Adequate number of meeting of Board of Directors in Belize
- A quorum of Board of Directors present at the meetings in Belize
- Strategic decisions of the meetings must be recorded in the minutes of meetings
- All records and minutes must be kept in Belize
- The board of directors must have the necessary knowledge and expertise to fulfill its duties
However, pure equity holding companies only have to comply with reduced economic substance requirement as follows:
(1) it shall comply with all applicable laws and regulations of Belize; and
(2) 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
All IBCs regardless of included-entity or non-included entity must report in prescribed forms to the competent authority within nine months from the end of a fiscal year.
Further guidance on the clarification and execution of the Economic Substance Act is still under development and shall be released in the upcoming months.
Should you have any questions regarding compliance with Belize’s economic substance, don’t hesitate to drop us a chat message or mail us via firstname.lastname@example.org.
Please take your reference to Belize Economic Substance Requirements & Tax Guide if you need further details!