What is a Tax Haven?
The term Tax Haven is generally used to refer to a jurisdiction: where there are no relevant taxes; where taxes are levied only on internal taxable events, but not at all, or at low tax rates, on profits from foreign sources; or where special tax privileges are granted to certain types of taxable persons or events. Such special tax privileges may be accorded by the domestic internal tax system or may derive from a combination of domestic and treaty provisions. (Where tax benefits are part of an economic development program the term tax incentives is usually used). Simply stated, a tax haven is any country whose laws, regulations, traditions, and, in some cases, treaty arrangements make it possible for one to reduce his over all burden. Tax havens of the world can be broadly classified into six separate categories: no-tax havens (e.g., Anguilla, Bahamas, Bermuda, Cayman Islands, Nevis, Turks and Caicos, St. Vincent and Vanuatu); countries taxing only local income (e.g., Costa Rica, Libe
Tax havens are countries with low or no taxes. Depending on your perspective, the US is considered by some to be a tax haven, especially if you’re from one of the Scandinavian countries. Most of the time, these countries encourage investment by having reduced or no taxes for entities that organize themselves within the tax haven country but then operate outside that country. The offshore tax haven countries do charge fees for the ability to organize businesses in their countries and continue to charge those fees on a recurring, annual basis.
A tax haven is a legal jurisdiction such as a country or principality where the rate of taxation is lower than in surrounding areas. Tax havens are generally characterized by strong privacy protections, low tax rates, and highly reputable banks. They are traditionally amongst the most politically stable regions in the world. To take full advantage of a tax haven, it may be necessary to live there. The French principality of Monaco, for example, only provides tax benefits to individuals who are legal residents. The tax benefits are so significant that a small industry has grown to establish residency for individuals who don’t actually want to live in Monaco. Other examples of tax havens are Switzerland, where resident foreigners can negotiate their taxation level with local authorities, the Channel Islands, where there is no taxation on foreign income, and Gibraltar, where companies with no significant business interests in Gibraltar itself are charged a flat tax of approximately $200.
Tax havens are countries with secretive tax or financial systems. They also have minimal or low taxes for non-residents. The global community recognises that every country is entitled to run its tax system as it sees fit. This means a country may, for example, choose to create a low-tax regime to attract international investment. Problems can arise, however, when a country’s tax or financial system is secretive. This lack of transparency can be harmful to the tax systems of other countries if it enables people to conceal their assets and avoid tax in their own country. To be able to enforce its own tax regime, particularly where its residents engage in international dealings, a country will often require access to information held by other governments, regulators or banks. The OECD uses two yardsticks to assess whether a country is a tax haven: • lack of transparency, and • lack of effective information exchange. These criteria are also used by Australia, which is a member of the OECD.
Not a dodgy regime of crooks as some might imply – no-one would invest their money there as it wouldn’t be safe. A tax haven is essentially a stable country with low taxes. According to the OECD, the UK, the USA, Germany, Switzerland, and Austria are all tax havens, as they offer low tax rates to foreign investors to encourage people to invest in the country. Sounds a sensible idea to me. A government is basically a service provider. One government offers to provide state services (such as law enforcement) for a certain price. Another may offer the same services for less. This results in competition, driving down overall tax rates, just as competition between supermarkets drives down the cost of food. But certain high-tax nations now want to gang up on a few low-tax countries to force them to give up the personal details of people investing money in them. Rather than making themselves more competitive so people choose to keep their money there, they want to steal business back from oth
