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#323086 - 02/09/09 03:32 PM New column launched, $ & $en$e by D. Michael Fox
Marty Online   happy
New Column Being Launched
By D. Michael Fox, CPA, CFE, FCPA, CBM
011-501-226-2622, HYPERLINK "mailto:foxcpa@btl.net" foxcpa@btl.net

Politicians love announcing new programs to improve the living and working conditions of Belizeans (and the rest of us calling Belize home). Programs for housing. Programs for roads and infrastructure improvements. Programs to promote and expand tourism. Programs to improve health care. Programs to enhance education. Ra-ta-ta-ta-ta . . . . .. . .

Particularly at election time, these promises of a new world and new direction are spewed with confidence by all political parties. And they are accepted as possible by the voters, usually with little examination as to how those promises can be funded and fulfilled.

It has been my observation that many of these political promises become reality only through the infusion of new funding into Belize. In other words, funds raised by Government through various forms of taxation – particularly the business tax and the general sales tax , plus import duties – pay for the basic services rendered by Government, but these alone cannot provide funding necessary to launch and to support the programs promised.

That means, if these programs promised to the people are to be enacted, that Government has to obtain the funds from either, or both, of two sources:
Borrowings which require repayment.
Grants which need not be repaid.

The purpose of this new column, to appear sporadically when warranted, is to make note of these new borrowings or grants as they are made public. For borrowings, the loans must be repaid and the column will set forth the repayment terms and conditions. These are obligations against the future and must be taken seriously to protect Belize’s stature in the global community.

For grants, the underlying observation must be based in knowing the source of the funding and asking what might be motivating that source to give money to Belize – a small, developing country that has been ranked, along with others, as having an unusually high level of corruption.

Whatever material appears in this new column will be obtained from public sources – typically the Government Gazette publication and Belize newspapers. I have no sources of insider knowledge or perspective feeding me material. Comments, observations, or information sent by readers will be welcomed and appreciated.



Edited by Marty (02/09/09 03:34 PM)

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#323087 - 02/09/09 03:32 PM Re: $ & $en$e by D. Michael Fox [Re: Marty]
Marty Online   happy
$ & $en$e

Business Tax Law Changes January 1, 2009

By D. Michael Fox, CPA, CFE, FCPA, CBM

Act No. 16 of 2008 titled Income and Business Tax (Amendment) (No. 2) Act, 2008 has been passed effective January 1, 2009. The Act does not so much enact new tax rates as it further codifies tax rates and definitions already in practice – most of which have not been publicly announced and have been unilateral decisions made by the Commissioner of Income Tax following the last change in tax rates effective March 1, 2005 (in Act. No. 6 of 2005).

The rates of tax have not changed for most categories of taxpayers.
Trade and Business, Domestic Airlines, Insurance companies are still 1.75%.
Professional Services is still 6%.
Radio, Television, and Newspaper and Fuel sold by Service Stations are still .75%.
There is still the same two-rate structure for Commissions, where the rate is 15% but drops to 5% if Commissions are less than $25,000 per year. (Monthly compliance using the proper rate is difficult here, and taxpayers are often aggravated by erroneous assessments issued by the Tax Department using only the 15% rate. The Department advises paying at 15% to avoid being underpaid, but this can result in an overpayment and refunds are often hard to obtain.)
Royalties, discounts, dividends and winnings from lotteries, slot machines and table games is still 15%. (Note that dividend payments are taxed at 15%, a taxation category overlooked by many businesses when its owners withdraw profits without thought to the nature of the withdrawal – as salary or dividend.)
Institutions licensed under the Banks and Financial Institutions Act are still 15%, but there are two exceptions, which are mentioned below.
Real estate broker and agent commissions are still 15%.
Management fees, rental of plant and equipment, and charges for technical services, when paid to a non-resident, are still 25%. (If paid to a resident, the rate is the applicable rate of the payee.)

Now let’s look at the changes, and discuss a few which affect many taxpayers.

If a financial institution falls within a “PIC Group” as defined in the International Business Companies Act, the tax rate has increased from 8% to 12%. If the business activity is a unit trust governed by the Banks and Financial Institutions (Unit Trusts) Regulations, then its tax rate is 6% (which is a new category of taxpayer).

Receipts of entities providing telecommunication services are having their tax rate increased from 19% to 24.5%. (When a business gives nearly ¼ of its revenue to taxation and is still profitable, are its charges to customers considered too extreme and monopolistic?)

Gross earnings of casinos or licensed gaming premises or premises where the number of gaming machines is more than 50 are to pay tax at the rate of 15%. Nothing in the Act addresses revenue taxation when the number of gaming machines is 50 or less. So can it be presumed that no tax is payable under this threshold? (A representative of the Tax Department told me the rate is 1.75% as a customary trade or business, but the Act does not say that and he admits being unclear. My advice to any taxpayer in this situation is to be aggressive and point to the Act itself as your basis for not being taxable on these revenues.)

Taxation of casino and gaming revenues has had an interesting and usual history. When originally enacted as a separate category in 2005, the tax rate was 15% (and there was no exemption based on number of machines). In mid-2008, I noticed that the tax rate for this category appeared on monthly Business Tax forms as 4%, and I had other forms which showed the rate as 15%. No change in the law had been passed changing this tax rate, so I wrote the Tax Department as to this “error” in printing tax forms, and its August 2008 reply said the rate had been reduced in September 2006 by “administrative action”. Without a change in the tax law supporting this reduction, I challenged the authority of the Commissioner in implementing any change of rate and asked to be shown where such an action was authorized by law. No reply was ever received. So now the original tax rate (but with the exemption) has been reinstated to its original 15% rate. (And the Commissioner has “retired” – a new one is not yet named.)

When business tax rates were changed by Act No. 6 of 2005, a category of taxation appeared called “Real Estate Business”, with a tax rate of 15%. Articles in newspapers (and a speech by the Prime Minister) about the rate changes discussed this as applicable to real estate brokers and agents, but there was never a stated definition of what constituted a “real estate business”. Shortly thereafter the Tax Department began to apply the 15% rate to developers (for sales of lots, condominiums, cooperatives, etc.), and much controversy and outcry ensued. I, among others, wrote to the Tax Department setting forth the argument why developers were never meant to be included in this category. I also set forth a number of examples of activities by other businesses (architects, contractors, attorneys, accountants, surveyors, etc.) which were not directly in the “real estate business” but whose activities either directly or indirectly related to the “real estate business”, that were being taxed in other rate categories. Subsequently, the Tax Department withdrew its effort to tax developers at the 15% rate.

With this new Act effective January 1, 2009 the category of “Real Estate Business” is expanded into several subcategories, with rates applicable to each. But, as stated at the outset of this article, this is simply an official codification of what has been applied in practice since the controversy in 2005 and is not an implementation of new rates. There are now two rates and several definitions of taxpayers comprising the “real estate business” category. They are:
15% - Commissions of real estate brokers and agents.
1.75% - Real estate sales, developers, condominium owners, fractional interests, time share operators, share transfer sales, and long term leases.
Although seemingly simple, there remain uncertainties, and a representative of the Tax Department admits being unclear.


Generally, this seems to now clarify that revenues from sales of subdividing land parcels into lots, condominiums (titles), cooperatives (shares), fractional interests and timeshare interests by developers are all taxable at the 1.75% rate. Essentially, they are taxed the same as a “trade or business” but are defined in the category of “real estate business”.

What remains troubling is what is meant by revenues from “condominium owners” included in the same phrase as “real estate sales, developers, condominium owners and fractional interests”.
I have written the Tax Department seeking clarification and am awaiting a reply. (There is an existing unresolved controversy - resulting from directly contradictory advice dispensed by the Tax Department and its representatives - over the taxation rate for revenues of condominium owners whose units are placed in a rental pool for overnight rental to tourists. Requests have been filed with the Income Tax Appeals Board to clarify whether the tax rate is 3% as “rental” or 1.75% as a “trade or business” [with the applicable $75,000 revenue exemption level for “trade or business” activity]. Perhaps the presence of the term “condominium owners” in this subcategory is an {awkward} attempt to resolve this issue and to place the tax rate at 1.75% for such rental activity. This remains to be seen.)

Another uncertainty in this subdivision of “real estate business” is the subcategory “long term leases” being taxed at 1.75%. In the “rental revenue” category being taxed at 3%, there is an exclusion for receipts from the “real state business”. But when are rental receipts from activities as a “real estate business” and not from activities as a “real estate business”? Further, is there some important distinction here in use of the term “long term leases” and, if so, what constitutes a long term lease and what is the distinction for tax rate categorization purposes? This is also part of my writing to the Tax Department seeking clarification, for which I’m awaiting a reply.

Not to be overlooked is a provision in the Act stating that any payment of a royalty or commission to a non-resident requires a 15% tax withholding deduction, which is to be remitted to the Tax Department. This could have a major impact on hotels and airlines receiving bookings from travel agents based outside Belize. Irrespective of the fact that usually funds flow to the Belize company through the agency, these commissions are still considered paid to the non-resident agent by the Belize entity and, seemingly, should now have a 15% tax calculated and remitted to the Tax Department, the same as other withholding taxes (at 15% and 25% rates) on payments to non-residents. Here too, I’m awaiting clarification from the Tax Department.

Finally, the Act states that those making payments to contractors will be penalized 10% of the amount not withheld if the payor does not withhold 3% (1/2 the tax rate for contractors) from gross contract payments made to contractors and remit that amount (using Form TD25) to the Tax Department by the 15th of the following month.

For those impacted by these uncertainties, stay tuned. There seems more to come.

Further information about this subject can be obtained by contacting D. Michael Fox at 226-2622 or HYPERLINK "mailto:foxcpa@btl.net" foxcpa@btl.net, or by visiting Fox Business Services, Island Plaza, Barrier Reef Drive.


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#323088 - 02/09/09 03:36 PM Re: $ & $en$e by D. Michael Fox [Re: Marty]
Marty Online   happy
$ & $en$e

Burdensome Severance Pay Changes Likely

By D. Michael Fox, CPA, CFE, FCPA, CBM

The Cabinet has issued a directive to the Ministry of Labor to review the labor laws, with a view to identifying those provisions considered most critical to the welfare of workers. The following areas are said to be under review especially:
Severance pay provisions.
Hours of work.
Payment for overtime.
Payment for holidays.
Oral contracts of service.
The most significant amendment being proposed is the one regarding severance pay provisions.

The Belize Chamber of Commerce and Industry has been tracking this development and providing periodic reports to its members. An update sent in late January suggests that changes are indeed coming and they could be enormously damaging to businesses with a large employee base of long-term workers. For those affected, take notice, be aware, and be proactive in your position against these changes.

The current law and the proposed changes as to severance pay are the following:

Service of 10 Years or More
A. Where a worker who has been continuously employed by any employer for a period of 10 years or more retires on or after attaining the age of 60 or on medical grounds (or death), he shall be paid a severance pay of 1 week’s wages for each year of service.

The proposed amendment is to pay 5 weeks’ wages for each year of service. (This might be compromised at 3 week’s wages, but is still significantly greater than current law.)

B. For the worker with a minimum of 10 years continuous service who resigns his employment, the current severance pay requirement is the same as in A. above – 1 week’s wages for each year of service.

The proposed amendment is to pay 3 weeks’ wages for each year of service.

C. If the worker with a minimum of 10 years continuous service is terminated due to redundancy, the current severance pay requirement is the same as in A. above – 1 week’s wages for each year of service.

The proposed amendment is to pay 3 weeks’ wages for each year of service.

Service of 5 – 10 Years
D. If the worker who retires or leaves on medical grounds has over 5 but under 10 years of service, there is currently no severance pay requirement.

The proposed amendment is to pay 3 weeks’ wages for each year of service.

E. If the worker who resigns has over 5 but under 10 years of service, there is currently no severance pay requirement.

The proposed amendment is to pay 2 weeks’ wages for each year of service.

F. For the worker who is terminated has over 5 but under 10 years of service, the current severance pay requirement is 1 week’s wages for each year of service.

The proposed amendment is to pay 2 weeks’ wages for each year of service.

The above proposed amendments can be restated from categorization by years of service to categorization by means of employment cessation as follows:
A. Redundancy/Termination Either Side
5 – 10 years of service: 2 weeks’ wages for each year of service.
10+ years of service: 3 weeks’ wages for each year of service.
B. Retirement/Illness/Death
1. 5 – 10 years of service: 3 weeks’ wages for each year of service.
2. 10+ years of service: 5 weeks’ wages for each year of service.

Typically, the severance computation using weekly wages uses the weekly wage at the time of employment cessation. This is not likely to change (to an average, for example).

Not only are these severance provisions important liabilities for ongoing companies, which could increase dramatically under the amendments being proposed, but these liabilities become extremely significant in transactions where a business is undergoing a change of ownership. Unsuspecting purchasers (particularly those not being guided by professionals representing their interests) can find themselves assuming huge payment obligations to long-term employees who “come with the deal”. Whereas the experience, knowledge and know-how these employees bring to the new owners is a good thing, the financial obligation coming with that employee is a bad thing.

If these proposed amendments become law, the immediate impact will be that companies will have to increase their severance pay liabilities being accrued for employees with over 5 years of service, with a resulting charge to expense and reduction of profits. The cash impact will come later, as each affected employee leaves the company’s employment. In addition, as each existing employee with less than 5 years of service attains the 5th year, significantly higher severance pay obligations will need to start being accrued.

Further information about this subject can be obtained by contacting D. Michael Fox at 226-2622 or foxcpa@btl.net, or by visiting Fox Business Services, Island Plaza, Barrier Reef Drive.


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#323234 - 02/10/09 03:16 PM Re: $ & $en$e by D. Michael Fox [Re: Marty]
AdvantageRealty Offline
Thank you.
_________________________
Chris Burkey
Real Estate in Belize blog

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#323240 - 02/10/09 03:49 PM Re: $ & $en$e by D. Michael Fox [Re: AdvantageRealty]
beachbumin Offline
Could be real expensive in light of how businesses are already struggling to stay afloat. So someone that has 10 years of service will be paid 50 weeks of severance. Unreal. Who dreams this stuff up?

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