Accounting for Contract Withholding Tax A presentation by the Income Tax Department January 2014

1. Accounting for Contract Withholding TaxA presentation by the Income Tax DepartmentJanuary 2014 Sections 112-113 of the Income & Business Tax Act provides for a variety of withholding taxes including: Withholding Tax on Gross Contract Payments Withholding Tax on winnings, lotteries or prizes Withholding Tax on payment of dividends Withholding Tax on payment of professional fees, etc to a non-resident Withholding Tax on interest paid to a non-resident

2. Income Tax Department- Gross Contract Tax Withholding Section 112 of the IBTA Act provides as follows: 3% Withholding is to be made from Gross Contract Payments, without deductions This Withholding acts as a Credit towards Monthly Business Tax Liability The threshold amount for application is $3,000 The payer of the Contract has an obligation to withhold and, in default, becomes liable for the amount In addition, failure to withhold constitutes an offence, which will be pursued separately Sums so withheld in any month are to be paid in to ITD by the 15th day of the following month

3. Income Tax Department- Withholding from remittances to non-residents Section 113 (3) and (4) of the IBTA places a 25% withholding tax on payments to a non-resident for: Management Fees Professional or technical fees Rental of plant or equipment Insurance premiums Interest on loans (15%) Exceptions on loans for development industries and projects specified by Order from time to time. In the case of non-residents, the tax is assessed on the service element only.

4. Income Tax Department- Withholding from remittances to non-residents Special Treatment of payments to recipients resident in Treaty Countries: Special Treatment of payments to recipients resident in Treaty Countries: Austria United Kingdom Antigua & Barbuda Barbados Dominica Grenada Guyana Jamaica Saint Lucia St. Kitts & Nevis St. Vincent & the Grenadines Trinidad % Tobago

5. Income Tax Department- Withholding from remittances to non-residents An individual who is a resident of the United Kingdom shall be exempt from Belize tax on profits or remuneration in respect of personal (including professional) services performed within Belize in any year of assessment if: (a) he is present within Belize for a period or periods not exceeding in the aggregate 183 days during that year; and (b) the services are performed for or on behalf of a person resident in the United Kingdom; and (c) the profits or remuneration are subject to United Kingdom tax.

6. Income Tax Department- Gross Contract Tax Withholding- Jan. 2014

7. Income Tax Department- Gross Contract Tax Withholding “Contract” – agreement with any person, professional or entity for carrying out of works or services or supply of labor or materials in relation to the agreement. • Does not include “employment” arrangements • Can be written or oral • Does not include outright sales/purchases agreements (e.g. Do not apply to instances where a supplier supplies stationery, etc) • Includes a wide variety of services or works including accounting, legal, management services, plumbing, electrical, construction, brokerage, transportation, rent, etc • Not to be applied if the value of the agreement, or series of agreements within a year, is less than $3,000.00

8. Income Tax Department- Gross Contract Tax Withholding Common Exclusions to Withholding Tax Provisions Common Exclusions to Withholding Tax Provisions Royalty & Commissions payments to non-residents Payment of any valued added tax including general sales tax or accommodation tax (computation issue) Contracts for the Sale of Real Estate Director’s Fees are remuneration from employment and are to be reported on TD4s • Outright sale of products e.g. equipment, stationery, groceries, etc. • Payments to utility companies including BWS, BTL, SMART, BEL and also including other internet and cable suppliers • Payment of insurance premiums • Payments to Banks and Other Financial Institutions • Payments to the Government of Belize including Statutory Bodies, Local Authorities, etc of duties, taxes, licences, etc

9. Income Tax Department- Gross Contract Tax Withholding The Issue of “Conduit Receipts”- What is a Conduit Payment or Receipt? A conduit receipt is one where the payer has no contractual relationship with the payee. The payment is being made on behalf of a third party and the contractual relationship exists between the payee and the third party.

10. What are the implications for my business or firm??? Income Tax Department- Gross Contract Tax Withholding

11. Implications for Businesses- Contract Tax presentation Contract Withholding Tax becomes accountable to ITD similar to PAYE Where possible, customized accounting software should be amended to account for Contract Tax Persons engaged must supply a TIN or some other form of Identification including Social Security Number Payments to Non-residents attract 25% withholding tax Income Tax Auditors will be performing compliance audits, looking at accounts payable wef April 2014 Failure to withhold makes the firm liable for the tax and liable for legal complaint, as an offender

12. Income Tax Department- Gross Contract Tax Withholding The following forms are widely used to comply with Contract Tax Withholding requirements. They are available electronically on the Department’s website at incometaxbelize.gov.bz Form TD 25 Form TD 29 Contract information Request Letter

14. Income Tax Department- Gross Contract Tax Withholding- Jan. 2014

18. Income Tax Department- Gross Contract Tax Withholding

19. Income Tax Department- Gross Contract Tax Withholding Exceptions to the Withholding Provision: • EPZ Businesses • Any body representing a foreign country or having diplomatic status • All other persons or body of persons are liable • In certain circumstances, the withholding tax of 3% may be reduced by the Commissioner, after review of the case. In other instances, the Commissioner may agree to an increase of the withholding tax. Any such change should be evidenced in writing

20. Income Tax Department- Gross Contract Tax Withholding The Income Tax Department is ready to assist with answers to queries, demonstrations and presentations, where needed. Please contact the following persons for assistance: sherlette.augustus@itx.gov.bz Carol.baird@itx.gov.bz Lisa.mayen@itx.gov.bz Annisa.Perdomo@itx.gov.bz Kareem.Patnett@itx.gov.bz

21. Income Tax Department- Withholding from remittances to non-residents Thank You. Questions??