Belize - Economic Substance Act, 2019

Dear Client,

Based on the global standards on fair taxation and anti-money laundering promoted by the Financial Action Task Force (FATF), Caribbean Financial Action Task Force (CFATF), Organization of Economic Cooperation Development (OECD), and the European Union (EU), Belize has adopted the Economic Substance Act, 2019 (“ESA”) to ensure improved provisions for substantial economic presence to be fulfilled

by certain commercial entities (‘entity’) that are registered and conduct business in Belize.

Which entities will be affected?

The Act applies to commercial entities that are incorporated, licensed, or continued under:

a) International Business Companies Act (Chapter 270)

b) International Financial Services Commission Act (Chapter 272)

Which conduct relevant activities or are tax resident in Belize.

What activities are considered as relevant?

The Economic Substance Act states the definition of “included entity”. An “included entity” means:

a) An entity that carries out any of the following relevant activities:

I. Banking business;

II. Insurance business;

III. Fund management business;

IV. Financing and leasing business;

V. Headquarters business;

VI. Distribution and service centre business;

VII. Shipping business;

VIII. As a holding company, engaged, or where one or more of its subsidiaries is engaged in one of the relevant activities.

IX. All Regulated Entities under the IFSC Act

Test for Relevant Activity:

An entity that carries on more than one relevant activity must comply with the economic substance requirements and must satisfy the economic substance test which is:

A. Is the entity of a type that falls within the economic substance legislation?

B. Is it carrying on a relevant activity?

C. If it is carrying on a relevant activity is it resident for tax purposes in a jurisdiction outside Belize.

Only answers to (A) and (B) are affirmative and the answer to (C) is negative with the economic substance requirements apply to the entity. Legal entities that fall within the scope of Belize Law must notify their engagement agent in Belize of any relevant activities they carry on as well as certain other prescribed information.

Economic Substance Test

Subject to below, in order to meet the Economic Substance Test, a legal entity carrying on a relevant activity must:

· Conduct core income-generating activities (“CIGA”) in Belize;

· Be directed and managed in Belize; and

· Taking into account the nature and scale of the relevant activity, have:

- An adequate number of suitably qualified full-time employees;

- An adequate amount of expenditure incurred in Belize; and

- Appropriate physical offices for CIGA.

It is possible to outsource some or all of Belize CIGA provided the legal entity is able to demonstrate that it is able to monitor and control the outsourced activities and that those activities are undertaken in Belize.

The legal entity may be demonstrated Management and Control in Belize if it satisfies the following criteria:

· An adequate number of meetings of the board of directors are conducted in Belize given the level of decision making required.

· There is a quorum of the board of directors physically present within Belize during the meeting of the board of directors.

· Strategic decisions of the included entity made at the meetings of the board of directors must be recorded in the minutes of the meetings.

· All included entity records and minutes are to be kept in Belize.

· The board of directors, as a whole, has the necessary knowledge and expertise to discharge its duties.

REDUCED SUBSTANCE REQUIREMENTS FOR PURE EQUITY HOLDING COMPANIES

An included entity that engages in business as a pure equity holding company is subject to reduced substance requirements, as follows:

a) It shall comply with all applicable laws and regulations of Belize; and

b) It shall have adequate human resources and premises in Belize for holding equity participation in other entities and where it manages those equity participations in other entities, have adequate human resources and premises in Belize for carrying out the management.

Where a holding company engages in any relevant activity, that entity shall be required to satisfy substantial economic presence requirements in accordance with ESA in respect of the relevant activity conducted.

How can we help?

We are ready to assist you to bring your Belize companies in line with these new regulatory requirements.

Contact your Account Manager today for more information on this and for promotional prices on Belize companies.