Setting up your Business Company in Belize

Belize Economic Substance

International Business Companies (Amendment) Act, No., 24 of 2018

The Economic Substance Act of 2019 (ES Act) in Belize was put into effect on January 1, 2019, after being officially enacted on October 12, 2019. This legislation pertains to legal entities established or continued under the International Business Companies Act (Chapter 270), commonly referred to as IBCs.

The introduction of this law was prompted by concerns raised by the Council of the European Union (EU) regarding the absence of economic substance requirements for businesses operating in Belize. Enacting this legislation underscores Belize’s commitment to adhering to international standards on tax transparency.

Applicability and Provisions

The ES Act applies to “included entities,” which are IBCs engaged in one or more of the activities specified in the ES Act, including:

Entities falling outside these criteria are classified as “non-included entities.” These encompass IBCs that do not conduct relevant activities in Belize or those that are tax residents in jurisdictions not listed as non-cooperative by the EU.

For IBCs claiming tax residency outside Belize, they must provide documentation from the relevant tax authority of their jurisdiction, demonstrating tax residency, including tax assessments, self-assessments, tax demands, payment records, or equivalent documents. Failure to provide such evidence results in the entity being treated as an included entity subject to the ES Act’s substance requirements.

The International Financial Services Commission will share information received from entities claiming foreign tax residence with the relevant jurisdictions, aligning with international conventions on mutual administrative assistance in tax matters.

Reporting Obligations

All IBCs must annually report their status in compliance with the Economic Substance regimen through their Registered Agent to the Belize International Financial Services Commission (IFSC). Obtaining a Tax Identification Number (TIN) from the Registry is a prerequisite for reporting, although possessing a TIN does not imply tax liability in Belize. This measure facilitates regulatory oversight and monitoring of IBC status.

Subsequently, IBCs must complete the appropriate form, signed by a Director or a majority Shareholder.

Substantial Economic Presence

To demonstrate substantial economic presence in Belize, an included entity must fulfill specific criteria related to Board management and control, including conducting an adequate number of Board meetings in Belize, maintaining a quorum of Directors during Belize meetings, recording strategic decisions made in minutes, retaining all records and minutes in Belize, and ensuring that the Board possesses the requisite knowledge and expertise to fulfill its duties.

Moreover, an included entity must proportionately conduct core income-generating activities (CIGAs) in Belize, involving adequate annual operating expenditure, a sufficient number of qualified full-time employees, and physical office space.

Reduced Substance Requirements for Pure Equity Holding Companies (PEHC)

Included entities functioning as pure equity holding companies have reduced substance requirements. They must comply with Belizean laws and regulations and maintain sufficient human resources and premises for equity participation and management of equity holdings in other entities.

Sanctions

Sections 18 and 19 of the ES Act stipulate penalties for non-compliance, including failure to meet substance requirements, failure to submit substance requirement reports, or failure to comply with directives issued by the Competent Authority. Sanctions may include suspension or revocation of licenses (for entities engaged in regulated activities under the International Financial Services Commission), administrative fines, and removal from the Register of International Business Companies. Administrative penalties can range from BZD 150,000 to BZD 300,000 or imprisonment for up to one year, or both. Persistent violations may incur additional daily penalties of BZD 1,000.

It’s important to note that the ES Act does not exempt struck-off companies from their obligations to adhere to annual economic substance reporting and maintain adequate substance, as applicable.