Making Tax Havens Work For You
First and foremost, it should be noted that tax havens are an integral part of offshore investing. Many countries that set themselves up as tax havens did so because they had very little infrastructure or industry that could have been utilized to support the country. These countries generally have exceptional secrecy and privacy laws, and in many cases, some of the world's top banks reside upon their shores. In Vanuatu for instance, the ANZ and Westpac Banks may be found, while the Bahamas boasts more than 600 banks. Now that we've looked at the usefulness of tax havens, we can move on to defining it. Simply put, tax havens are countries that have laws and regulations in place allowing foreign investors, whether they be corporations or individuals, to reduce their tax liability by the use of offshore vehicles such as International Business Corporations, trusts, foundations, bank accounts and credit cards. Although there are currently over 200 jurisdictions that offer these types of special incentives to foreign investors, in reality there are fewer than 35 true tax havens left.
While the common misconception is that the use of tax havens must in someway be illegal, this is incorrect; while 'tax evasion' is illegal, 'tax avoidance' is not. This distinction is crucial - in fact, the US Supreme Court stated in Gregory vs Helvering (1935) 293 US 465 that taxpayers can arrange their affairs so as to make their taxes as low as possible. As more and more counties recognize the benefits that becoming a tax haven have on tourism and foreign investment, they find themselves competing for the offshore dollar. As a result there are many types and variations on the tax havens concept. Despite this, it is still possible to place tax havens into four major categories, as follows: 1. A no tax haven 2. A low tax haven 3. A special tax haven 4. An exempt companies tax haven We'll now go through the different types of tax havens, allowing you to understand them and decide which is right for you. A no tax haven country has no taxes levied of any type upon any sort of income. Although there are no taxes, these countries still charge fees, as do most tax havens, for incorporation, filing and other types of regulatory services. An example of a no tax haven would be the Cayman Islands or Bermuda. Low tax havens generally levies some sort of tax on the income of an individual or corporation. This tax is charged regardless of where the income is earned. Two examples of low tax havens would be the British Virgin Islands or Cyprus. Special tax havens have most of the usual taxes imposed by other mainstream countries, but they have legislation in place that allows for the special treatment of some vehicles such as IBCs, trusts and foundations. An example of 2 special tax havens would be the Netherlands or Austria Exempt companies tax havens only levies taxes on locally produced income. These so-called exempt companies do not pay any tax as long as the income they produce directly relates to operations or activities performed outside the country. Two examples of exempt company's tax havens would be the Isle of Man or Jersey. Tax havens are part and parcel of the offshore investment world; understanding the different types, their functions, and their tenets of privacy, is an essential first step to your activities as an offshore investor.
DO
YOU HAVE ANY QUESTIONS? Offshore
Investing Home | Support |
