As an offshore tax haven, foreign currency accounts are becoming increasingly popular in Belize for not only foreign investors but also non-nationals migrating here. Belize is the only English-speaking country in Latin America and its laws are widely based off British law, making the process of operating offshore accounts here very easy for those moving from North America or others simply investing from abroad.
Belize’s IBC Act, Trust Act and Offshore Banking Act all include provisions to protect the assets and maintain the privacy of international investors. However this does not mean that there aren’t still some drawbacks to banking offshore in Belize. Here we outline how the IRS may tries to enforce tight offshore compliance regimes, as well as guidelines so you can maintain your compliance while banking in Belize.
Tax Drawbacks of Offshore Banking
Belize offshore banking is completely legal when done in compliance with the laws of the jurisdiction. However, because many illegitimate businesses have been trying to cover illegally obtained monies offshore, the IRS has strict offshore compliance regimes in place for every American banking offshore in Belize.
In order to bank in Belize freely, you need to ensure that you are accurately reporting all your non-US financial assets every year to the IRS. Any American with more than $10,000 in one or more offshore bank accounts at any time in a given year needs to file a Foreign Bank Account Report by the end of June in the following year. Also, any Americans with non-US obtained financial assets that exceed a specific threshold amount must also send in an IRS Form 8938 with their tax return each year. Below are the given thresholds.
- $50,000 for single Americans living in the US
- $200,000 for single Americans living Abroad
- $100,000 for married Americans living in the US that file joint returns
- $400,000 for married Americans living abroad that file join returns
Should you fail to provide these declarations, you may face penalties of up to $10,000 a year for accidental violations, and up to 50% of the offshore account balance per year for willful violations.
Although Belize offshore institutions maintain the privacy of their account holders, they must report all their US account holders to the IRS based on the FATCA (Foreign Account Tax Compliance Act) regime which could present non-compliant institutions with a 30% withholding tax on certain US source payments. Because of FATCA, many offshore banks have refused to conduct business with Americans. Luckily, this is not the case with Belize where all banks are FATCA compliant.
Tax Benefits of Offshore Banking in Belize
Americans that form businesses in Belize and comply with all their annual reporting requirements can eliminate their US tax bill in its entirety. By operating your Belize company through a non-US corporation, you defer all US taxes from being imposed on the profits of the company. As long as there is no business being conducted within the United States, the IRS cannot inflict any taxes on the company’s earnings.
However, Americans must still file an IRS Form 5471 in order to report your ownership of the business stock. If you own more than 50% of the company stock, you must also provide an income statement and balance sheet with the IRS Form 5471.
For Americans that want to move to Belize and be exempt from US taxes, you can apply for Foreign Income Tax Exclusion (FEIE), which relieves you of any taxes on up to $100,000 of income including those from your own company. To qualify for this, you must satisfy the Physical Presence Test (stay outside the US for 355 days within a 12-month period) or the Bona Fide Residence Test (establish residence in Belize for an entire tax year). You can claim Foreign Income Tax Exclusion by attaching a completed IRS Form 2555 with your annual tax return.
As always, research is necessary before any big investment venture. Be sure to contact a US tax specialist to ensure all the proper IRS filing is done, and get help from qualified Belize attorneys and offshore services providers.
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