TAX HAVEN | Top Tax Havens in the World

Tax Haven

What is a Tax Haven?

• Tax Haven means a state or a country or territory where that offers extremely low or nil taxation rates along with financial secrecy for foreign individuals and businesses/corporate entities. Tax havens are popular places for tax avoidance (legal) and tax evasion (illegal).

• Tax Haven is generally an offshore country that offers foreign Individuals and Companies/Businesses where little or no tax liability in a politically and economically static environment.

• Tax Havens also share limited or no financial information with foreign tax authorities. Therefore, Tax havens do not typically require residency or business presence for individuals and businesses to benefit from their tax policies.

 

• Finally, Tax Havens are designed for individuals and companies - that do not want to pay the higher tax rates that exist in their own countries. If you made money illegally and want to hide it somewhere, you may consider placing it in a tax haven, where no questions are asked and secrecy is guaranteed. They are ideal places for tax avoidance (legal) and tax evasion (illegal).

 

Criteria for Tax Havens

There are several regulatory bodies that monitor tax haven countries, including the Organization of Economic Cooperation and Development (OECD) and the U.S. Government Accountability Office gave a number of factors to identify tax havens. Some of the most common factors are given below:

• No or Low-income taxes
• Freedom from financial regulations
• Minimal reporting of information
• Lack of effective exchange of information
• Lack of transparency obligations
• Lack of local presence requirements
• No substantial activities 
• Marketing of tax haven vehicles and
• Secrecy regarding all banking and other financial activities.

Types of Tax Havens

Tax Havens basically two types in following manner:

1.    Base Havens:

• Traditional offshore centers with Nil or very low tax rate on corporate or business income,
• Few or no tax treaty,
• Charges fees in lieu of taxes,
• No exchange control,
• High level of banking and commercial secrecy,
• Fewer chances of exchange of information.
• Primary Use to collect and accumulate income in a tax-free/ low tax environment, a safe haven for undeclared funds.

 

2.    Treaty Havens:

• Traditional offshore centers with reasonable domestic tax rates,
• Special tax regimes that allow the use of their treaty network for offshore activates,
• Nil withholding taxes on inbounded and out bounded income.
• Primary Use flow-through income with low or NIL taxes. 

Benefits from Tax Havens

1.    To Tax Haven Countries – The countries benefit by way of attracting capital to their banks and financial institutions, which can then be used to build a thriving financial sector.

2.    To Individuals or Businesses – The individuals and businesses benefit by saving tax, which in the tax haven countries may range from zero to low single digits compared to high taxes in their country of citizenship or domicile.

How Governments Earn Money from Tax Havens? 

• Tax havens are not completely tax-free. They charge a lower tax rate than other countries. Low tax jurisdictions generally charge high customs or import duties to cover the losses in tax revenues.

• Tax havens may charge a fee for new registration of companies and renewal charges to be paid every year. Additional fees may also be charged such as license fees. Such fees and charges would add up to a recurring fixed income for the tax havens.

• By attracting foreign individuals or businesses, even if they are only charged a nominal tax rate, the country may earn substantially more in tax revenues than it would otherwise. Also, the country may benefit from corporate investments in business operations that offer jobs to the country’s residents.

Tax Haven

Top Tax Havens in the World

Worldwide there is not a comprehensively defined standard for the classification of a tax haven country. A list of some of the most popular tax haven countries include:

1.    British Virgin Islands – Located 60 miles southeast of Puerto Rico in the Caribbean. No capital gains tax, capital transfer tax. Famous destination among offshore companies.

2.    Bermuda – Located east of North Carolina in the Atlantic Ocean. No income tax, capital gains tax, capital transfer tax, personal income tax.

3.    Cayman Islands – Located in the western Caribbean just south of Cuba. Famous offshore banking center. No personal income taxes, no capital gains taxes, no payroll taxes, no corporate taxes, and the country does not withhold taxes on foreign entities and the 6th most popular destination for U.S. corporate tax inversions.

4.    Netherlands – Most popular tax haven among the world’s Fortune 500. The government uses tax incentives to attract businesses to invest in their country. One such tax incentive cost an estimated 1.2 billion euros in 2016 to the Netherlands.

5.    Singapore – The major corporate tax is a haven for Asia (APAC headquarters for most US technology firms) and charges reasonable nominal corporate taxes. Reasonable corporate tax rates are provided through tax incentives, lack of withholding taxes, and what appears to be substantial profit shifting.

6.    Ireland – Located in the North Atlantic Ocean. A major corporate tax haven, and ranked by tax academics as the largest.

7.    Luxembourg – A Small European country, surrounded by Belgium, France, and Germany. It gives benefits such as tax incentives and zero percent withholding taxes.

8.    Jersey - Located the north of Brittany and west of the Cotentin Peninsula in Normandy, France. Famous for a tax haven.

9.    The Bahamas - Located off the southeast coast of Florida, Atlantic Ocean. No personal income tax, capital gains tax, or inheritance tax.

10. The Channel Islands – Located 40 miles north of France and 110 miles south of the UK in the English channel. Non-residents are not taxed on foreign income and No capital gains taxes, no council taxes, and no value-added taxes.

11. The Isle of Man – Located between Ireland and England in the Irish Sea. No corporation tax, capital gains tax, inheritance tax, or wealth tax.

12. Mauritius – Located in the Indian Ocean east of Madagascar. Low tax heaven. Low corporate tax rate and no withholding tax. It has become a major tax haven for both South East Asia (especially India) and African economies, and now ranking 8th overall.

13. Switzerland – Located in western Europe. Famous for offshore banking and lower taxes.

14. Cyprus - Located south of Turkey, northwest of Israel in the Eastern Mediterranean. Low flat corporate tax rate and strict privacy laws.

15. Belize - Located in Central America on the Caribbean Sea between Mexico and Guatemala. No Capital Gains Tax.

16. Panama - Located between the North Pacific Ocean and the Caribbean Sea. No tax on foreign source income.

17. The Cook Islands - Located between Samoa to the west and French Polynesia to the east in the south Pacific. Famous for bank confidentiality.

18. Hong Kong - Located south of mainland China on the South China Sea, the "Luxembourg of Asia". No taxes on capital tax and other taxes are also low.

19. Liechtenstein - Located in western Europe bordered by Switzerland and Austria. Famous for low taxes.

20. Monaco - Located in western Europe on the French coast of the Mediterranean sea. No personal income tax or capital gains tax.

21. The United Arab Emirates - Located in Western Asia at the southeast and of the Arabian Peninsula on the Persian Gulf. Famous for low taxes. 

Top Companies that Benefit from Tax Havens

1.    Apple – It uses Ireland as a tax haven. Would have owed the U.S. government $65.4 billion in taxes if tax haven benefits were not used.

2.    Amazon –

3.    Nike – It uses Bermuda as a tax haven. It would have paid $3.6 billion for taxes if tax havens benefits were not used.

4.    Goldman Sachs – It uses Bermuda as a tax haven.

5.    Walmart –

50 Biggest U.S. Companies that have stashed approximately $2 trillion offshore include Microsoft, IBM, General Electric, Pfizer, Exxon Mobil, Chevron, Johnson and Johnson and Skype. These 50 companies earned over $4.2 trillion in profits globally but they used offshore tax havens to lower their effective overall tax rate to just 25.9%, which was well below the U.S. statutory rate of 35% and even lower then the average levels paid in other developed countries.

 

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Source: Corporatefinanceinstitute/Google.