Tax haven is considered to be a country which has no taxes or low taxes levied on individuals and corporations. Each year tax havens attracts loads of clients who are drawn in by the possibilities of reducing taxes on their capital. Most of the world’s tax havens are also offshore financial centers and together they create business structures and other such services which clients can use knowing that they have the advantage of saving on taxes. Offshore financial centers are simply jurisdictions or countries which offer offshore services such as offshore banking, the incorporation of offshore companies the formation of offshore trusts and foundations and investment fund management among other services.
Tax havens came about in the late nineteenth (19th) century and have since then developed and expanded. About twenty (20) years ago there were only a few existing tax havens in the world but today this number has grown tremendously. The world’s tax havens are located in the Caribbean region, Europe and some Pacific and Indian Ocean islands. The tax havens of the world includes countries such as the Republic of Panama, Anguilla, Dominica, Nevis, Belize, Seychelles, Mauritius, Vanuatu, Singapore, Hong Kong, British Virgin Islands, Bahamas, Dubai, Delaware, Gibraltar and Cyprus among other jurisdictions.
Offshore tax havens have many benefits for clients. In the beginning offshore tax havens were used mainly for asset protection and this was done by individuals and families who had capital and wealth to protect. It is safe to say that tax havens’ very first clients were the wealthy families, individuals and corporations of the world. With the increase in the popularity of offshore banking the number and the popularity of tax havens grew. Now more than ever offshore tax havens are used for business purposes. Tax havens around the world are known for the following characteristics: they provide confidentiality and privacy, provide offshore services, low tax or zero tax rate.
Tax exemptions for offshore companies in the tax havens are guaranteed by legislation in most of the offshore tax havens in the world. In offshore Bahamas and Dominica legislation guarantees that every offshore company incorporated the above mentioned jurisdictions is guaranteed twenty (20) years tax exemption starting from the day of incorporation.
Offshore tax havens present clients with the legal means of reducing tax liabilities. This can be attained from the use of an offshore corporation or International Business Company, offshore trusts and foundations and offshore banks. Offshore companies can be incorporated in Cayman Islands, British Virgin Islands, Vanuatu, Seychelles, Singapore, Bahamas, Dominica and Anguilla among other tax havens. An offshore company incorporated in a tax haven can do business anywhere in the world. In most offshore tax havens offshore companies are not taxed on any profits, dividends or interest owned by that company outside of the jurisdiction. The pure tax havens have no withholding tax, capital gains tax, inheritance tax, gift tax. This includes, Anguilla, Seychelles, Dominica, Nevis, Belize, the British Virgin Islands and the Bahamas. The low tax havens which include countries such as Barbados tax International Business Companies on their annual profits. The taxes levied in low tax havens are much lower to existing tax rated in other countries. In Barbados taxes levied range from 1 to 2.5 % of an offshore company’s annual profits.
In addition to zero taxation in the tax havens offshore companies are also provided privacy. The legislation which regulates the offshore companies unlike onshore companies (ex. UK companies, such as Ltd company or LLP) has clauses which are aimed at protecting the privacy of offshore companies. In offshore tax havens such as Dominica disclosure of information regarding the beneficial owners of offshore companies and offshore companies is considered to be a criminal offense which has exceedingly stiff penalties which includes a prison sentence and financial fines. Offshore companies incorporated in tax havens are not obligated to present annual accounting records to the tax authorities if no taxes are paid in the tax haven. This means that the financial records of offshore companies in the tax havens remain private. For additional privacy the disclosure of the beneficial owners of offshore corporation any tax havens is not encouraged. The incorporation of offshore business companies with the use of nominee directors and shareholders is permitted by offshore company’s legislation in the tax havens. This in itself provides privacy for the rightful owners of the company since their names will not be made available at the Registrar of Companies.
Offshore companies are very easy to set up and maintain. The only tax which must be paid in the tax havens by offshore companies is an annual license fee which is paid to keep the offshore company in good standing order. The license fees are paid to the government and are generally low. In some tax haven the fees depend on the authorized share capital of the company whilst in other the license fee remains the same regardless of the share capital of the company. In most tax havens there are no restrictions as to which nationality can incorporate a tax haven company.
The tax havens of the world are well known for superb offshore banking and offshore banking services. One of the most important characteristic of doing offshore banking in a tax haven is the banking secrecy which is provided. This was first used by banks in Switzerland and now forms part of standard offshore banking legislation in many tax havens today. The tax havens which provide banking secrecy for offshore bank clients have this law embedded in offshore banking acts. Unlike with onshore banking, offshore banks provide maximum privacy for clients. In the tax havens where banking secrecy is part of legislation the information in an offshore bank account cannot be given out without the written permission of the bank account holder. Persons who break this law will have committed a criminal offense. Tax havens with banking secrecy laws in place include British Virgin Islands, Switzerland, Dominica and Seychelles among other tax havens.
Offshore banking in most tax havens is tax free. There are no taxes applied to the interest earned in offshore bank account. Offshore banks in the various tax havens give exceptional services which even surpass the services offered by onshore bank. The banking institutions which offer offshore banking services are some of the world’s more established banks. Services offered by offshore banks in the various tax havens include online banking, credit card, multi currency accounts, and debit cards, banking via fax and telephone and other services. Offshore bank accounts can be acquired by both individuals and corporations in the tax havens.
International tax havens have many uses. The most obvious is the tax savings which they present. Individuals and clients who use offshore tax havens get big tax reductions using legal means. This fact has attracted and keeps drawing in many business persons and private individuals into tax havens. The tax havens of the world has been able to create tax competition and have forced many of the world more developed countries to reduce their corporate taxes in an effort to prevent their citizens from going offshore or running to the tax havens.
Asset protection, estate planning and tax havens go hand in hand. By transferring capital or assets into an offshore trust, offshore foundation or international business company an individual can be guaranteed that legislation will prevent forced hierships and intrusion by third parties. The tax havens today have very strict laws to protect the assets of their clients. In the tax havens information regarding a client (offshore corporation or client) will only be given out if the person or company is involved in a criminal investigation and a court order with sufficient evidence to support is handed down.
Asset protection in the tax havens is also provided by offshore Trusts and Foundations. These two offshore entities provide very strict protection which is often impenetrable. Assets in offshore trusts and foundations are independent form the beneficial owners and that in itself provides asset protection. Offshore foundations can be established in the tax havens of Panama, Dominica, Nevis and other jurisdictions. Offshore trusts can be set up the tax havens of in the British Virgin Islands, Seychelles, Belize, and Mauritius among others.
Tax havens are becoming more and more favorable for offshore business companies. In most tax havens there are no exchange controls laws. This permits the offshore companies which engage in trading and other business dealings to move funds around without going through any formalities such as filling forms and declaring source of funds. The same apply for offshore bank accounts. Holders of offshore bank accounts in tax havens with no exchange controls can also move funds in and out of the bank accounts.
The tax havens which are available today make it easy for persons to incorporate offshore corporations or take advantage of offshore banking services which are available. Offshore tax havens have aided offshore corporations in making significant contributions to the world trade and business. All over the globe the tax haven ensure that they remain competitive put passing modern and innovate legislation which keep them afloat.