The European Union Code of Conduct Group (Business Taxation) has warned the Government of Belize that the jurisdiction will be placed on the EU’s blacklist of non-cooperative territories unless it commits to amend or abolish certain tax rules considered “harmful.”
In a letter to Prime Minister Dean Barrow, dated February 1, 2019, the Code of Conduct Group said that it has identified the introduction of a new preferential tax measure, namely the exemption of foreign income, as harmful under the Code Group’s criteria for assessing potentially harmful tax regimes.
The letter points out that while the general income tax rate in Belize is 25 percent, international business companies and firms operating in a Designated Processing Area (DPA) are taxed at a special rate of three percent up to BZD3m (USD1.46m) and at the rate of 1.75 percent above this amount.
However, the letter also notes that under Sections 4 and 7 of the Income and Business Tax Act, income derived by IBCs outside of Belize is exempt from income and business tax. Furthermore, under Section 4 of the Act, income derived outside of Belize by companies operating in a DPA is exempt from income tax, with DPA companies also exempt from business tax.
The Code Group also found that, in general, the Income and Business Tax Act does not impose substance requirements for companies benefiting from the tax exemption.
The measures were assessed by the Code of Conduct Group at its meeting of January 30, 2019, and deemed to have similar harmful effects as the harmful regimes that Belize had abolished at the end of 2018.
“Against this background, we would welcome to receive a commitment at a high political level that Belize will amend or abolish this regime by December 31, 2019, without any grandfathering mechanism,” the letter states.
The letter informs Barrow that if such a commitment is made, the Code of Conduct Group will “not recommend to the Council of the EU to include Belize in the EU list of non-cooperative jurisdictions for tax purposes, as long as no other criteria have been failed.”
The Government of Belize was asked to respond to the letter by February 15, 2019.
The letter to the Belizean Government was one of six addressed to offshore territories by the Code of Conduct Group, which was reviewing progress made by territories on reforming potentially harmful preferential tax regimes. These jurisdiction were also warned that they will be placed on the EU blacklist if they fail to make the required commitments.