What is a Tax Haven?
A tax haven is a country or state is country with more amiable tax systems than your home country. It can also be a country that practices financial secrecy, which is a legal principle that financial institutions would not have to provide information regarding their financial information to the authorities unless certain criteria were to be met, for example a criminal complaint being filed. Tax havens have become a popular choice for many wealthy individuals as less taxation obviously means more profits.
Why Should You Consider a Tax Haven?
The basic and obvious reason that most people consider tax havens is simply the lower or potentially non-existent tax laws that exist there. Many people enjoy the prospect of paying less taxes, after all they worked hard for that money, it is unfair for someone to come and claim a large portion of the hard-earned revenue.
Many people whom are interested in hiding their funds from their home country for whatever reason that may be would also reap the benefits of a tax haven, thanks to the fact that they practice financial secrecy, meaning they do not need to provide financial record to a foreign country. Financial secrecy of course can be circumvented by foreign authorities if certain criteria are met, such as the person whose financial records are in question were to get arrested in the country that is requesting financial documents.
Choosing a Tax Haven
Most tax havens are in the Caribbean, however, there are plenty of other tax havens throughout the world, no matter which continent you are on. When choosing a tax haven, you will have to consider the needs you are looking to fulfill by moving money offshore, whether you looking to avoid high taxation, to avoid persecution from your own country etc.
Tax Havens for the Individual
Many tax havens exist with no tax whatsoever on foreign income which means any income earned in your home country will not be taxed there. Some countries that do not have taxation on foreign income (but are not limited to) the Bahamas, Hong Kong and The British Virgin Islands. Many reasons to go offshore with your finances involve privacy, and the tax have countries laws pertaining to the matter of financial secrecy. Some individuals may seek out a tax haven for more illegal purposes such as money laundering. In most countries with financial secrecy carry punishment of jail time and heavy monetary fines to any financial institutions giving out information without the account holders permission or proper legal documentation. Many of these countries, along with financial secrecy, also practice minimal report requirements on your finances which also for more privacy and ultimately more control over your business and finances.
Individuals looking to start investing in a tax haven could start what is known as a tax haven corporation. This tax haven corporation is often mentioned as an International Business Company (IBC). This IBC could potentially be tax-free. Tax haven companies donot require much to start up, in most instances you can have one shareholder and one director, which can be the same person. In some places such as Panama you might require a minimum of three directors, but again they can be shareholders. In tax haven companies the financial institutions donot have to disclose any information about the beneficiary owners of the company. Many tax haven companies exist today and are operating with success. Tax haven companies are becoming a more intriguing option with ever growing economic instability.
Other possible reasons for an individual to join a tax haven would be for insurance purposes, Any emergency funds you have can just sit and grow if that is what you desire. You could also put money away for loved ones in the event of your death, if this is the case your money would not be taxed when you are to pass on.
Why a Corporation Might Consider a Tax Haven?
A corporation has almost the same reasons an individual would have to join a tax haven, usually to avoid the high taxation of their country. A corporation is less likely to make use of a tax haven for illegal. Many corporations already incorporated in some way a tax haven, usually to increase revenueor to get away for whatever reason.
Unfortunately for corporations there are no tax havens that are totally exempted from taxes. However, there are tax havens that have extremely low tax rates for international corporations, some of these countries include (among others) Belize, Panama, and Barbados. These countries can have corporate tax rates as low as 1%. When choosing to go to a tax haven, you need to know that like any other country there are different tax laws for corporations and individuals.
Best Tax Havens in the World
The best tax havens in the world are in Caribbean. Some countries such as the Bahamas offer twenty years of no taxes, while others you must pay a small yearly fee for a license to operate. The best option for a tax haven shall also provide the lowest possible interest rate and highest amount secrecy possible, this is to allow you to have the most control over your assets.
Benefits of Tax Havens
A tax haven can be used to gain more income, or to build your company. You could also use a tax haven as a new form of life insurance. A tax haven is beneficial to both parties involved, the country and the corporation or the individual.
A tax haven often isnot as industrial as other countries whom have higher tax laws so to make up for lost revenue they impose higher banking taxes on financial institutions, which in turn allows the lower corporate taxes and individual taxes. Tax haven have been known for their economic stability because of these low taxes imposed, such as Switzerland receiving constant praise for their economic stability and most recently Ireland in 2010.
Tax havens are legal and if you abide by the law you can easily make money using tax havens to your advantage. Many people have a misconception about tax havens, but the truth is they are law abiding financial institutions used by law abiding people who are resourceful with their finances. With the proper amount of research, you can be moving your money around to various tax havens, in order to gain more income and economic stability in times of a worrying economy.