How U.S. tax law applies to Americans living in or investing in Belize
The tax advantages of moving to Belize are, if not self-evident, at least so widely expounded as to be easily found online. (Like here, for example). Less available, but just as important to American citizens living in or investing in Belize, is how U.S. tax law applies to their situation.
(Please note that U.S tax law is subject to change at any time, and that the following primer is intended to be informational only. Please consult with your lawyer or accountant for up-to-date information on how U.S. taxes apply in your situation.)
If you’re moving or have moved to Belize
As an American citizen, you are required to file an annual U.S. tax return and pay U.S. taxes on your income, regardless of where that income was earned or where you happened to be living at the time. That said, if you’re living outside of the United States, such as in Belize, you will likely qualify for special tax programs such as the “foreign earned income exclusion,” which allows you to earn approximately $100,000 per year (double that for married couples) without paying U.S. taxes.
If you operate a business in Belize
If you own or are in the process of launching a business in Belize, it’s often recommended to do so through a Belizean (or otherwise non-U.S.) corporation. That way you may be able to draw a salary that qualifies for the foreign earned income exclusion (mentioned above) and defer taxes on any income above $100,000 by keeping it within the corporation.
If you own a non-U.S. corporation
Many foreigners own real estate in Belize within a non-U.S. corporation (such as a Barbados IBC, as is the case with our Casa Bay Belize real estate offering). As an American, doing so can also often improve your U.S. tax situation. In this case, you must report ownership of the corporation on your tax return (IRS form 5471). If you own more than 50% of the corporation, you must also include a balance sheet and income statements. A small word of warning: the onus is on you to file this report, and failure to do so could carry a fine of up to $10,000 per year.
If you have a bank account in Belize
If you’re an American with more than $10,000 in a non-U.S. bank account, you’re required to file a “Foreign Bank Account Report.” Again, the onus is on you to file this report, which you’ll want to do since non-U.S. banks are required to report American account holders to the IRS. If the IRS determines you’ve failed to comply, you face fines of $10,000 per year or more.
Individual Retirement Accounts (IRAs)
Individual Retirement Accounts, or IRAs, are typically held by U.S. brokerage firms that then invest your money in American stocks, bonds and other investment products. However, you can convert your IRA to a “self-directed IRA,” which then allows you to invest in other assets, which could include real estate in Belize. If you do this, it’s important to note that the IRA – not you – owns the property, and that several restrictions will apply after the purchase, such as a restriction against you living or staying at the property (even for one night) or performing any work on the property yourself.
Investing in Belize, and indeed moving there, can be an ultimately rewarding and highly successful endeavor, and the rules and considerations above are by no means intended to scare you away from doing just that. Rather, they’re provided to get you thinking about how your investment in Belize – be it financial, lifestyle-related or a combination of both – affects your standing with the Internal Revenue Service.
Because the last thing you want ruining your new life in a Belizean paradise is an unexpected run-in with the IRS.