AmbergrisCaye.com Home Forums About Belize Nation Laws & Taxes Rental Condo Owners Being Fleeced

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

If you own a condominium, co-operative, or private home being managed by a management company for rental on an overnight basis to tourists, THIS AFFECTS YOU BEGINNING JANUARY 1, 2009.

When the current Business Tax law came into effect in 1998, whereby the taxation system changed to a tax on revenue instead of a tax on profit, several categories of revenue source were identified, each with its specific tax rate. The most widely applicable category is "trade or business" which applies to most business activity. This category has a current tax rate of 1.75%.

Another category is "rental revenue", for which the current tax rate is 3%. The Tax Department had defined this category as including rents from all commercial rentals as well as rents from all residential rentals, whether from long-term leases, short-term occupancies, or overnight rental to tourists as an accommodation (e.g., a hotel room). Those who filed tax returns, followed the rules, and did their accounting properly (often not done properly here) filed monthly tax returns and paid the 3% tax. Absentee owners who knew nothing of the tax laws here, and management companies who did not handle tax responsibilities for their clients, did nothing. Tax Department representatives, when visiting companies auditing compliance, gave various directives on how to report and tax revenues in these situations, and some of those directives were outright wrong, ignorant of underlying business structures, and stupid.

Meanwhile more recently, managers of those privately owned condominiums being used for overnight rental to tourists, particularly in multi-unit complexes, argued that the activity taking place was no different from that in a privately-owned hotel, and therefore unit owners' revenue should be taxed at the same 1.75% rate as applied to a hotel reporting in the "trade or business" category. This argument was logical and convincing to some Tax Department field representatives, and they began dispensing that taxation method as the method for reporting and taxing such rental revenues belonging to unit owners.

In fact, the distinction in support of this reversal of position, between revenues taxable at 1.75% and revenues taxable at 3%, was put into writing to the management company of a large, well known San Pedro multi-unit condominium complex being operated as a hotel. The result was that taxation advice dispensed by field representatives now directly contradicted taxation advice issued by the Tax Department's senior personnel as to rental revenues of properties rented as overnight accommodations to tourists.

Over the past 18 months, because of this change of position based in the letter, many tax returns were changed, claims for refund were filed, Assessments were issued, letters rejecting the Assessments were sent, Demands for Payment were issued, more rejection letters were sent, and letters (3) were sent to the Income Tax Appeals Board requesting a hearing to resolve the conflict. In addition, my office sent letter after letter to the Tax Department explaining the situation, showing their contradictions, and demanding a resolution. Nothing happened and no Appeals Board hearing was ever scheduled.

The effect of this (contradictory) change in taxation category is not solely the rate decrease from 3% to 1.75%. It is that the 1.75% rate category carries an annual revenue exemption breakpoint of BZ$75,000, under which no tax is payable. Most condominium owners do not receive revenue over BZ$75,000 annually from rental of their unit to tourists, so most have no tax obligation when placed into this taxation category. (For true "rental revenue" taxable at 3%, the revenue exemption breakpoint is BZ$800 monthly, so most all rentals qualify for being taxable.)

Now, as of January 1, 2009, the Tax Department has settled that the 1.75% rate is appropriate for revenues from "accommodation" rentals, essentially meaning revenues derived from a rental activity based on a hotel license, where a hotel tax is being collected and remitted. And it has directed that all such revenues belonging to individual unit owners be aggregated and reported in the tax return of the management company. The revenue exemption breakpoint will be exceeded once all revenues are combined and tax will be paid at the 1.75% rate, then that tax will be allocated back to the bookkeeping accounts of each applicable unit owner. So unit owners will now, in effect, pay tax on revenues that were previously exempt from taxation.

Many management companies will stumble over implementing this new procedure, and chaos, confusion, and improper applications will undoubtedly result for several months ahead.

Personally, I concur with the final settlement on use of the 1.75% rate and its basis as being for "accommodation" rentals. But I strongly believe it to be fundamentality wrong to take tax information applicable to one taxpayer (an individual rental unit owner) and report it in the tax return of another taxpayer (the management company), with a resulting tax payment that would not occur if the individual taxpayer is in compliance with existing tax law as to his own taxable position. Perhaps only some enraged individual taxpayer bringing a legal action against the Government of Belize over this flawed taxation theory can correct this situation.

Further information about this subject can be obtained by contacting D. Michael Fox at 226-2622 or [email protected], or by visiting Fox Business Services, Island Plaza, Barrier Reef Drive.

Of course if each overseas property owner were to set up their own TIN then somebody would have to be hired to oversee their filing etc. etc. which would be an additional cost that no doubt would add up to the same dollar expense at the end of the month. And if anybody familiar with the tax dept here they will admit that the tax dept constantly send out assessments that are mistakes within their own report system, but you have to deal with it which takes your (or your hired agent) a few hours each month to refute.

So, stick with your existing property management company and continue with the same system you have been operating under for months or years.... or shake it all up and hire an accountant to do it his/her way - which doesn't result in any savings when you look at your bottom line.

Hands up anybody that feels like taking on the GOB tax dept to lobby to change the rules - even though it will still end up costing you one way or another?

I prefer to live with a less complex system and certainly don't wish to spend the next few years wrangling with the tax dept over the right to be assessed correctly - even though I still end up with the same money in my pocket at the end of the day.

I like the Cuba model. Less paperwork.

The Cuba model - give it all to Fidel?

I just received a call from the tax office. I'm told that all BTB hotel licenses for less than 10 rooms are to pay 3% Business tax with no exemption, and BTB lic holders with more than 10 rooms pay 1.75%.

I'm sick and tired of hearing 10 different opinions from 10 different people in that office. Does anyone know where I can find the actual 'law' in writing?
I was told it was going to be sent to me, but I know how that goes...

I had seen the 3% tax is levied on long term (6 months plus) rental properties in the Business tax legislation - but since you have a BTB license I thought you would be assessed at the 1.75% rate. You are collecting the 9% (or whatever it is now) hotel tax right?

If it is law it is gazetted.

Thats what I had always thought. I had been approved for a refund because I fell under the 75K exemption but now that it is time to write the check, someone else says I should be paying 3% because I have less than 10 rooms. I'm running around in circles with these people and want something in writing before I pay ANYTHING!

Maybe you should talk to Wilfred Rhaburn - he can probably get to the bottom of this.

Is the payment business tax? If it is you can also arrange to meet with the commissioner - just go straight to the top.

I see this is an old thread but I'm wondering if someone could give me some advice regarding non-resident rental income taxes in Belize?

I'm interested in buying some land on Ambergris Caye and building a property that will be offered as self-catering holiday rentals. I plan to have 3 rooms available that are run by a manager. I also do not want to register a business. My question is if the 1.75 - 3% business tax is the only tax applicable or if the 25% income tax is also applicable on top of the business tax?

Thanks for any advice.

To be legal you must register as a business, and have a TIN ( tax ID number).
You will need a trades license if you are on AC, and a hotel license for short term holiday rentals.
Resident or non resident status does not change the tax rate.
Suggest you contact a qualified accountant for details, or obtain booklets explaining taxation from the various tax offices.