Countries Known for Tax Havens.
- Tax havens are small, low-tax jurisdictions where wealthy individuals maintain their assets offshore.
- These places are known for their low tax rates and stable currency, such as the US dollar. As a result, many companies can enjoy huge tax savings.
- For example, pharmaceutical companies might “sell” their patents to a subsidiary company in an offshore financial centre, paying the company a licensing fee and recording profits as lower profits and lower tax bills. This way, the drug companies avoid billions of dollars in taxes annually.
The main reason for creating tax havens is to attract offshore investments.
These jurisdictions offer many tax benefits to offshore entities and tax residents.
In fact, some countries are so favourable that they are sometimes referred to as “tax havens.”
Tax havens offer a legal way to avoid high taxes on global assets.
The amount of money held offshore has increased by 25% in the last five years, according to Zucman’s research which is a record high for the amount of money being hidden abroad.
This is equivalent to 8% of all global financial assets. The authors argue that a solution to this problem needs to be found to stop these schemes.
Many multinational companies and wealthy individuals use tax havens to store their profits.
These countries have low tax rates and offer tax deductions and credit mechanisms.
In addition, they also have low regulatory requirements, which makes doing business in these jurisdictions easier and is particularly advantageous for those with large amounts of money.
A global agreement called the Common Reporting Standard (CRS) has made tracking assets in tax havens easier. As a result, most countries now share information on these accounts.
This will eliminate the tax evasion appeal of offshore jurisdictions.
As we move forward with this article we’ll talk about –
- offshoretax havens
- list oftax haven countries
- tax haven islands
Now let’s have a look at 7 Countries that are known for Tax Havens.
Shall we …
The Cayman Islands.
The Cayman Islands is one of the few countries that do not charge corporate taxes, making it an ideal location for offshore financial centres.
Over forty-five per cent of the world’s top fifty banks have operations in the Cayman Islands.
In 2003, $415 billion in deposits passed through Cayman.
Tax havens are countries with low tax rates and no income tax. These countries are a haven for wealthy people because they do not have to pay income taxes.
However, it is important to note that tax havens are not necessarily transparent.
They have laws limiting information sharing between governments and shielding foreign-owned companies from paying higher taxes.
Cayman Islands residents are exempt from paying income, property, payroll, and capital gains taxes.
This tax-free status makes it the preferred location for hedge funds and other wealthy individuals.
Multinational companies also consider the Cayman Islands an ideal place to establish shell companies and subsidiaries.
In 2000, the Cayman Islands avoided a blacklist by pledging to eliminate discriminatory practices and share information with OECD member states.
However, the cooperation with the OECD lost momentum after the election of George W. Bush.
As a result, the U.S. Treasury Department decided not to support the initiative. The United States instead pursued tax exchange agreements.
The British Virgin Islands.
The British Virgin Islands is a tax haven for several reasons.
Firstly, the territory has no income or capital gains taxes.
Also, there are no stamp duties for property transfers or securities transactions. And finally, the British Virgin Islands does not have any foreign exchange controls.
So, if you want to evade the tax and enjoy tax-free living, the British Virgin Islands might be your best choice.
However, the BVI has some flaws. Its government has long resisted the introduction of public registers of beneficial ownership.
Its residents often must pay a mere US$100 in real estate taxes. And that is despite the fact that these taxes cost the island’s central government more money than they generate.
The BVI also has higher taxes for foreigners than for belongs.
Its economy is largely based on offshore financial services. There are many international companies with banking accounts in the BVI.
Its population is highly educated, and more than 50% of its people are of foreign descent.
Furthermore, the British Virgin Islands is one of the most prosperous economies in the Caribbean.
Approximately 60% of the economy is made up of financial services, and the rest is made up of tourism and other industries.
The British Virgin Islands is home to 950,000 companies as of 2020.
The British Virgin Islands is one of the world’s most popular offshore investment fund formation territories. It is second only to the Cayman Islands regarding foreign direct investment.
The BVI attracts upward of US$125 billion in foreign direct investment annually.
Christopher Columbus first sighted the islands in 1493 and came under British rule in 1666.
According to an ITEP report, the Netherlands is the best tax haven in the world.
The Netherlands’ tax laws are favourable for businesses, with no taxation of certain hybrid financial instruments, a low rate for dividend withholding tax reduction, and preferential tax treatment for intellectual property assets.
This lenient tax regime has been criticized for providing opportunities for tax evasion. Still, the Netherlands recently moved to eliminate these shortcomings.
As of 2016, it held the EU presidency and has begun to enact national legislative changes to combat tax evasion.
The Netherlands enables multinational companies to benefit from advanced tax rulings and discuss the interpretation of tax rules with a tax inspector.
The Netherlands also strives to provide clear and upfront communication to new companies.
Furthermore, it will introduce a withholding tax on outgoing royalty and interest flows beginning in 2021. These changes prevent the Netherlands from being used as a transfer-of-asset activity to other tax havens.
Although the Netherlands has not been called a tax haven by some, it has long been one.
The Dutch tax system emphasises attracting foreign capital and has many subsidies and breaks for businesses.
The Netherlands also has a number of double tax treaties with other countries.
In addition to these, incoming royalties are not taxed in Holland. Nevertheless, the Netherlands is taking steps to respond to its criticism over the years.
Panama is one of the oldest tax havens in the Americas.
It first registered foreign ships under its flag in 1919 to help Standard Oil avoid taxes and regulations.
At the time, Panamanian ships could serve alcohol during Prohibition. Today, foreign ship operators can register a vessel online and pay no income taxes.
Wall Street bankers also helped introduce lax incorporation laws that allowed foreign individuals to establish a tax-free companies.
Panama’s tax haven is not a panacea. Although Panama offers zero taxes on foreign income, it is important to note that you must plan your tax residence accordingly.
The best way to do that is to leave the high-tax country you live in. If you’re a US citizen, you’ll need to make a careful plan to avoid citizenship-based taxation in the US.
Panama also offers a variety of other advantages.
Panama has long been an international banking and services jurisdiction.
It has the technology and the human resources to support the operations of e-commerce companies.
The country is also affordable outside Panama City. A typical couple can live comfortably for about US$1,200 per month.
The country has a large banking sector, the largest south of Miami.
Panama’s banks average 60% liquidity, which means that one can withdraw 60% of the deposits in a bank before any assets need to be liquidated.
Only a few offshore banking jurisdictions have this much liquidity.
The low taxation in Switzerland is one of the most desirable features of living in this European country.
In addition to low taxes, this country provides top-notch banking services and protects intellectual property rights.
It is also considered one of the least corrupt countries in the world.
Many wealthy foreigners in Switzerland can apply for a fiscal deal permit and pay a lump-sum tax rather than a normal income tax.
This tax is often much lower than the normal income tax rate.
The lump-sum tax is based on the taxpayer’s living expenses and is typically a quintuple of the rent paid.
This option has helped Switzerland earn its reputation as a tax haven and encouraged wealthy foreigners to settle in the country.
Switzerland’s highest income tax bracket is 11.5%, and high-net-worth individuals may only pay a fraction of that amount.
Some cantons have lower tax rates – Appenzell Inner Rhoden, Nidwalden, Obwalden, Schwyz, Uri, and Zug.
The Swiss have a reputation for keeping wealthy individuals’ secrets private for centuries.
Since the 1700s, Swiss financial institutions have protected the private accounts of wealthy individuals and corporations.
Even today, Swiss banks have stood up to pressure from activist groups and nation-states, including the United States and the European Union.
The Bermuda government claims that its ranking is based on the volume of assets. Still, the criteria for its ranking are more complicated than that.
They include tax rates and incentives and whether the country participates in multilateral anti-abuse, exchange, and transparency initiatives.
Oxfam also takes into account evidence of large-scale profit shifting.
The country’s low-income tax rate and the lack of income tax make it a preferred prospect for the world’s wealthiest people.
Despite having a high GDP per capita, the Bermuda government does not tax profits, corporate income, dividends, or royalties;
Hence, this has attracted companies such as Nike and Google to set up operations there, escaping the high taxes imposed in their home countries.
Although Bermuda is one of the few nations with an entirely zero income tax rate, it is not a pure tax haven.
In addition to the absence of income tax, Bermuda also charges import taxes on almost everything that arrives in the country.
Since most of the goods in Bermuda are imported, the cost of living in Bermuda is higher than in many other countries.
Luxembourg is a small country with a population that is less than one-fifth of that of the United States.
Still, it has attracted as much foreign direct investment as the United States.
That’s around $4 trillion in foreign investment or about $6.6 million per person.
Taxes on Luxembourg-incorporated companies are based on their global income instead of their local income.
They do not pay taxes on profits or losses that they don’t earn.
A Luxembourg-based company can avoid Luxembourg income tax by using its holding company to avoid tax in other countries.
The parent company also uses the holding company to invest in foreign operating companies, allowing it to avoid taxation on those revenues.
FedEx Mexico receives millions of dollars of interest income and dividends, which is not taxable in Luxembourg.
This is one way that multinational companies can avoid taxation on their foreign profits.
As we saw earlier, The Cayman Islands and the Netherlands are two other countries that have a similar tax structure.
Both British overseas territories with zero corporate tax rates use other instruments to shield funds from taxation.
Both countries’ low tax rates are good places for companies to invest.
Luxembourg’s top tax rate is 8.7% for individuals with incomes greater than two hundred thousand CHF.
The country also has local communities that levy a surtax on the national tax.
These additional taxes help raise the effective tax rates across different national brackets. These surtaxes range from 2.5% to 22.4%.
The country also has a value-added tax of 7.7% and a real estate capital-gains tax of three to four per cent.
Furthermore, its incorporation laws are very flexible, allowing the establishment of many holding companies.
Tax havens are legal places to hide money from taxes.
Drug lords use them, arms dealers, bribe takers, and others to hide their money and assets.
In many cases, a shell company is used to hide stolen assets, luxury yachts, or other assets. Tax havens help wealthy people hide their money and assets and can be extremely lucrative.
The largest tax havens are countries with high GDP per capita. These nations are usually corporate-focused, and corporate-oriented tax havens dominate the top 10 tables.
However, this doesn’t include oil and gas nations, which are often excluded from this metric.
Therefore, the GDP per capita rankings of these countries may be misleading.
Tax havens are places where foreign investors can set up companies to minimize taxes.
These countries generally have very low tax rates and don’t publicize their financial information. These countries are sometimes called secrecy jurisdictions, but they deny they are.
While tax revenues are vital to the survival of civilisation, they do not apply to everyone.
Wealthy individuals and companies, assisted by professionals, avoid paying taxes by hiding their income offshore. This practice costs governments trillions of dollars in revenue.
The wealthy use the extra cash to reward their shareholders and beat their competition.
Meanwhile, the poor and middle class lose money.