Offshore Trusts
Destination: Belize
Ruins, rainforests, reefs, recreation, and reformed law pertaining to asset protection and offshore trusts directed at U.S. and Canadian nationals will turn Belize into a destination of choice for asset protection and retirement in the coming decades. The small Central American nation was rated as one of the top ten retirement locations in the world based on safety, stability, healthcare, and climate.
Belize is located just south of Cancun and Cozumel, Mexico and hugs Guatemala on its western border. During the last two decades, numerous archaeological projects have revealed that Belize was the home for some of the earliest Mayan settlements in Central America. The inner coastal waters are sheltered by the world's second largest barrier reef (180 miles) lined by 200 islands, atolls, and islets called "Cayes." The most popular is Ambergris Caye and its town of San Pedro, a settlement with roads of packed sand, quaint restaurants and shops, and diving and snorkeling opportunities. It is open to tourism and without the pan handling seen in come Caribbean islands. Belize, once called British Honduras, remains today a member of the British Commonwealth of Nations after achieving independence on 9/21/81. From A.D. 300 to 900, as many as one million Maya individuals are estimated to have occupied the region. In 1502, Columbus sailed the Bay of Honduras but did not land. The first European settlement was created in 1638 by shipwrecked British sailors. Pirates came later. Afterward, it became a logwood cutting center, and the wood was used to make red dye (those British red coats). Today, there are about 250,000 Belizeans. Britain maintained claim to Belize over objections from Spain and later Mexico and Guatemala after their independence in 1821.
In 1954, a nationalist movement obtained universal suffrage and a new constitution. The country's name was changed in 1973. In 1981, Britain agreed to independence. Still struggling with an identity to attract U.S. and Canadian citizens, Belize is destined to become a location of choice for retirement and asset protection planning. Offshore asset protection trusts, if structured properly in a foreign nation, can shield business and personal assets against creditors, litigation, and even divorce. If created too close to a suit, transfers could be deemed fraudulent. If established early, they will be outside any fraudulent conveyance act, which usually has a one-year look back period.
The concept of asset protection trusts harkens back to the original "legal fiction" that resulted in the creation of trusts under British common law. The "doctrines" or "statutes" of "uses" in England during the 13th, 14th and 15th centuries were used to solve a variety of problems, including providing accommodations for Franciscan Friars whose vows of poverty did not permit the ownership of property. The "use" (now "trust") mechanism became increasingly popular because it allows a beneficiary to avoid the consequences and liability of ownership while enjoying the benefit of possession.
Trusts have been praised as devices for reforming the law and condemned as devices for avoiding legal policies. The flexibility of trusts is such that they, particularly in modern times, are as unlimited in purpose as a lawyer's imagination. It has been advised that offshore trusts should be created in an independent, and not a dependent, territory of any high tax country. In the Caribbean, thus, Belize, the Bahamas, and Panama would be preferred over the British Virgin Islands, the Caymans, or Turks and Caicos Islands.
Offshore trusts are often used in conjunction with a foreign corporation. U.S. citizens have to be careful when establishing such trusts because of the excise tax imposed on transfers to foreign entities. The settlor will usually be taxed on the income. Every U.S. person who creates a foreign trust must complete an informational return under IRC Sections 6048(a) and (b).
THE BELIZE IBC ACT OF 1990
In 1990, Belize established its International Business Companies Act (IBC) and moved itself to become one of the leading offshore jurisdictions by incorporating features adopted in Hong Kong, Panama, and the Cayman Islands. Among these features are:
1. Complete tax-free status with only one shareholder required.
2. Shares may be held by corporations in trusts.
3. A single director is allowed.
4. Non-disclosure of beneficial owners.
5. Bearer shares are allowed.
6. No requirement to keep accounting or auditing records.
7. No minimum capital requirements.
8. Restrictions include a requirement that no real estate may be owned by the company and it cannot conduct business with residents of Belize.
The Belize Trust Act of 1992
The Belize Trust Act is a refinement of the laws enacted in other Caribbean countries for offshore trusts. Trusts can be established by oral declaration or written instruments. If they involve Belizean property, they must be in writing. The trusts are highly secure as no Belizean court can set aside or vary a Belizean trust. A Belizean court cannot honor any claim of a foreign country that arises because of a judgment beyond Belize's borders.
The settlor may be (but should not be) the trustee and protector. Spendthrift trusts are allowed and the maximum duration is 120 years. (While the trustee may be the protector, it is advisable that the settlor not act as trustee and if he or she does, not to also act as protector.)
Trusts may have severable provisions governed by laws of different jurisdictions. The rule against perpetuities does not exist. The trusts are completely tax free provided that neither the settlor nor the beneficiary are residents of Belize during that tax year. A fee of $100 is required to register the trust.
BELIZE TAX-FREE OFFSHORE BANKS
Pursuant to the Offshore Bank Act of 1996, Belize allows tax-free offshore banks. The law was designed to allow the creation of a tax-free financial institution capable of taking deposits from the public, making loans, conducting stock brokerages, mortgage lending, savings accounts, providing CDs and foreign exchange, and creating credit cards and e-cash services. It is considered a select means by which to establish a bank.
Among the advantages are no Belize taxes and no capital gains tax. A minimum of one shareholder is required and at least two directors must be Belizean. An annual report must be submitted to the central bank.
A class "A" bank may conduct any type of banking and can maintain standards anywhere in the world. The minimum capital is $3,000,000.
A class "B" bank acts as a treasury or an associated group of individuals or companies. The minimum capital is $1,000,000.
CONCLUSION
The U.S. Department of State has reported that the fact that Belize is heavily dependent on imports, international borrowing, and foreign investment has resulted in careful scrutiny of the availability of hard currency by the U.S. It also, however, reports that offshore trust and banking services show significant potential for growth. The Department of State especially stressed the 1996 complement to the Bank Act and the creation of the Money Laundering Prevention Act designed to prevent related illegal spin-off enterprises in Belize.
*This article was originally published in the Journal of Asset Protection and has been updated as of December 2009.
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