A Tax Haven otherwise called an offshore financial center, is simply a locale, whether a country, state, or territory, that has less-than-stringent tax laws. They are often offshore countries that offer foreign individuals and businesses little or no tax liability in a politically and economically stable environment.
Tax havens do not typically require businesses to operate out of their country or the individuals to reside in their country to receive tax benefits and they also share limited or no financial information with foreign tax authorities.
WHAT ARE THE COMMON FACTORS TO IDENTIFY A TAX HAVEN?
According to the Organization for Economic Cooperation and Development (OECD) the following factors can be used to identify tax havens:
- Lack of transparency;
- No substantial activities required
- Lack of effective exchange of information;
- Little or no tax imposed on relevant income;
- Protection of personal information to foreign tax authorities;
ARE TAX HAVENS LEGAL?
Tax havens benefit people seeking more favorable tax treatment. While using tax havens is considered a form of international tax evasion, they are actually legal and are utilized by individuals and businesses in a legal and legitimate manner. Tax Havens are used in Tax Avoidance schemes. Tax Avoidance is completely legal. Tax Evasion is however illegal. Individuals and companies that are involved in tax evasion will be guilty of a crime and liable to jail time or fine upon conviction
WHAT COUNTRIES ARE THE BEST TAX HAVENS?
A lot of people wonder which countries are considered tax havens in the world and if they are only a few of them. Truthfully, there are a number of tax havens around the world. These include Andorra, Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, The Island of Jersey, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, St. Kitts, amongst others.
Below is a summary of a few of the most common countries operating as tax havens in the world:
- Luxembourg: Luxembourg is a small European country that borders Belgium, France, and Germany with a population of 550,000. Luxembourg’s tax haven status comes from its business-friendly laws that allow international companies to park portions of their business there to dodge billions in tax bills.
- Cayman Islands: The Cayman Island is one of several countries with laws that allow a corporation to be formed and retain assets without paying tax, and when held for business purposes this is perfectly legal and not a tax avoidance strategy.
- Isle of Man: Isle of Man is termed a “low-taxed financial center”. It is situated between England and Ireland and also carries low income tax, with the highest rates at 20% and total amount capped at 120,000 pounds. Isle of Man also offers great benefits for pensions.
- Jersey: Jersey is located between England and France, Jersey’s status as a tax haven rose mid-20th century when many wealthy British citizens moved their wealth to the island. Today, there is still no inheritance or capital gains tax, and Jersey has a standard corporate tax rate of 0% — with the exception of taxes levied on financial service, utility, and property companies.
- Ireland: Ireland is referred to as a tax haven because of the country’s taxation and economic policies. Legislation heavily favors the establishment and operation of corporations, and the economic environment is very hospitable for all corporations, especially those invested in research, development, and innovation.
- Mauritius: Mauritius is an island located in the Indian Ocean several hundred miles east of Madagascar, and is a popular gateway for foreign investments, particularly those directed to India. Mega-corporations with Mauritius subsidiaries include JPMorgan Chase, Citigroup, and Pepsi. Mauritius does levy a 15% corporate tax; while capital gains and interest are not taxed in Mauritius, making it an attractive tax haven.
- Bermuda: Bermuda is another popular tax haven. It is one of the most expensive countries to live in but it features a 0% corporate tax rate, as well as no personal income tax. Due to the lack of corporate taxes, a lot of multinational companies carry out activities in this country.
- Monaco: Monaco is less than a square mile and has just 36,000 residents. This small country has not charged its residents income tax since 1869. Taxes for corporations are also low and this makes it a Tax Haven.
- Switzerland: Switzerland’s combination of low taxes and a bank system that protects account holders’ secrecy above all else have made it a popular destination for funds leveraged overseas to enjoy lower taxes. This has made Switzerland a popular financial center for individuals and corporations alike.
- Bahamas: The Bahamas are another top tax haven. There is a lack of capital gains tax, inheritance tax, personal income tax, and gift tax. These tax advantages can make the Bahamas an attractive tax haven for many foreign corporations around the world.
WHAT ARE THE BENEFITS OF TAX HAVENS?
- Low tax rates are one of the principal benefits offered by tax havens. Usually these low rates are associated with income taxation; in fact, what springs to mind immediately upon hearing the words “tax haven” is the absence of income taxation, or the existence of a form of income taxation that exempts foreign investment.
- Aside from low income tax rates, there is also usually the absence of other taxes such as estate, inheritance, and gift taxes. This is also as important to certain investors as the absence of an income tax.
- Bilateral tax treaties between a tax haven country and some of the major developed countries are another feature that may attract investors and which is also considered as a benefit of investing in a tax haven. The existence of a tax treaty allows third-country investors to base their holding companies in tax havens and obtain a reduction in withholding taxes applied to the dividends and interest they receive from developed countries with which the tax haven country has the tax treaty.
- Banking secrecy is another major benefit investors consider when deciding whether or not to invest in a tax have. The fact that there is the possibility of doing business without close supervision by government agencies are additional attractions usually offered by tax haven countries.
- Other factors, such as the low cost of doing business, the existence of liberal banking regulations, and the absence of exchange controls are also important benefits to consider when investing in a tax haven.
WHO ARE THE PEOPLE QUALIFIED TO BENEFIT FROM TAX HAVENS?
Simply put, any individual or corporation interested in circumventing unfair tax policies can benefit from a tax haven. We have summarized the categories of individuals and corporations who can benefit from tax havens to include:
- Investors interested in setting up an international business.
- Wealthy individuals who desire to protect their assets.
- Corporate agencies which desire to maximize their profits.
- Individuals and Companies who desire to minimize their tax liability.
- Individuals interested in investing in a company or purchasing an asset anonymously (i.e. without being directly linked to it).
- Startups interested in setting up an offshore base to expand their operations.
- Companies looking for strategic bases to tap into new market.
IS THE US A TAX HAVEN?
The US as a country is not considered a tax haven. However certain states provides an increasingly large portion of the world’s offshore financial services, states like Delaware, Nevada, and Wyoming.
As a matter of fact, Delaware regularly tops lists of domestic and foreign tax havens because it allows companies to lower their taxes in other states for instance, the state in which they actually do business or have their headquarters — by shifting royalties and similar revenues to holding companies in Delaware, where they are not taxed.
Include that we assist African businesses and startups with tax advisory, offshore registration, holding-subsidiary restructuring and meeting investment condition precedents or subsequent regarding incorporation in a tax haven.