The US Taxation of Belize Income & Reporting

The US Taxation of Belize Income & Reporting

The United States taxes U.S. persons on their worldwide income. Therefore, when a person is either a U.S. citizen, Legal Permanent Resident, or Foreign National who meets the Substantial Presence Test, then they are subject to U.S. tax on their worldwide income.   When it comes to the IRS and U.S. Taxation of Belize income, there are several moving parts to be aware of.  Complicating the tax analysis with Belize is the fact that there is no income tax treaty, totalization agreement, or estate tax treaty between the U.S. and Belize.

When it comes to Belize and U.S. Income, the two main issues are:

• • • Taxation of Earned Income

    • Taxation of Pension and Investment Income

Let’s explore the tax consequences:

 U.S. Tax on Belize Income

Common forms of income, include:

• • • Employment and Consulting Income

    • Dividends

    • Capital Gains

    • Interest

    • Real Estate Income

    • Pension and Retirement Income

Employment and Consulting Income

The U.S. taxes U.S. persons on worldwide income. Therefore, if a U.S. person earns income that is sourced in Belize, they will be subject to U.S. tax on that income. Even if the income is tax-free or tax-exempt in Belize, it is generally taxable in the U.S.

Dividends

Dividends are Taxed as either Qualified or non-qualified, and it is a 2-part analysis:

In order to be considered “qualified”, dividends received must meet all three conditions:

• • • Dividends are paid by a U.S. corporation or a qualified foreign corporation.

    • The dividends are not of those are not qualified to be “qualified dividends”

    • The holding period requirement is met.

What is a Qualified Foreign Corporation

1. 1. 1. The (foreign) corporation is also incorporated in a U.S. possession.

      2. The foreign corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose, and that includes an exchange of information program.

      3. The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States.

Capital Gains

Capital Gains can be taxed as Short-Term or Long-Term.  In the U.S, Long-Term Capital Gain is capital gain for stock sales held for more than 1-year.

Even if the Long-Term rates are different in the foreign country of source, the LTCG rules would still apply.

Interest

Foreign Interest Income is taxed the same way that U.S. interest income is.

It is included and grossed-up into a person’s income, to arrive at their progressive tax rate.

Even if the foreign interest income is accruing in a Term Deposit or similar, the accrued, non-distributed earnings are included.

Real Estate Income

Foreign rental income can be confusing for taxpayers.

That is because it is reportable in the U.S. just as if it were U.S. rental income. Therefore, even if the taxpayer nets a loss after deductions are taken, the IRS requires the total income and expenses on Schedule E.

The IRS does allow depreciation (which is not permitted in many countries outside of the U.S.), which can help to reduce the overall tax liability.

Pension and Retirement Income

Pension is taxable and generally, both deferred contributions, growth, and distributions can be taxed since there is no tax treaty with Belize.

U.S. Tax Treatment of Belize Pension Income

As provided by The US SSA (Social Security Administration)

Social Security

• • • The pension is 30% of the insured’s average weekly covered earnings plus 2% of average weekly covered earnings for every 50 weeks of contributions exceeding 500 weeks, up to 750 weeks, and 1% for every 50 weeks of contributions exceeding 750 weeks.

    • Average weekly covered earnings are based on the insured’s best three years of earnings.

    • Early pension: Calculated in the same way as the old-age pension. The pension is suspended if the insured returns to work before age 65.

    • The maximum weekly earnings used to calculate benefits are B$440 (increasing to B$480 on January 6, 2020, and to B$520 on January 4, 2021).

    • The minimum weekly old-age pension is B$47.

    • The maximum weekly old-age pension 60% of the insured’s average weekly covered earnings.

    • Schedule of payments: The pension is paid every four weeks.

    • Old-age grant (Retirement Grant, social insurance): A lump sum of six times the insured’s average weekly covered earnings or 2.5 times the insured’s total covered earnings divided by the number of weeks of contributions, whichever is greater, is paid for every 50 weeks of paid or credited contributions.

    • Average weekly covered earnings are based on the insured’s best three years of earnings.

    • The minimum old-age grant is B$800.

    • Old-age social pension (Non Contributory Pension Program [NCP], social assistance, means tested): B$100 a month is paid.

Belize Pension 

As provided by the OECD:

• • • Qualifying conditions

      • Private-sector employees are entitled to retire with a full pension if they meet one of two conditions, retirement on the basis of length of contributions or on basis of age.

      • Retirement on the basic of length of contribution, at any age, is possible after having contributed to social security for 35 years for men and 30 years for women.

      • This option is the most common pathway to retirement for private-sector employees.

      • Retirement on the basis of age is 65 for men and 60 for women with a minimum contribution record of at least 15 years.

Belize Corporation

When a person owns a Belize Corporation, they may be subject to tax on the income, including Income Tax and GILTI. In addition, Form 5471 may be required as well — although it may be possible to disregard the entity unless it is a Public “Per Se Corporation.”

No Treaty, So Form 8833 is Unavailable

Form 8833 is for treaty countries. Since there is no treaty with Belize, there is no treaty position Form 8833 position to take. By not reporting the income that is immediately accruing on a U.S. Tax Return, it may lead to future penalties and interest. Depending on the size of the account, this may be substantial.

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