Tax haven countries offer high net worth individuals and businesses privacy and tax security. This encourages wealthy people to open offshore accounts in tax haven countries. Most of these countries offer low or no corporate tax. To open an account, you don’t need to be a citizen of the tax haven country. Many wealthy people stash money in offshore accounts to avoid paying taxes in their home countries.
In this article, we will focus on the most lucrative tax haven countries in the world and their benefits.
What is the Meaning of Tax Haven?
A tax haven is an offshore country with low or no corporate tax liability on foreign businesses and citizens on their bank deposits. These countries often have political and economic stability and do not disclose information about companies, or their owners to the public. High net worth individuals and companies use tax havens legally to stash money abroad to avoid taxes.
Tax havens may also be used illegally to hide money from the taxman in home country. Recently, there has been a lot of pressure for tax havens to cooperate with foreign tax fraud inquiries.
How Do Tax Havens Work?
A tax haven is an offshore country that allows businesses and individuals to bank with their local institutions to avoid paying tax in home country. Company owners and individuals do not need to be citizens of these countries. Tax haven countries offer little or no tax liability benefits to account holders.
Tax havens do not also disclose details about company owners' and account holders' net worth. This way, wealthy consumers pay little or no tax at all in their home countries. Tax havens offer an avenue for affluent people to avoid corporate tax in their home countries.
Related: How do rich people avoid taxes?
What Country is the Best Tax Haven?
Bermuda and Cayman Islands are the world’s most renowned tax havens in the world. A majority of the world’s richest people and companies are known to stash their money in these countries. Below is a list of tax haven countries.
List of Tax Haven Countries
The following is a list of the world’s most renowned tax haven countries.
1. The Cayman Islands
The Cayman Islands is a lucrative tax haven country that is popular with hedge fund managers due to its 0% corporate and income tax rates. Interest and dividends earned from investments are not taxed. The country does not impose direct taxes on its residents.
Luxembourg is also a renowned tax haven and one of the world’s richest countries. 30% of American companies have subsidiaries in the country. Companies like Amazon.com channels its sales in Europe through Luxembourg.
Bermuda is known to be a notorious tax haven worldwide. It has a high GDP and per capita and does not impose taxes on corporate income, dividends, interest or royalties. This has forced U.S giant companies like Google and Nike to open offshore accounts in Bermuda.
4. The British Virgin Islands
The British Virgin Islands is among the best tax haven countries in the world. It does not impose taxes on offshore accounts. It does not have any tax treaties with other countries hence ensuring the privacy of offshore account holders. The country does not have exchange controls and hence you can transfer business and investment funds with utmost privacy.
The Netherlands is among the few countries whose financial systems cannot be exploited, making it a good tax haven country. Also, tax rates are relatively low attracting companies like Google, IBM, and many international companies to open offshore accounts in the country.
Switzerland is a tax haven country well known for the secrecy of its banking sector. It does not disclose details of its clients’ accounts and their dealings. Due to its high secrecy, it has attracted many corporate and individuals to open offshore accounts. Besides, its tax rates are relatively low compared to other countries.
Panama is another lucrative tax haven where income earned within the country is taxed while that earned outside the country is not taxed. Panama also ensures the utmost privacy of a business’s statements. However, after the Panama Paper exposed personal financial information about rich people, there have been questions about its credibility.
Is the USA a Tax Haven?
The USA is a tax haven, although not to the same degree as these other listed countries. Some states in the U.S like Florida, South Dakota, Tennessee, Texas, Alaska, Washington, Nevada, and Wyoming have no income tax.
Besides, America receives tax, asset, and income information about Americans living abroad, but does not share such information with other countries regarding their citizens living in the U.S.
Other tax haven countries around the world include Hong Kong, Ireland, Isle of Man, Singapore, Mauritius, Andorra, and the United Arab Emirates.
How Do Countries Benefit from Being Tax Havens?
Governments earn money from tax havens. When countries are tax havens, they encourage foreign nationals to deposit money into their local financial institutions. They then invest the money and earn a profit. Such countries also benefit from low account fees charged on offshore accounts.
Besides, they also charge registration fees of new companies and license fees. Some tax havens are not completely free, but charge lower interest rates that earn the government revenue.
Companies that Use Tax Havens
The following is a list of companies that use tax havens:
- Apple. It uses Ireland as its tax haven country where it holds over $214.9 billion.
- Nike. It uses Bermuda as its tax haven country where it holds over $10.7 billion
- Goldman Sachs. It uses Bermuda as its tax haven country where it holds over $28.6 billion.
Other U.S companies that use tax havens include Google, IBM, Pfizer, Microsoft, Walmart, and Chevron.
Read also: Small business tax offset and how it works.
Benefits of Tax Havens
Corporations and high-net-worth individuals benefit from tax havens in these ways:
- Tax reduction. Low or no tax liability to companies and their owners in foreign countries.
- Privacy. Tax havens do not disclose information about company owners to the public or foreign tax authorities.
- Access to cheap credit. It is less expensive for companies and wealthy individuals to borrow credit in tax haven countries.
Disadvantages of Tax Havens
- It is very difficult to open corporate bank accounts
- Before opening an account, you will need to undergo additional scrutiny
Summary of Tax Haven Countries
The above are some of the tax haven countries in the world. These countries impose very little or no tax liabilities on offshore account holders. They also ensure the utmost privacy of businesses and their owners. However, it is very challenging to open an offshore account in tax haven countries and you will need to undergo thorough scrutiny. A majority of the wealthy people use offshore accounts to avoid paying taxes in their home countries.