A number of nations are commonly referred to as tax havens. Examples of what a tax haven offers include not taxing foreign income, little or no taxation, and favorable treatment of foreign investments. What tends to rile nations whose citizens take their money offshore is that many offshore jurisdictions offer a degree of privacy to those who save or invest in their nation.
There are quite a number of offshore jurisdictions that qualify in one way or another for being described as a tax haven. What is a tax haven? What good or what use are they? Can some of the aspects of a given tax haven be useful to the individual investor, retiree, expatriate living offshore, or an offshore business?
Tax Haven
The simple definition of a tax haven is a country where taxes are low or non existent. That is OK for starters but there is a lot more to it. A better description might be that a tax haven levies no relevant taxes. What is common in many offshore jurisdictions is that they do not tax income earned elsewhere. What is also common is that in order to attract investment capital many nations will grant favorable tax treatment to investments that create and maintain jobs. For example, Panamanian Law 8 rewards investors in tourism projects in remote locations in the country with a twenty year tax forgiveness on all income. The signup date for this law has passed but those who invested in time have well over a decade of non-taxed profits ahead of them.
Another matter of tax treatment is the existence of tax treaties between countries. Many nations have agreements whereby income of a citizen of one country now resident in another is no subject to double taxation. The specifics of such tax treaties will vary by case but allow individuals and corporations to live, do business, save, and invest without fear of being “punished” for living offshore.
Countries without bilateral tax treaties with other nations are often considered tax havens as there is no bilateral mechanism for exchanging tax information. Nations who believe that their citizens are avoiding taxes by going offshore often complain about a “lack of transparency” of legal structures and processes in a given jurisdiction. The response of the jurisdiction in question is typically that it is an issue of sovereignty and that the other nation has no business inquiring into the internal affairs of the country being labeled a tax haven.
In the end a better description is that a jurisdiction is tax advantaged in some way or ways.
Types of Tax Advantaged Jurisdictions
There are countries where there are no taxes on foreign investment, bank accounts, and the like. Many nations only tax income derived locally. A number of countries have advantageous treaties with other nations. The last category has to do with countries that offer very unique tax options to individuals and corporations interested in banking or investing directly in the country. The matter of what good is a tax haven has to do with what features an individual or offshore company will find beneficial. It will also have to do with other features, benefits, or restrictions that the host nation may place on doing business, etc.
The Use of Tax Haven Has to Do with What the Individual or the Corporation Wants
For in individual who want to retire and move to a tropical country where his arthritic joints won’t hurt may be very happy with any number of offshore jurisdictions providing that his bank interest is not taxed both in the new jurisdiction and back in his nation of origin. He may be happier if he only needs to pay taxes on his interest income once a year and if his taxes are not deducted from his account during the year.
An individual or company interested in setting up an international business corporation will be interested in a tax advantaged location. However, they will also want a sufficiently evolved infrastructure so that they can do business. Likewise, the principals will want a friendly business climate, free of unnecessary red tape and as free of governmental corruption as is possible. In this case it is very wise to engage competent and trusted counsel in choosing a jurisdiction for the optimal mix of tax advantage, business opportunity, and ease of running a business. It is also very important to deal with an agent or counsel who is able to set up offshore business structures in various nations as the best mix of offshore solutions is commonly not only offshore but multinational.
Local politics, economy, and social programs may have a decided effect upon taxes in a jurisdiction. An often forgotten example is post World War I Europe where Switzerland, having remained neutral, was spared the devastation of war and did not have to raise its taxes on its citizens and residents in order to pay for reconstruction. This fact along with the stable Swiss economy and government and discrete banks attracted capital and made Switzerland a world banking center.
What Good Is a Tax Haven?
It depends upon what you want to use it for. To the extent that an individual is interested in the asset protection and privacy features offered by offshore banking, international business corporations, offshore foundations, and offshore trusts there are a number of useful options. As with all business a well thought out and informed decision up front will lead to better results down the line. Those wishing to take advantage of an offshore trust or a foundation solution such as a Panama Private Interest Foundation will be able to use these solutions instead of a trust in their nation of origin to legally avoid probate on inheritance. Such vehicles can hold all manner of assets. Bank accounts, real property, businesses including offshore companies, jewelry, airplanes, copyrights and royalties, and art work are a partial list. To the extent that local tax law does not interfere with careful and legal planning a tax haven will be a good choice. To the extent that local law is protective of the privacy of assets and personal privacy the tax haven may be a better choice.
The world has become a less private place. People going about their perfectly normal and legal lives are subject to identity theft. Unscrupulous attorneys may engage in fishing expeditions where the innocent are challenged to prove innocence, at substantial cost. To the degree that a tax haven jurisdiction provides a perfectly legal privacy screen it is a good choice.
About the Author
Geir Holstad
An offshore formations and banking specialist working for several companies regarding offshore structures, formation of companies, foundations, banks and financial institutions in several jurisdictions, including provision of government issued financial licenses.
Working for User Bancorp Ltd, which is providing private and corporate accounts, merchant accounts, offshore companies such as Belize IBC’s (International Business Company), Panama corporations and foundations, wire transfer services, managed funds/forex, credit- debit- and prepaid card issuing.
We also offer co-ownership and shares in different investment programs such as real estate investment in profitable jurizdictions like Panama, Belize and Spain.
Certificate of Deposit/Term Deposit accounts available up to 9 % p.a.
Contact Geir by e-mail: geir.holstad@userbancorp.com
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