Home / What is a Tax Haven?
There are numerous definitions for tax havens which all have the same general position; a tax haven is a country or territory which has low tax rates or no taxes at all. The tax havens of the world normally provide services to foreigners or non-residents.
The tax havens of the world are countries such as Anguilla, St Kitts, Nevis, British Virgin Islands, Republic of Panama, Belize, Seychelles, Singapore, Hong Kong, Vanuatu, Mauritius, Dominica, Gibraltar, Cyprus and Isle of Man among others. About two (2) decades ago there were very few tax havens available. Those that were accessible were only patronized by the very wealthy individuals and families of the world who sought asset protection. Today tax havens have evolved and are no longer just sought out by the elite but by everyone who can afford to do so or have their interests to protect. Improvements in communications and technology have put tax havens at reach for many persons perhaps a contributing factor to the reason why tax havens have become so popular today.
Tax havens are also known as offshore tax haven for the simple reason that most tax havens are also offshore financial centres. An offshore financial center is a country also called a jurisdiction which undertakes and offers business services to non nationals. Offshore business services include the formation of offshore trusts and offshore foundations, the registration of ships and vessels, electronic gaming, investment fund management, the incorporation of International Business Companies, Limited Liability Company formation and offshore banking among others.
An offshore tax haven provides people with a safe and legal means of reducing their tax liabilities. Given the present state of the world’s economy the tax havens can provide both stability and security for clients. In most tax havens income gained from outside of the jurisdiction is not taxed or in some countries very low taxes are applied, for example the offshore jurisdiction of Barbados charges international business companies incorporated there at a rate of between 1 and 2.5 % on their annual global profits. Offshore jurisdiction such as Dominica and Bahamas has zero taxes on all foreign income earned abroad by offshore companies. In Dominica, the laws stipulate that international business companies (IBC) incorporated in this jurisdiction will enjoy a guaranteed twenty year tax exemptions which begins on the day of incorporation.
There are offshore havens which qualify as pure tax havens. These are the tax havens which have apart from no income and corporate taxes no capital gains tax, withholding tax, inheritance tax, estate tax, gift tax among others. In most offshore tax havens offshore corporations, trusts, foundations are exempted from paying Stamp Duty on transactions done on behalf of these offshore entities. The lack of taxes helps offshore clients do effective tax planning and is a sure way of multiplying assets. In most tax havens offshore companies pay an annual license fee to the government of the jurisdiction, this is normally very low and depending on the tax haven might be determined by the authorized share capital of the company.
Many offshore tax havens which are well established today gained this status from offshore banking. Offshore banking was notarized by the Swiss who for up until a few decades ago had the offshore banking sector well locked down. The Swiss introduced banking secrecy laws to offshore banking in the early 1930’s and today this forms a fundamental part of offshore banking legislature in most tax havens. Offshore banking secrecy has increased the popularity of many tax havens and helped shaped them into the well developed offshore financial centers that they are today.
Banking Secrecy was put in place to protect the offshore bank account holder and information in offshore bank account. Offshore banking has changed due to regulations put in place by international banking regulatory groups but this not prevent offshore banks in the tax havens from providing strict privacy for clients. In the tax havens the contents of an offshore bank account can only be disclosed with the written permission of the bank account holder or if a court order has been handed out. Unauthorized persons who give out that information will be punished according to the laws of the respective jurisdiction. Punishment normally includes monetary fines and prison sentences.
Doing offshore banking in a tax haven means that interest earned in that account is tax free. Offshore bank accounts can be opened by individuals and corporations. This is very easy to establish and can be done via the telephone, fax or internet.
Privacy and confidentiality is one of the most important cornerstones of offshore banking and tax havens. As a matter of fact the two are entrenched in the offshore legislations of many offshore tax havens. In the offshore tax haven of Dominica it is a criminal offense to divulge information concerning offshore companies to the public or any third party. The result of this is stiff monetary fines and jail time. The offshore legislation of tax havens is designed with the protection of the privacy of clients in mind. In most tax havens when incorporating international business companies there is no need to make the names of the rightful owners part of public records. Also the offshore company legislation in most tax havens makes allowances for companies to be incorporated using nominee directors, shareholders and members, which will protect the identity of the beneficial owners.
In tax havens such as Belize, the Republic of Panama, Anguilla, Nevis and British Virgin Islands offshore legislation dictates that there is no need for offshore companies’ incorporated in these tax havens to prepare and present annual financial statements to the tax authorities of the jurisdiction or anyone outside of the offshore corporation. This means that the annual financial statements of offshore companies in these offshore tax havens remain private. A tax haven can be used for business especially for international trade. An offshore corporation incorporated in a tax haven gives the business person endless opportunities. Offshore havens are generally very safe and stable countries.