Why Is Belize Considered a Tax Haven?

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Why Is Belize Considered a Tax Haven?

Many rich people and companies lawfully lower their tax responsibilities by using tax havens. These offshore governments, territories, and countries are often politically and economically stable. Although some tax havens do submit some information to (foreign) tax authorities, there are many areas that do not share any information with other international parties.

Offshore bank accounts are popular among those looking for tax havens. Most firms may utilize these accounts and record them under shell companies—entities with no major business activity or assets.

Many Caribbean nations offer attractive tax arrangements for persons searching for tax havens. This article examines Belize’s position as a tax haven.

Key Takeaways

  • Belize is a tax haven where individuals and businesses may legitimately lower their tax payments.
  • The International Business Firms Act makes it easy to incorporate offshore companies in Belize.
  • Belize does not exchange information with foreign taxation authorities, ensuring complete secrecy for firms and people.
  • Unless their firm performs all of its operations in Belize, US citizens must still disclose their profits to the IRS.
  • For individuals who qualify, the Foreign Income Tax Exclusion safeguards up to $108,700 of offshore earned income.

Belize as a Tax Haven: An Overview

Belize is located on Central America’s eastern coast, bordering Mexico and Guatemala. Tourism, agriculture, and construction are the mainstays of the country’s economy. The Belize dollar (BZD) is the country’s official currency, and it is tied to the US dollar. In 2020, the population is expected to be little less than 399,600.

Belize is a tax haven in the most literal sense. In Belize, incorporating offshore firms is completely legal and rather straightforward. This helps people and businesses manage their assets while also protecting them from taxes on revenues earned overseas.

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Offshore income is defined under Belize’s tax legislation as dividends, capital gains, earned interest, and revenues. Dividends given to non-citizens of Belize by offshore corporations formed in Belize are likewise tax-free.

Becoming a Tax Haven

Belize’s government started the process of becoming a tax haven in the early 1990s. It did so after drawing a lead from various Caribbean nations’ legislative procedures in order to establish an atmosphere that would attract offshore corporations.

The major goal of the government was to abolish taxes on a broad variety of income streams, including dividends, interest, capital gains, and offshore profits. To achieve a completely tax-free environment, the government also abolished its stamp duty—a levy levied to guarantee the integrity of papers for the creation of corporations, trusts, and foundations.

In 1996, the government passed the International Business Companies Act (IBCA), the Trusts Act, and the Offshore Banking Act to expedite the establishment of enterprises, trusts, and foundations. As a consequence, Belize is regarded as one of the most business-friendly countries in the world. The Act includes a reasonably simple incorporation procedure, tax-free status, and no reporting obligations.

In Belize, the incorporation procedure may be finished in a matter of hours, offering tax-free status with no reporting obligations.

The main benefits of forming a Belize International Trust under the provisions of the Trusts Act are a permanent exemption from personal and business taxes on revenues produced by trust assets. Estates are also free from all taxes linked to inheritance, succession, and gifts.

One of the primary sections of the Offshore Banking Act permits financial institutions with at least $25 million in capital to apply for an unrestricted license, allowing them to conduct banking activities without being subject to local supervision. Smaller banks with a capital requirement of $15 million may apply for a restricted license.

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Financial Privacy in Belize

Privacy barriers in classic tax havens such as Switzerland and Luxembourg have gradually decreased, allowing nations such as Belize to establish themselves as the next generation of tax havens.

Banking rules require that names and account information be divulged only after the submission of paperwork connected to criminal investigations, followed by a court order, in order to protect the financial privacy of corporations, foundations, and trusts established in the nation.

Belize has no limitations on cash transactions in and out of the country to ensure account holders’ secrecy. The lack of an exchange control regime allows offshore enterprises established in the nation to move limitless amounts of money without being subject to reporting obligations. Belize also has few tax treaties with foreign countries, which have been used to undercut financial privacy laws in Europe, specifically.

Don’t Forget Uncle Sam

Don’t imagine you’re exempt from paying taxes just because you’ve established yourself in Belize. If you live in the United States, you must still disclose your assets to the Internal Revenue Service (IRS).

However, if you live in Belize, you may get an inclusion that will enable you safeguard and shield up to $108,700 (in 2021) of your income. This includes any profits from a Belizean offshore corporation. Anyone who lives in Belize and is not in the United States for 330 days in a 12-month period may be eligible for the Foreign Income Tax Exclusion.

Corporations are not required to pay any taxes to the IRS if they do not conduct any business in the United States. However, you must still demonstrate ownership. This may be accomplished by submitting Form 5471 to the IRS.

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