General Sales Tax (GST): Presentation on GST Legislation LAWYERS

1. Is a Broad-Based, Multi-Stage Tax on Value Added Broad–based: charged on a wide range of goods and services Multi-stage: charged at every level of the economic chain Value added: is a tax on the mark up on goods and services supplied by one business to another or to the final consumer WHAT IS GST?

A transaction tax on supplies Charged on each and every transaction involving the supply of goods or services, including business to business and business to consumer transactions A consumption tax Passed on to consumers in price of each consumer transaction WHAT IS GST (cont)

RATES - STANDARD RATE IS 10% - ZERO RATE (0%) THRESHOLD $75, PER ANNUM PRICES CHARGED TO BE GST INCLUSIVE EXEMPT AND ZERO RATED GOODS OR SERVICES MAIN FEATURES OF GST

Basic concepts taxable transactions:  taxable supplies of goods or services  taxable imports taxable activities taxable persons; registration requirements place of supply (in Belize) time of supply (when to pay) zero-rated (0%) & exemptions (not taxable)

Taxable supplies must be a supply made in the course of the furtherance of the business in Belize by a taxable person (registered or required to be registered) not exempt

Supplier  goods or services  to Recipient (action)  (thing supplied)  (receipt) = any transaction involving at least two parties: a supplier makes a supply to a recipient of the supply = the supplier does something to: (a) cause something to pass from supplier to recipient; or (b) cause some benefit to arise for recipient = the recipient receives/acquires the thing supplied Supplies may involve other entities e.g. the supplier contracts with the recipient to provide something to a third party but the tax consequences fall on the supplier and the recipient

Supplies of goods and services Supplies of goods: goods = tangible property (real or personal); not only sales – includes leases, licences, options to purchase. Supplies of services: everything else, e.g. service industries (including lawyers & accountants), IP, supplies of rights, etc The distinction is particularly relevant for the jurisdictional rules (place of supply & exports)

Taxable activity (broader than business) any activity carried out on a regular or continuous basis & involving the supply of goods or services includes business, trade, manufacture, profession or vocation licensing of copyright, leasing of property includes non-profit activities (because aim is to tax consumption) one-off activities carried out with a profit-making intent (e.g. acquire property to develop & sell)

Taxable activity (broader than business) Doesn’t include:  hobbies & private activities  employment (employee is your value added)  acting as director of a company (except where engaged to do so through a business, e.g. where lawyer or accountant engaged to act as Director)  government activities of supplying services to the public

Taxable persons Person includes non-legal persons such as partnerships, trusts, and unincorporated entities must be registered if an annual turnover ≥ threshold ($75,000 p.a.) persons are registered, not activities: if person has >1 taxable activity, all will count towards threshold, only one registration Exclude from turnover your exempt supplies, other non- taxable supplies, sales of capital assets…

Place of supply Goods:  place where goods are when supplied Services:  most are where supplier has place of business;  some are where supply effectively used or enjoyed  special rules for rights and options (including vouchers and phone cards)

Some supplies are not taxed zero-rated (0%) & exemption (no tax) difference lies in the input tax credit entitlements  no credits for exempt supplies  therefore the supplies are “input taxed”  undeductible input tax passed on in the price of exempt supplies is hidden from consumers

Zero-rated supplies by accountants and lawyers Most common will be exported services  supply to a non-resident who is outside Belize when supply is made  services physically performed outside Belize  patent attorney services for rights to be used outside Belize Not zero-rated if billed to a non-resident but provided to a local person (e.g. global services contracts)

Imports any import by any person  registration not required aim is to tax value of consumption in Belize  taxed charged on: customs value + customs duty & other import taxes + freight & insurance close links between GST on imports and customs duties: collection (by Comptroller) administration (under customs laws); time & place of payment (when & where the duty is paid)

Net basis for payments Output tax = GST paid on supplies (not tax paid on imports) Input tax = GST included in price of acquisitions plus GST paid on imports Net amount paid to DGST in each tax period = total output tax – total input tax for the period Adjustments for bad debts, changes to transactions (cancellations, variations, volume discounts, etc), and changes in use of assets also factor in to the calculation of the net amount payable

Time of supply When do you account for GST output & input tax? If time of supply is in the current tax period Time of supply is earlier of (a) when invoice issued (b) when all or part of the price is paid Related parties – time of supply is earlier of above or time when goods are delivered or services are provided Supplies that span periods (leases, licenses etc) – each part treated as a separate supply  therefore pay periodically and pay GST periodically

Global basis for calculations Net GST payable is calculated for each tax period Input tax on a particular purchase does not have to be credited when the output tax is paid for the supply to which it relates Rather, the input tax incurred in a tax period is credited against the output tax collected in that period. Tracing is only required in a limited sense: for determining whether an acquisition relates to making exempt supplies or private purposes (and therefore is denied an input tax credit)

Input tax credits for businesses Registered businesses can reclaim the GST incurred on most business inputs (purchases & imports) No input tax credits for:  private acquisitions  acquisitions that relate to making exempt supplies  cars (unless business = supplies of cars)  entertainment Input tax on capital acquisitions is immediately creditable.

Apportionment (partial exemption) Input tax apportionment formula where inputs relate to more than one type of supply First: allocate inputs that are wholly related to one type of supply or other Then: everything else is deductible based on the on the formula: A * B / C A = input tax not directly allocated B = value of taxable supplies C = value of all supplies

GST for unregistered businesses Unregistered businesses, end consumers, and persons making exempt supplies are all treated the same way  No output tax and no input tax credits  effectively input taxed Exempt suppliers and small businesses add value that isn’t tax (end consumers can also add value that isn’t taxed, e.g. cakes & jams sold at a school fair, hobby proceeds) Uncreditable input tax on acquisitions is passed on in the prices charged to consumers Effective rate of tax depends on proportion of price that represents untaxed value added.

GST for consumers Consumers: pay GST on imports are ‘charged’ 10% GST when they buy goods or services from registered businesses effectively pay partial GST on purchases from unregistered businesses GST ≈ a retail sales tax on consumer purchases of goods and services in Belize

Wholesaler Importer RetailerConsumer Cost: $60 Value added: $40 Sell for:$100 plus GST: $10 Taxed Price: $110 Cost: $100 Value added: $20 Sell for: $120 plus GST: $12 Taxed Price: $132 Cost: $120 Value added: $80 Sell for: $200 plus GST: $20 Taxed Price: $220 Cost: $220 (includes $20 tax) GST Treatment: taxable supplies and imports $6 $ $4 $4 $ $2 $ $8 $2$8 To customs To DGST $4$2$ =$20 $6

Wholesaler Importer RetailerConsumer Cost: $60 Value added: $40 Sell for:$100 Cost: $100 Value added: $20 Sell for: $120 Cost: $120 Value added: $80 Sell for: $200 plus GST: $20 Taxed Price: $220 Cost: $220 (includes $20 tax) GST Treatment: S upplies zero-rated until retailer taxed e.g. beans sold by a registered restaurant $ $20 $20 To DGST $20 =

Wholesaler Importer BankConsumer Cost: $60 Value added: $40 Sell for:$100 plus GST: $10 Taxed Price: $110 Cost: $100 Value added: $20 Sell for: $120 plus GST: $12 Taxed Price: $132 Cost: $132 Value added: $80 Sell for: $212 plus GST: $0 Taxed Price: $212 Cost: $212 (includes $12 tax) GST: Supply to consumer is exempt (e.g. financial services) $6 $ $4 $4 $ $2 $2 To customs To DGST $4$2 + + =$12 $6

Wholesaler Importer RetailerConsumer Cost: $60 Value added: $40 Sell for:$106 Cost: $106 Value added: $20 Sell for: $126 Cost: $126 Value added: $80 Sell for: $206 Cost: $226 (includes $6 tax) GST Treatment: all suppliers are under the threshold $6 To customs =$6

What do you need to do? identify whether you will exceed the threshold if yes: will your supplies be taxable, exempt, zero- rated, out-of-scope, or a combination implement systems to ensure GST is charged on the right kinds of supplies get ready to print invoices and documents be prepared for submitting GST returns

What do you need to do? Cont’d ensure there are appropriate links to your accounting systems to separate GST from your income & costs systems to capture input tax credit entitlements – to ensure you hold GST invoices and to determine connection between inputs and any exempt or private outputs will your customers be registered? will your suppliers be registered? are your record-keeping systems up to the task?