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Tax free havens have been in existence for quite sometime. Tax free havens have gained popularity over the last decade or so since they are being used more often than before. To date there are many tax havens available in the Caribbean, Europe and the Pacific. Tax free havens include Dominica, Bahamas, The British Virgin Islands, Belize, Singapore, Hong Kong, Seychelles, Mauritius, Panama, Nevis and the Cayman Islands among others. Tax free havens are generally offshore jurisdictions which provide offshore services which include offshore banking and the incorporation of offshore corporations.
A tax free haven can be best described as a country or territory which has a tax system in place, imposing little or no taxes. Most tax free havens in the world came about as a means of maintaining local economies without depending too much on more developed foreign countries. Tax havens are also known as offshore jurisdictions and are known to have the following characteristics; provide strict confidentiality and privacy for clients, the clientele are not residents of the tax haven or offshore jurisdiction.
Offshore tax havens are well known for imposing zero or very low rates for income tax and corporate tax. The pure tax havens are those jurisdictions which implement zero taxation. Most of the offshore jurisdictions in the Caribbean can be considered to be pure tax havens and this include countries such as Panama, Belize, Nevis, Dominica, Anguilla, BVI, St Kitts and the Bahamas among many others. Pure tax havens like those in the Caribbean implement no taxes on offshore corporations or International Business Companies and Limited Liability Companies which derive all their earnings outside of the jurisdiction. Earnings include profits, interests gained and dividends. These offshore jurisdictions have no capital gains tax, estate tax, inheritance tax and withholding tax in place. The only levies known to be paid by offshore business companies is an annual fee which is paid to the respective government of the jurisdictions so that the offshore company can remain in good standing.
Tax free havens do no tax the interest earned by offshore banks which makes these jurisdictions safe places to invest money. To protect the privacy of offshore bank account holders most offshore jurisdictions have banking privacy laws in place. The essence of the banking secrecy laws is that information concerning an offshore bank account cannot be given out without the consent of the account holder. Information regarding offshore bank accounts can only be given out in the case of criminal investigations or if a court order has been handed down. The jurisdictions have very serious penalties in place for perpetrators of these laws which include prison terms and monetary fines.
The beneficial owners and directors of corporations incorporated tax havens are protected by offshore companies’ act of the various tax havens. In most offshore jurisdictions the information regarding the owner of a corporation will not be filed as public record and most jurisdictions provides further privacy by allowing companies to be incorporated in the tax havens using nominee shareholders and directors.
Tax havens have been known to provide privacy for clients and also protect them. Most tax free havens do not sign tax exchange agreements which put the tax information and financial status of their clients out of the reach of tax authorities of other countries.