Without doubt, registering an offshore company in Belize has several key advantages including the following ones:
- Tax benefits:
- Complete exemption from taxes on profits, dividends, capital gains, and inheritance for International Business Companies (IBCs), provided they do not operate within the country.
- Confidentiality:
- A high level of anonymity due to the absence of a public register of directors and shareholders.
- The use of nominee directors and shareholders enhances confidentiality.
- Simplicity of registration:
- A quick and cost-effective registration process (usually takes 1-2 days).
- Minimal capital requirements (typically starting from $1).
- Flexibility in management:
- No mandatory reporting, auditing, or financial statement submission requirements.
- Directors and shareholders can hold meetings anywhere in the world.
- Legal stability:
- Belizean legislation, based on English common law, provides asset protection and high legal reliability.
- Convenience for international business:
- Belizean companies can operate in any currency without currency control.
- The geographical location of Belize is convenient for engaging with North and South American markets.
These factors make Belize one of the most popular jurisdictions for registering offshore companies. However, local legislation has recently changed, similar to other offshore jurisdictions, requiring proof of economic presence.
The substance situation in Belize
Under pressure from international regulatory organizations, the offshore landscape in Belize has changed significantly. The previously lenient tax policies, numerous tax benefits, and reduced requirements for international legal entities have been thoroughly revised.
To comply with international regulations, Belize’s International Financial Services Commission had to amend several local laws. Rules regarding the submission of reporting documentation for commercial enterprises were developed based on the types of business activities they engage in.
In early 2019, the Economic Substance Act (ESA) came into effect in the jurisdiction, defining the rules for economic presence. International companies operating in Belize must provide documentation proving tax residency in another jurisdiction, as well as economic presence in Belize. At the same time, international legal entities can offer their services or sell their products in the country and acquire shares in local companies, land, and real estate.
It’s important to note that the previous version of the regulations did not grant non-resident companies any privileges. As the new rules regulate certain types of business activities, legal entities will need to either conduct business directly within the country or prove their economic presence in a foreign jurisdiction. Otherwise, businesses will need to change their business activities or refrain from certain types of operations to comply with the established rules and restrictions on economic presence.
The so-called “included organizations” will refer to local enterprises conducting business according to the country’s internal laws and obtaining licenses from local regulatory authorities when necessary. “Excluded organizations” will include entities with confirmed tax residency in a foreign jurisdiction. Mandatory economic presence rules in Belize will not apply to the activities of such organizations.
Business activities of included organizations in Belize
The economic presence rules for included organizations in the jurisdiction apply to the following types of business activities:
- Shipping;
- Banking or insurance;
- Headquarters;
- Holding companies;
- Financial services and leasing;
- Distribution and service organizations.
For holding companies, the economic presence requirements will apply if the holding itself engages in one or more of the aforementioned types of business activities or if such activities are carried out by a subsidiary within the holding.
However, holding companies that do not engage in business for profit, except for receiving dividends from investments in other legal entities, are not required to meet the established economic presence requirements in the country. A holding organization must have an administrative office and a sufficient number of employees in the tax residency jurisdiction, as well as submit reporting documentation to regulatory authorities.
Requirements and restrictions related to substance in the jurisdiction
The fundamental requirement of the new regulatory document is the physical presence of the business in the country. Additionally, the primary income from business activities must be generated through operations in the local market.
It’s worth noting that when determining the primary source of income, the annual management and operational costs of the legal entity are taken into account. To comply with the established rules, a fully operational office in the country must be in place, along with a sufficient number of employees to support the business.
The reality of a company’s economic presence in the jurisdiction is demonstrated by the following factors:
- Board meetings are held exclusively within the jurisdiction;
- Key strategic management decisions are made by management within the country;
- Meeting minutes and other documentation are prepared and stored in the country;
- Founding documents and financial reports of the legal entity are kept within the jurisdiction;
- At least one director, who is a resident of the jurisdiction and possesses the necessary qualifications, must be part of the governing bodies of the legal entity.
Deadlines for complying with economic presence rules in Belize
Businesses unable to present documentary evidence of tax residency in another jurisdiction and operating within Belize must take the following actions:
- Prove economic presence in the jurisdiction within 90 days of business registration.
- Establish and register an administrative office in the country.
- Provide documentary evidence of conducting one or more of the previously mentioned types of relevant business activities in the country.
- Employ a sufficient number of specialists to support business activities in Belize.
- Register as a taxpayer in the country.
- Conduct audits and submit annual financial statements to the local regulatory authority within the deadlines set by local legislation.
According to the established rules, audits must be organized within 60 days of the business’s state registration; otherwise, the enterprise may face significant penalties. The regulatory act also includes requirements for submitting annual reporting documentation within 9 months after the reporting period ends. Additionally, international organizations operating in the jurisdiction must have a licensed agent to provide complete legal support for the company registration process and the establishment of corporate bank accounts.
Liability for violations of substance rules in Belize
Initial violations of the established economic presence rules in Belize may result in fines of various amounts for the organization, while repeated violations could lead to the revocation of licenses or state registration of the business within the jurisdiction.
The regulatory authority of the country—the International Financial Services Commission—imposes the obligation on businesses to conduct audits at their own expense within the legally established timelines and allows time to rectify identified deficiencies (usually no more than 30 days). It’s also important to note that the established norms allow the Belizean regulatory authority to exchange data about a company’s activities with the controlling authority of the jurisdiction of tax residency for that organization.
Violations of the established economic presence rules in the region include:
- Obstructing the regulatory authority;
- Keeping required documents outside the country;
- Failing to prove tax residency in another jurisdiction;
- Providing false information or missing reporting deadlines.
As you can see, the life of offshore companies registered in Belize has become somewhat more complicated compared to previous times.
