The Truth About Offshore Tax Havens
There has been a lot written lately about offshore tax havens. They are typically viewed by the media as places for the corrupt and the rich to hide their fortunes and avoid paying any tax. Governments meanwhile try to achieve a balance between minimising tax evasion and encouraging the offshore account holders to invest in their domestic economies.
But enough of the myths, what exactly is an offshore tax haven?
An offshore tax haven is a country that offers a low or zero tax regime for (usually) non residents holding or repatriating money into that country. Each country varies in its tax treatment and hence one will hold an advantage over another in the eyes of a particular set of potential clients.
As laws change each year, the relative advantage of holding money in one location relative to another will change slightly but usually not enough for a person to consider changing tax haven.
So why doesn’t everyone use an offshore tax haven?
Opening a bank account or a corporation in an offshore tax haven is a considerable expense due to the administrative effort required. Typically, offshore tax havens should be considered by the wealthy, expatriates outside of their home country and pensioners living overseas receiving income from their home countries.
Which Offshore Tax Havens Are The Best?
There are over forty well known and successfully operating offshore tax havens throughout the world. Each offers slightly different products and services to the next. Some considerations to make include:
- If you are trading, will your business partners demand that you avoid incorporating your company in “black list” tax havens?
- How much risk are you willing to take versus potential reward in terms of tax mitigation? A few tax havens are located in regions that might be considered to have “geopolitical problems”.
- How developed are support and ancillary services? Some tax havens might be very attractive but offer few other services that you might need. For example, its little wonder that Formula One drivers choose Monaco as their tax haven - the glamour, the weather and the proximity to the European calendar of the season mean that this offshore tax haven is ideal for the playboy race driver!
- How much will your setup and recurring costs be? This is probably a lower consideration due to the competitiveness of offshore tax havens.
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