GST and the Sanctuary Belize Homeowner

Introduction:

Belizean General Sales Tax (GST) is a consumption tax that is like the US sales tax, but it is collected at each step of the distribution chain.  The current tax rate is 12.5%.  Ultimately, it means that every consumer in Belize will pay an additional 12.5% tax on almost every product or service that they buy.  For the SB homeowner, it means that from the purchase of their lot to the final construction of their home, the 12.5% tax will need to be added to their costs and paid by the homeowner.  Once the homeowner moves to Belize, all services and products, with a few exceptions for basic food items, will have the GST added to the final bill.  The GST is also added to all imported items at the time of importation and is assessed on the landed cost of the item in Belize.  That means that GST is calculated on the cost of the item plus transportation and insurance costs as well as on any duty that is paid to import the item.  Importation of goods is the only time that the end buyer actually pays the GST directly to the government.  In all other cases, the GST is collected by the seller of the goods or services (i.e., the builder) and then forwarded to the GST government offices on a monthly basis.

How GST Works:

The cornerstone of the GST law is the “Registered Person.”  Any natural person or legal entity that sells or supplies goods or services of $75,000 Bz or more per year must register with the GST authorities.  Only a person that has registered with the Belize tax authority and has received a Tax Identification Number (a “TIN”) can become a Registered Person.  However, merely having a TIN does not mean that the company has also registered with the GST Department.  Think of the “Registered Person” as the same as the seller of any goods or services.  This includes subcontractors that provide labor or materials to a builder, the builder that charges the homeowner for building their home, the lawyer that provides legal services and the architect that designs and draws plans for the home (so long as the architect resides in Belize.) 

                                                                                                                                       


Small businesses do not collect
or pay GST

ONLY REGISTERED PERSONS MAY CHARGE GST ON WHAT THEY SELL.  It is against the law for a person that is not a Registered Person with the GST Department to charge the buyer with GST.  Thus if the final buyer, i.e., the homeowner, purchases goods or services from anyone that sells less than $75,000 per year in their business, the owner does not have to pay GST on such goods or services.  That is because the only way the government can collect the GST (other than from imports) is from a Registered Person.  This is very important in the whole GST scheme.

GST works very similar to VAT taxes found in Canada, the UK and Europe.  This type of tax system taxes each step of the distribution chain and gives each registered person a credit for GST that they have paid while requiring them to collect GST from everyone to whom they sell their goods or services.  Let’s look at a simple example. 

Step # 1 – import of goods:  Wholesaler imports a ceiling fan that costs $100 in Belize after paying the purchase price, transportation and duties on the fan. 

            Cost = $100
            GST paid to Gov’t.  = $12.50
            Total Buyer’s Cost = $112.50
            GST Credit to wholesaler = $12.50
 

Step #2 – Wholesaler sells the fan to Benny’s Hardware Store:  Wholesaler marks up the fan $20.00 and sells it to Benny’s.

 Cost = $120.00 ($100 cost + $20.00 markup)

             GST =  $15.00 ($120.00 * 12.5%)
             Total Buyer’s Cost = $135.00 (Cost + GST)
             GST to be paid by the wholesaler to the government = $15.00 - $12.50 (Credit for
                                                      previously paid GST) = $2.50
             GST Credit to Benny’s = $15.00
 

Step #3 – SB Builder buys the fan for installation in home:  Benny’s marks up the fan $60.00 and sells it to SB Builder for installation into a home it is building for an SB Homeowner.

 

Cost = $180.00

            GST =  $  22.50
            Total Buyer’s Cost = $202.50
            GST to be paid by Benny’s to the Gov’t = $22.50 - $15.00 = $7.50
            GST Credit to SB Builder = $22.50

 Step #4 – SB Builder charges Homeowner:  SB Builder pays a subcontractor $20.00 to install the fan.  SB Builder has a 15% fee for building the home.

 
              Cost of Fan = $180.00
             Cost of installation = $20.00
             Builder’s Fee = $30.00 (15% 0f the $200 total cost)
             Total Cost = $230.00
             GST = $28.75 (12.5% * $230.00)
             Total Homeowner’s Cost = $258.75  ($230.00 cost + $28.75 GST)
             GST to be paid by SB Builder to Gov’t = $28.75 - $22.50 = $6.25
 

In the above example the government has received total GST of $28.75; however it received it incrementally from the day the fan was imported until the final sale to the homeowner ($12.50 upon importation; $2.50 in sale to Benny’s; $7.50 in sale from Benny’s to SB Builder and $6.25 from SB Builder when sold to Homeowner).  The SB Builder paid a total of $28.75 in GST (the $22.50 GST he paid when he bought the fan from Benny’s plus the $6.25 of additional GST he paid directly to the government when the fan was sold to the homeowner.)  But the builder recovered this total GST cost from the homeowner when he sold the fan to him and collected the $28.75 in GST from the homeowner.  The homeowner paid GST of $28.75 plus the cost of the fan installed by the builder of $230.00, for a total cost of $258.75 for the fan.

 From the above example one can see how the GST tax falls upon the end buyer and that while each intermediary owner of the fan collected and paid GST to the government, when they sold the fan they recovered all the GST that they had paid by passing the obligation to collect the GST tax to the next entity in the distribution chain.  Thus none of the intermediaries paid any tax on the fan; they only collected the tax from the next buyer and passed the net amount owed along to the government.  That is why GST is considered a consumption tax that is paid by the end buyer.  However, if the seller of goods or services charges GST when it is not supposed to  or did not pass it along or did not collect the GST when it was supposed to (for example, it was supposed to be registered but wasn’t), then there can be serious legal problems for such a seller with the GST Department.  But that is not an issue that the consumer needs to worry about since it is between the seller of goods or services and the Belizean government.

 
GST Taxable Items:                                                                                             
 
The Belizean tax law uses the term “Supply” when defining what is taxable.  “Supply” really means all the goods and services that are provided by a registered person to another in the course of business.  There is no GST owed on goods or services done between individuals on a casual basis.  As noted above, there is no GST due from sales from any person or legal entity that does less than $75,000 in annual business.  Thus, owners dealing with small businesses do not have to pay GST on goods or services provided by such businesses. 

 GST is chargeable on the sale of any goods or services that are:

1.      Made or delivered in Belize,

      2.      Made by a taxable person, i.e., a Registered Person,
      3.      Used as part of a business, and
      4.      Not an exempt item.

Goods include the initial sale of real estate used in development, but not on the resale of such real estate.  Thus, when homeowners first purchase their lots in Sanctuary Belize, the developer (the seller) is obligated to collect the 12.5% GST on the sale price of the lot.  As noted above, this money does not go to the developer but rather it is immediately forwarded to the GST governmental office.  When the homeowner sells that lot later, the buyer does not have to pay any GST since the seller is not selling the lot as part of his or her business and is not a Registered Person under the GST law.  Remember, only a Registered Person with a TIN may collect GST.  A homeowner is not a Registered Person under the law and does not have a TIN, therefore they cannot charge the new buyer GST on the sale nor are they obligated to pay GST to the government for such a sale.

 Services are broadly defined by the GST law.  Basically it is defined as anything that is not the supplying of goods or money.  Thus, interest is not charged GST.   The following are some examples of services for which GST must be collected by the service provider (the Registered Person under the GST law) and forwarded to the government.

      1.     Legal and business consulting

               services,                                                 

     2.      The grant or surrender of a right,
     3.      The issue of a license, permit or concession,
     4.      The lease or rental of goods,
     5.      Applying a process to the goods of another such as labor
                in building a home,
     6.      The supply of water, natural gas or propane, or any
                other form of power,
     7.      Anything else that is deemed to be the supply of
               services by the law or regulations.

 The renting of hotel rooms is specifically excluded from GST.  Also, there is no GST on imported household goods brought into Belize under the QRP program.

 Certain items are exempt from GST.  They either have a 0 % GST or are exempt from GST entirely.  Some of these items are:

 

      1.      Rice, flour, corn
      2.      Meat, fowl and fish
      3.      Eggs, milk, salt, sugar, baby formula,
                 beans
      4.      Supplies connected with agriculture
                 such as live animals, seeds and various
                 fertilizers.
      5.      Services related to agriculture such as
                crop dusting
      6.      Land clearing and harvesting
      7.      Exempted items include books,
                medicines and medical supplies
 
Items not specifically exempt must have the GST paid.  A complete list can be found on the government’s GST Web site located at:
 

http://www.gst.gov.bz/legal.html

 
GST Registration:                                                                                                      

 Every person, either as an individual or a legal entity, that makes or expects to make Bz $75,000 or more per year in operating a business in Belize must register for GST.  A Registered Person must charge GST on all goods and services that are supplied as part of their business to any other person or legal entity.  It is a legal offense for a person or entity that is not registered to charge any person a GST tax.[1]  When a Registered Person supplies anyone any taxable goods or services, they must give their buyer an approved tax receipt.  The tax law is specific as to what the tax receipt must include.  It must have the name, date and TIN of the supplying Registered Person (the seller) along with the invoice or tax receipt number.  It must list the quantity and description of every good or service provided and the total cost without GST.  It must then show the GST and the total amount of the invoice.

 The Registered Person is liable for GST on the taxable items supplied within Belize.  Taxable items are the sale of goods and/or services made in the course of any business.  The date of the sale for tax purposes is the earlier of,

       a.      The date the invoice is issued,
      b.      The date of payment, or
      c.       The date when the goods are made available or the services rendered.

 An exception of this rule is when the tax is made in respect to construction where payments are made in stages.  In the case of construction, the date of the taxable event is the earlier of:

 i)                    The date that the invoice for the stage of work is given to the owner,

      ii)                   The date payment for that stage becomes due, or
      iii)                  The date payment for that stage is made.

 The Registered Person is to report all taxable sales of goods or services on a monthly basis.  All GST for goods and services provided are due within 15 days after the end of the month that such services were delivered.  The GST guide states in bold letters that “A registered person’s liability to GST is not affected by his business practice or by non-collection of payments for supplies made during the tax period.”[2]  In other words, the person or company providing the goods and services must pay the government the calculated GST even if they do not collect the GST from their buyer.  Thus, any credit sales are fully taxed at the time that the goods or services are provided even if the items are sold on credit.  The penalty for non-payment of GST is 10% of the amount owed but not paid on a monthly basis plus interest at 1.5% per month on any unpaid balances.  It is VERY expensive for a Registered Person that does not pay its GST on time! 

                                                                                                                                               

 If a person or legal entity is not registered with the GST office but they should be because they are selling over $75,000 per year, then the tax commissioner may assess that person or company a fee up to 3 times the amount of the GST that they should have paid, plus all applicable penalties and interest.  The GST authorities can go back 6 years in evaluating and collecting unpaid GST.   It is interesting to note that an unregistered company that should have been registered because of its volume of annual sales cannot charge its customers GST.  Under the GST law, such a company is prohibited from collecting GST even if they were supposed to have been registered.  The law is very clear; only a Registered Person may collect GST.  In such a case the government does not lose the GST since it can assess such an unregistered company up to 3 times the amount of GST that should have been collected plus penalties and interest.  

 GST and Contracts in Belize:

From the above, it is clear that it is very important to make sure that all contracts indicate if costs under the contract are inclusive or exclusive of GST.  If the contract merely states that a builder will construct a home for $500,000, then discussions with the GST Department indicates that they assume that the 12.5% GST has been added to the $500,000. (In that case, to get the actual cost of the contract without GST, one would multiply the $500,000 by .8889 (the reciprocal of 1.125) to get $444,444, the contractual cost of the home.  Applying the 12.5% GST to the cost of the house gives a GST of $55,556 (12.5% * $444,444) with a total cost of $500,000.) On the other hand, the contract can stipulate that the home will cost a maximum of $500,000 plus GST.  To avoid confusion, the contract should state whether the GST is included in the contract price or whether it is in addition to the contract price.
 

 

 

 Conclusion:

 GST is a complex system of continual debits and credits that flow to and from the Belizean government for all Registered Persons.  It requires very complete and detailed records by every business involved in collecting GST.  If a Registered Person charges the homeowner GST and then does not forward those funds to the government within the month that they become due, the homeowner still owes the full amount of the GST for future sales.  The GST commissioner will deal with the errant business but the full GST is still due by the end consumer.  What it means for SB homeowners is that virtually all costs for acquiring and building in Belize are subject to the 12.5% GST.  Be prepared for it and add it into all your budgets and calculations for your move to Belize.   It is how the Belizean government raises taxes to run the government and pay for the public services.  It is a reasonable cost for living in such a tropical paradise as Belize.

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[1] From The GST Guide page 7 found on www.gst.gov.bz

[2] GST Guide page 14