In layman terms, tax haven countries are the ones that charge very little tax to its individuals or businesses. Each country or area has its laws regarding tax rates and what is required for an individual or company to qualify for the lower price. Tax havens do not necessarily require residency or business presence for individuals and businesses to benefit from their tax policies.
In a few cases, intranational countries may also be identified as tax havens if they have special tax laws. For example – Alaska, United States, Nevada, Florida, New Hampshire, Tennessee, Washington, South Dakota, Texas, and Wyoming require no state income tax.
Breaking Down Tax Haven
Tax havens are also identified as Offshore Financial Centres (OFCs); these tax shelters are often small, low-tax jurisdictions in distant locations, like the Caribbean Islands. Offshore tax havens get an advantage from the capital their nations draw into the economy. Funds can flow in from individuals and industries with accounts setup at banks, investment vehicles, and financial institutions. Persons and corporations can potentially benefit from low or no taxes charged on income in foreign countries where loopholes, credits, and other special tax considerations may be allowed.
Why Must You Consider a Tax Haven?
The apparent reason that most people are drawn to tax havens, is simple, the lower or possibly non-existent tax laws that exist in the tax haven are better than the ones in your own country. Company formation in these popular offshore jurisdictions provides benefits such as tax exemptions, asset protection, legal protection, and world-class banking. Many individuals or companies enjoy the prospect of paying fewer taxes; after all, you worked hard for that money, it is prejudicial for someone to come and entitle a large portion of your hard-earned revenue for your hard work.
Best Offshore Tax Havens
Let us take a look at some of the best tax havens to live in.
- The British Virgin Islands - The world’s top tax haven, the British Virgin Islands, holds more than 5,000 times the value of what its economy should keep. No personal tax on worldwide income, including profits and dividends from share or property sales, and no inheritance tax or tax on gifts. Foreign investors must pay a stamp duty of 12% if buying or selling property on the island.
- Switzerland - Switzerland is almost as equal for its favorable financial atmosphere as it is for its cheese and chocolate. People have been placing their money in Swiss money accounts since the end of the Second World War. Switzerland, who was unbiased during the war, had much lower tax rates compared to other countries.
- Isle of Man - Located just off the shore of the UK, the Isle of Man is well-known for its motorbike races. It is also said to be one of the best tax havens in the world. It has so much to offer to its companies. It provides incredible investor protection, guarding individuals against failing financial organizations. It also has no turnover, capital gains, or capital transfer taxes.
- The Bahamas - No income tax, inheritance tax, or capital gains tax, making the Caribbean island particularly attractive to older ex-pats. Companies are not subject to direct corporation taxes and are not required to file accounts. The standard rate of VAT is 12 percent.
- The Netherlands - The most widespread tax haven amongst the Fortune 500 is the Netherlands, also one of the cheapest countries for healthcare with more than half of these businesses reporting at least one subsidiary there in 2016, according to the ITEP report.
- Luxembourg - Luxembourg is a simple European country that limits Belgium, Germany, and France with a population of 550,000. Luxembourg’s tax haven position comes from its business-friendly laws that allow international companies to park portions of their business there to dodge billions in tax bills.
Navigating foreign tax waters can be extremely tricky, and it is easy to fall foul of the law if you don’t know the intricacies of international tax laws. Thus, before you consider putting down new roots in one of these foreign tax havens, it is essential to speak to an expert who can help you find a tax haven best suited for your company.
Business Setup Worldwide is a platform to help you set up an offshore company. Our advisors are well-versed with the legal formalities and can make the process hassle-free. To know more about our offshore services, contact us today.