Belize – a natural and tax paradise?

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23. October 2020 | Liechtenstein – Saving Taxes at ESt & KSt and IP Box & Foundations

15. March 2020 | Isle of Man: legal status as crown property and tax law

21. December 2021 | San Marino – no sales tax in the oldest republic in the world

15. February 2022 | Taxes on the Canary Islands

05. June 2023 | Belize – a natural and tax paradise? (this contribution)

Belize, a small state in Central America with a picturesque Caribbean coast, has long emerged as a tax haven. For example, Belize had set up its own tax regime for international corporations, with virtually no domestic taxation. However, this led to Belize becoming the focus of the EU and the OECD as a tax haven. As a result, the EU put Belize on its blacklist of countries that undercut their standards in combating tax evasion. Meanwhile, the Belize government has shown itself to be increasingly cooperative and has introduced many changes to its tax legislation that have led the EU to remove the country from its blacklist. Therefore, we now want to investigate whether Belize can still be regarded as a tax haven today.

1. The Belize Tax Regime – Introduction

In the past, we have already featured some alleged tax havens in our blog posts or otherwise referred to them. Be it Malta, Cyprus or the United Arab Emirates, many have in common that the climate there is particularly sunny – In terms of both the amount of sunshine and entrepreneurship. In the media, too, there is often talk of tax havens, especially in the South Seas or the Caribbean.

Therefore, this may suggest that there are many countries, due to the magnificent nature in the taxation of their taxpayers, are doing much less. However, if we look at the historical sources of, for example, ancient cultures of Mesoamerica, we find that taxes and other regular levies were known there long before the arrival of the first Europeans. Of course, the conquerors also introduced their own taxes in Central America and the Caribbean. Taxes were therefore always an integral part of the life of the local population, and thus also in Belize. Therefore, there must be other reasons why taxes in this region are nowadays subject to only a limited amount of fiscal policy.

However, this should only serve as a suggestion for further considerations that we may want to take up in the future. What leads us thematically in this article is the question of whether Belize today is both a natural and a tax haven.

2nd Belize – for many only a natural paradise

The subtropical to tropical climate of Belize produces a rich abundance of flora and fauna. In addition to palm trees and lianas, hundreds of species of orchids are counted in the tropical forests. Also part of the flora there are the large mahogany trees, which still have economic importance today. However, large areas of the small country, framed by Mexico and Guatemala and the Caribbean Sea, are protected as nature reserves and also widely appreciated. Of great importance are also the still largely intact mangrove forests, which line a large part of the coastlines. There are also karstic savannah landscapes, especially in the north of the country.

Of course, this diverse and rich vegetation is also a livelihood for a very diverse fauna. The jaguar, river crocodiles and a variety of colorful butterfly species are only the most famous examples of the abundance of wildlife in Belize. Divers, however, may prefer to bring to the fore the breathtaking diversity of marine creatures off the reef coast of Belize when they rave about this natural paradise. Thus, the Belize Barrier Reef is the second largest barrier reef in the world after the Australian Great Barrier Reef and world famous for its deep blue to turquoise, crystal clear waters. Especially the Blue Hole is a natural phenomenon known far beyond the national borders, which attracts many tourists every year.

Belize in the Mirror of Time

Belize: from the Maya to the Vice Kingdom of New Spain

In pre-Columbian times, the Maya dominated, among other things, the region to which nowadays the area of Belize extends. Due to the subjugation of the Maya by Hernán Cortés and subsequent conquistadors, the region nominally fell to the Spanish crown and the Vice Kingdom of New Spain. However, England also interfered in its wrestling with Spain in the region. In particular, pirates from England choose the coast south of the Yucatán peninsula as one of their preferred retreats. But after the privateering in the second half of the 17th century. In the 19th century, many of the settlers who came from England and called themselves Baymen turned to agriculture. In particular, the trade in tropical wood has been of great economic importance in Belize since that time. In this context, many labor slaves from Africa came into the country, which has had a lasting impact on the multi-ethnic state of Belize to this day.

3.2 Belize as a colony of Great Britain

At first the English immigrants were content with a free self-government under Spanish rule. However, Belize arrived in the mid-19th century. In the 19th century, British Honduras finally came under British control. This continued until 1981, when Belize gained its independence as an independent state. King Charles III is now King. of England also head of state of that country. Membership in the Commonwealth of Nations also bears witness to the close connection to the former colonial power Great Britain. So it is hardly surprising that the official language is English.

3.3 Belize as an independent state today

Currently, less than half a million people live in this nearly 23,000 km2 small country. This is about the area of Sardinia, with the population density in Belize only a quarter of this island. Most of them are residents of the largest city in the country, namely Belize City. From there you can reach all regions of the country, including the numerous offshore islands in the Belize Barrier Reef.

Political relations in Belize are considered stable. This has long been an exception in the region. Even today, Belize is a model for many neighbouring countries in this regard. The national currency Belizedollar (BZD) is pegged to the USD in a ratio of 1 to 2. The OECD provides an overview of individual tax revenues for the period up to 2020 inclusive.

4. Tax Law in Belize

In its tax legislation, Belize was generally guided by other Anglo-Saxon tax regimes. For example, advice was sought in Guernsey. But also the tax regime of the British Virgin Islands had a great influence on the tax legislation in Belize.

4.1. Tax liability in Belize

The tax liability in Belize includes both natural and legal persons. Natural persons are subject to tax if they are resident in Belize during the assessment year. Legal persons, but also partnerships and other associations are taxable in Belize if they are either established under the laws of Belize, have their registered office in Belize or are managed from Belize. Furthermore, all persons who do business in Belize are taxable in this country.

Regarding the residency of individuals, the tax law in Belize stipulates that you must stay in this country for more than half a year to meet this criterion. Thus, the rule applies here that a stay from 183 days leads to residence and thus to unlimited tax liability.

In addition, it should also be mentioned that Belize has set up a special tax regime for foreign pensioners and pensioners. You can get your pensions and pensions here tax-free. However, local pensions and pensions in Belize are also tax-free.

4.2. Taxation under the territoriality principle

Unlike taxation in Germany or Austria, the territoriality principle applies in Belize’s tax legislation. In other words, Belize only taxes income that taxpayers earn or receive in Belize. As a result, unlike the world income principle, income earned abroad remains exempt from taxation in Belize. This is an important factor if you want to include Belize in considerations of cross-border tax design.

4.3. Income Taxes in Belize

4.3.1. Income tax

First of all, we want to draw attention to a fundamental distinction. In Belize, a distinction is made between income tax and business tax. In principle, all natural persons pay income tax. However, a basic allowance also applies here. More precisely, a plurality of successive basic release stages apply here. If all the annual income of a taxable natural person in an employment relationship is less than BZD 26,000, then the basic allowance BZD is 25.600. For income between this level and BZD 27,000, the basic allowance is BZD 24,600. In the range between BZD 27,000 and BZD 29,000, on the other hand, a basic allowance of BZD 22,600 is applied. For income in addition, a basic allowance of BZD 19.600 applies. On the other hand, taxpayers who receive less than BZD 20,000 in income per year pay no taxes at all. In addition, the tax law in Belize grants a general tax reduction of BZD 100 on income tax.

It should be noted that taxable persons who are in an employment relationship must in principle file a tax declaration. For employees, monthly income up to BZD 800 does not require tax registration. However, if wages and salaries exceed this amount, then the employer is obliged to carry out withholding taxation. We know this in Germany as wage tax. In Belize, this tax application is called “Pay As You Earn”, or PAYE for short. In the course of the income tax assessment, any compensation will of course take place either in favour of the taxpayer or the tax authority within the framework of the annual assessment. For this purpose, the tax return must be submitted to the tax authority by 31.03. of each year. The monthly tax registration, however, takes place on the 15th of the following month.

In addition, all types of income, except pensions and capital gains (for example, interest), are subject to general income taxation. The tax rate here is a fixed 25% for everyone.

4.3.2. Corporate tax

In addition, there is also a duty for self-employed persons as well as for persons and other companies to register regularly. This is also prescribed by the deadline of the 15th of the following month. Business people based in Belize are subject to corporate tax, depending on their income. Commercial income includes income from commercial activities, income from professional activities, rents, royalties, premiums, commissions, royalties and rebates, and dividends and interest. Winnings from lotteries, slot machines and table games are also included. Other commercial income includes management fees, income from the rental of equipment and real estate, and fees for technical services (e.g. craft activities).

Unlike income tax, there is no flat-rate tax rate for corporate tax. Instead, different tax rates are applied to the different types of income. For example, premiums, commissions and royalties from a total amount of BZD 25,000 and up to 15% are subject to taxes (of which only 5%). This also applies to profits from the above-mentioned games of chance, provided that they amount to more than BZD 25,000 per year (otherwise only 5%). On the other hand, services to Belize residents are subject to only 6% tax, but foreigners are subject to 25%, unless they are CARICOM citizens (then only 15%). Rental income is even cheaper with 3% tax. And in commercial trades, Belize only taxes companies at 1.75%.

However, these are only a few examples. In fact, there is a separate list for this, which can be found in the tax law of Belize, the Cap. 55 Income and Business Tax Act, under ninth schedule.

4.3.3. Corporate tax in Belize

A few years ago, Belize recruited international corporations. It introduced the IBC program, where IBC stands for International Business Companies. This enabled foreign actors to set up corporations, which then did not have to pay taxes. Furthermore, the establishment was easy to carry out, although only officially recognized agents on site were authorized. In any case, the establishment of an IBC company hardly took more than two days. Another advantage of such a limited liability company was the anonymity enjoyed by its shareholders in Belize. Because a duty to publish the ownership situation was omitted in the corresponding laws.

Meanwhile, the tax exemption for IBC companies has been abolished. In addition, a data transfer with tax authorities of EU member states is now taking place. This means that IBC companies established under domestic law must now tax their profits in accordance with the general rules. An independent corporate tax, as we know it in Germany and many other countries, is unknown in Belize.

4.4 Sales tax in Belize

Furthermore, in Belize a general sales tax (GST) is part of the tax system. It is best to compare the GST with the German sales tax. The GST also applies as a multi-phase tax on the sale of goods and the provision of other services. However, there is only an obligation to file a GST tax application and pay the corresponding tax if the annual turnover exceeds the amount of BZD 75,000. Otherwise, an average monthly turnover of BZD 6.250 is considered relevant. In both cases, registration of taxable persons is required. The tax declaration must be submitted monthly. The deadline is 15 days after the expiry of the taxation interval. For these purposes, the keeping of books is also required.

Belize has allowed some exemptions from taxation. At the same time, there is a general tax liability for some transactions, but this is practically irrelevant with a tax rate of 0%. In fact, GST does not occur in most foods for human consumption, as well as on agricultural products. Moreover, imported goods that are only imported to be re-exported are exempt from GST. For the population, the 0% taxation on human medical goods and certain educational items is also a financial relief. In addition, household appliances such as stoves, refrigerators and washing machines are also occupied with 0% GST. What is even more interesting is that even petrol, diesel and other petroleum products are sold in Belize without taxes. For this reason alone, Belize could be called a tax haven.

All other goods or services to which neither an exemption nor a GST rate of 0 % applies are subject to a uniform 12,5 % of taxes. This also applies to imports. A consideration of paid GST, equivalent to the German input tax, is only possible if a taxpayer himself provides services subject to GST.

4.5. Property tax and property tax

A regular taxation of land is also available in Belize. They call it the Towns Property Tax. This taxation only applies to real estate within the borders of the few cities in the country. Furthermore, the tax base for this taxation depends on whether a property is built or undeveloped. In the case of built-up land, the tax base for taxation is the rental on the realistically expected annual rental. In the case of undeveloped land, on the other hand, the market value of the land comes to the fore as a benchmark. Although the law sets tax rates in this context, this is only the maximum applicable framework. The tax rates that are actually applied are set by the city councils themselves within the legal limits.

Consequently, the corresponding tax law requires different tax rates for these two tax bases. In the case of built-up real estate, the tax rate above a base of BZD 35 shall not exceed 12,5 %. However, under this amount it is only 3% at most. In fact, Belize City currently only applies a tax rate of 9 % on built-up land and 2 % on undeveloped land.

4.6. Property transfer tax in Belize

Belize boasts that it is one of the few countries in North and South America (even worldwide) where foreigners can purchase land just as easily as locals. Prices on the real estate market are comparatively moderate. Even more interesting, however, is that the sale of real estate remains tax-free. But also the purchase of land is almost tax-free. Only a registration fee of 5% of the purchase price is incurred as fees for the registration of the new legal relationships in the land register. In addition, there are about 2% of fees for legal services.

4.7. no inheritance and gift tax in Belize

An inheritance tax is just as unknown in Belize as a gift tax. However, indirect taxation takes place in the transfer of real estate. Because the taxes due for a transfer of land are then also relevant for a gift or inheritance.

Is there a double taxation agreement with Belize?

There is currently neither a double taxation agreement with the Federal Republic of Germany nor with Austria, but with Switzerland. Belize has also signed double taxation agreements with a number of other Caribbean countries, including all CARICOM member states. There has even been a double taxation agreement with Britain for a long time. Recently, there has even been a double taxation agreement between Belize and the United Arab Emirates.

In addition, Belize has intensified its efforts in recent years to implement the OECD BEPS guidelines. In this context, Belize also made adjustments to preferential taxation of international companies in order to restrict it. Belize also decided to agree to data exchange with EU member states. All this led to the EU taking Belize off its blacklist in return.

Belize as a tax haven – our conclusion

If you look at the tax rates and allowances in Belize tax law, you can definitely conclude that Belize is a tax haven. However, tax adjustments have now eliminated some of the most interesting tax benefits for foreign investors. So you can see that Belize is currently a tax haven in transition – just like many other former tax havens. These are the consequences of international efforts to combat unfair tax practices, based in particular on the work of the OECD.

Nevertheless, the sometimes very favorable tax rates and other structural advantages invite you to think about tax arrangements in connection with Belize. For example, a departure for German-based GmbH shareholders to Belize without the expense of the removal tax is conceivable. If a domicile is retained in Germany and there is thus a limited tax liability in this country, the taxation right of the Federal Republic of Germany with regard to the capital gains of the GmbH is preserved. A similar design is also possible with at least one other Caribbean state, namely Barbados.

Regardless, Belize is currently establishing the possibility of locating tax-free trades in specially designated free zones. The most important is probably the Corozal Free Zone. Furthermore, there is also a possibility to locate industrial companies within the framework of an export processing zone. Here, too, far-reaching tax exemptions for the free zones in which companies produce or refine goods intended for export are waved. In this regard, Belize also seeks to increase domestic productivity and promote this, among other things, with particularly advantageous tax breaks.

Belize is increasingly changing from a classic tax haven to a country where tax breaks for entrepreneurs go hand in hand with the promotion of its own economy.