News: New Year’s ‘Gift’: Belize intends to remove its name from the ‘black lists’ by December 31, 2018

Just a while ago, Belize took the lead among offshore territories and tax havens of the world, but after a series of anti-corruption scandals and the emergence of BEPS in international law, this island country began to lose popularity, got into ‘black lists’, etc. Because of this, business began to move to more attractive jurisdictions, and such situation was not acceptable to the authorities of Belize.

According to our partner from Belize, the government is ready to make fundamental revisions of the legislation to be included again into the World Top by December 31 of this year. Read below what is the essence of these amendments and whom they will concern.

Belize is no longer the same

After the peak of popularity in the 1990s, currently this jurisdiction is inferior to Singapore, Seychelles or the British Virgin Islands (BVI). To regain the status of a reliable ‘financial haven’, the authorities are ready to make concessions to international regulatory organizations, such as the Financial Action Task Force (better known as FATF) and the Organization for Economic Cooperation and Development (OECD).

In particular, the IBC Act of Belize (IBC stands for International Business Company) will be subject to amendments, which we are going to discuss now. Amendments to this document, which is basic for offshore companies, form a part of large-scale measures imposed by the Cabinet of Ministers and the International Financial Services Commission of Belize (IFSC), the country's financial regulator.

The goal is to modernize legislation for full recognition of the country in the framework of the constantly changing international standards of transparency. Here is the list of introduced innovations:

• Establishment of ‘Register of Directors’ (both corporate and individual);
• Establishment of ‘Register of Beneficiaries’;
• Prohibition to issue bearer shares.

As own sources of Law&Trust report, the revision of the legislation will not be limited to this. According to the Prime Minister, he is very pleased that the innovations have already improved the image of the country and have reduced the pressure on the part of international regulatory organizations.

Similar processes are observed in other offshore jurisdictions, such as Vanuatu or Seychelles. A kind of offshore race has begun, so the Prime Minister of Belize insisted that, before the New Year, urgent changes were should be made to the country's legislation.

What business sphere is to expect ?

According to our information, the Belize government will make concessions to the FATF on number of points. In particular, this concerns the norms that allow completely or significantly reduce the tax burden on foreign business. That means that  Belize’s transfer pricing regime, according to the FATF, causes serious damage to other countries.

In what manner this item will be altered is not yet clear, but, our partners from Belize say that the IFSC “already has specific proposals”. The only thing known for certain is that the Ring Fencing, Economic Issues and Grandfathering Issues Act, which regulates the registration of separate corporations, re-certification of business and other issues, will be changed. The rest is still under discussion.

Thus, all companies, both local and foreign, will be merged into one type of IBC, excluding only separate corporations (Ring fencing). In addition, residents of Belize will be allowed to become the beneficiaries of these companies, and the companies of the new type will be entitled to acquire land in the territory of the country. That is, Belize intends to follow the path of the British Virgin Islands, where a similar practice has been applied for a couple of years.

The zero taxation regime  will be abolished and the fight against tax evasion will be intensified, but it is not yet clear what will replace them. For example, Panama introduced territorial taxation, which did not hit business hard. If Belize pursues the Panamanian model, this can be regarded positively. The BVI also introduced similar norms and this allowed them to leave the “black lists”, with retaining interest on the part of the IBC.

Most likely, these new type of companies will be subject to business tax and income tax in Belize (territorial basic taxation). The question is the tax rates.

The IBC in Belize will still be prohibited to own most objects of intellectual property. Restrictions will affect software development and IP-address registration, medicine and some other industries. Indeed, the government will allow individual types of intellectual property to be registered as a trademark and patent, the exact list will be drawn up later.

The main activities (including tailoring, shipping, etc. - the entire list will be enshrined in the draft law next week) will also be subject to taxation. However, if taxation is territorial, as in BVI, this will not entail significant problems for foreign business. If the company is not be market-based for Belize, then the tax burden will be minimal, but in full compliance with international standards of the OECD and FATF.

The requirements for the state in Belize will exactly affect offshore companies. Thus, the draft law includes the rule concerning two Directors resident in Belize for each company; furthermore, with a proven qualification. This item raises a number of questions that still remain unanswered:

1) Why does it have to be two Directors, while only one is required in other jurisdictions?

2) How will their qualifications be proven? Will there be special registries and tests like in the Seychelles?

3) How many posts a Nominee Director can simultaneously occupy a resident of Belize? For example, in Jersey and Guernsey (British Channel Islands) there is a limit of 40 positions. In the Seychelles there is no formal limit, but the local regulator controls this manually, non-systemically and inconsistently.

The draft law, according to our information, contains another ambiguous norm, namely companies will have to indicate expenses in Belize. The sum will depend on the type of activity, Memorandum and Charter of the company. This item also requires clarification from the legislator, because now it is too vague.

Another problem point could be the new regulation on registering a bank account with a bank in Belize. If we consider that it is practically impossible for a foreign legal entity to do this now, then there are serious risks for the IBC.

The account must be opened in a Belizean Bank, as the state regulator will check the financial reports. Such an initiative is a bit excessive, because the OECD and FATF do not require financial audit of reports, since it will take a lot of time and resources from the Belizean government itself. Besides, are there enough free licensed auditors in such a small country?

Among the other innovations of this draft law the following are worth mentioning:

• possibility to hold the meeting of the Board of Directors via video link (teleconference);
• IBC must have a local arbitration clause;
• operation of a “succession regime”, i.e. new rules will be applied to new companies.

Amendments to other laws

In addition to such documents as the IBC Act of Belize and the Ring Fencing, Economic Issues and Grandfathering Issues Act, Belize intends to change other important acts by the end of this month. Among them, the key are the Company’s Act and the Business Company’s Act, which will be merged into one new document.

This decision seems to be logical, since Articles 250 and 270 of these laws overlap. The BVI authorities did so a few years ago and this step on the part of Belize was expected.

The regulator of Belize also offers to transfer operations to its own currency. Indeed, it is not yet clear whether it will constitite ‘currency of operations’ or it just will be the equivalent of accounting for book value. If this concerns solely the calculation of balance, it is unlikely to become a problem for foreign business.

Another important point is that the authorities declare a ‘policy of continuity’, when the new rules will apply to new companies, and the old firms will accordingly continue to work in the current regime. It is also allowed to establish a certain transitional period, but its timing is not clear. There are a lot of questions regarding this regime.

In addition, there is a number of vague tax rules in these draft laws. Thus, it is stated that the tax information of a company must be published. But it is not clear which information is to be made public and where exactly.

Companies will be able to avoid double taxation by choosing where to pay tax: in Belize or another country. In this case, those who choose Belize, allegedly, will be subject to taxation ‘at the maximum rate’. It is not clear yet in what manner it will be consistent with the territorial principle of taxation and whether exactly this principle will be introduced.

There are certain risks associated with, among other things, the need to demonstrate operating activity in Belize, possibly virtual. Violators are threatened with liquidation of their company.

Conclusion

It seems that Belize intends to follow the path of Panama and the BVI, making its jurisdiction more transparent to international regulatory organizations. This is done in order to comply with anti-money laundering standards and to increase tax revenues directly to the budget of Belize. If we consider that now this jurisdiction is in the ‘black list’, then the initiative will be regarded as correct.

At the same time, it is surprising that no practitioner has yet seen the draft itself, which is to be adopted before the end of December 2018. There was no public discussion with relevant experts and associations that can make the legislative initiative difficult for adaptation in real business. Lawyers of Law&Trust continue to monitor the situation in Belize and are ready to help clients as quickly as possible.
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