Many wealthy individuals and corporations use tax havensto legally reduce their tax liabilities. Normally offshore, these states, territories, and nations tend to be politically and economically stable. Although some tax havens do report a small amount of information to (foreign) tax authorities, there are plenty of places that don't share any information at all with other international parties.
Offshore bank accounts are fairly popular among people who seek out tax havens. Most corporations that do so may use these accounts and record them under shell companies—entities that don't have any significant business operations or assets.
Many countries in the Caribbean have favorable situations for people who are looking for tax havens. This article looks at Belize and its status as a tax haven.
Key Takeaways
- Belize is a tax haven that allows individuals and corporations to legally reduce their tax liabilities.
- Incorporating offshore companies is simple in Belize thanks to its International Business Companies Act.
- Belize does not share information with international taxing authorities, providing corporations and individuals with the utmost confidentiality.
- U.S. residents must still report earnings to the IRS unless their company does business solely in Belize.
- The Foreign Income Tax Exclusion shields up to $108,700 of offshore earned income for those who qualify.
Belize as a Tax Haven: An Overview
Belize is on the eastern coast of Central America, sharing borders with Mexico and Guatemala. The country's economy is driven primarily by tourism, agriculture, and construction. Belize's national currency is the Belize dollar (BZD), which is pegged to the U.S. dollar. The population was estimated to be just under 399,600 in 2020.
Belize a tax haven in the purest sense. Incorporating offshore companies is totally legal and is fairly simple in Belize. Doing so helps individuals and companies manage their assets, providing them some protection from taxation on earnings from abroad.
The tax code in Belize defines offshore income as dividends, capital gains, earned interest, and revenues. Dividends paid by offshore companies incorporated in Belize to non-citizens of the country are also tax-free.
Becoming a Tax Haven
In the early 1990s, the government of Belize began the process of becoming a tax haven. It did so after taking the cue from the legislative practices of many Caribbean countries to create an environment that would attract offshore companies.
The government's primary objective was to eliminate taxes on a wide range of income sources including dividends, interest, capital gains, and revenues earned offshore. To create a pure tax-free environment, the country also eliminated its stamp duty—a tax charged to certify the veracity of documentation for the incorporation of companies, trusts, and foundations.
To fast-track the incorporation of businesses, trusts, and foundations, the country established the International Business Companies Act (IBCA), the Trusts Act, and the Offshore Banking Act in 1996. As a result, Belize is considered to be one of the most corporate-friendly nations in the world. Features of the legislation include an incorporation process that is relatively easy to complete, tax-free status, and no reporting requirements.
The incorporation process in Belize can be completed within a few hours, granting tax-free status with no reporting requirements.
The key features of establishing a Belize International Trust under the provisions of the Trusts Act include a permanent exemption from personal and business taxes on earnings generated by assets in a trust. Estates also receive comprehensive exemptions from taxes related to inheritance, succession, and gifting.
One of the key provisions in the Offshore Banking Act allows financial institutions with a minimum of $25 million in capital to apply for an unrestricted license, which allows for banking operations without local regulation. Smaller institutions can apply for a limited license by meeting a capital requirement of $15 million.
Financial Privacy in Belize
Privacy barriers have progressively weakened in traditional tax havens such as Switzerland and Luxembourg, opening the door for countries like Belize to establish their status as the next generation of tax havens.
To secure the financial privacy of companies, foundations, and trusts incorporated in the country, banking regulations mandate that names and account information can only be disclosed after the submission of documentation related to criminal investigations, followed by a court order.
To extend confidentiality for account holders, Belize places no restrictions on currency movements in and out of the country. The absence of an exchange control policy provides offshore businesses incorporated in the country with the ability to transfer unlimited amounts of currency without reporting requirements. Belize also has few tax treaties with other governments, which have been used to weaken financial privacy protections, particularly in Europe.
Don't Forget Uncle Sam
Just because you've set up shop in Belize, don't think you're completely off the hook from paying your taxes. You still have to report your assets to the Internal Revenue Service (IRS) if you're a resident of the United States.
If you're a resident of Belize, though, you can get an inclusion that will help you protect and shield up to $108,700 (in 2021) of your income. This includes any earnings from an offshore company in Belize. Anyone living in Belize and away from the U.S. for 330 days within a consecutive 12-month period may qualify for the Foreign Income Tax Exclusion.
Corporations do not have to pay any taxes to the IRS if the offshore company doesn't conduct any business in the U.S. You still have to establish ownership, though. This can be done by filing Form 5471 with the IRS.
