International Tax Havens, their Variety, and Characteristics
The meaning of tax haven is as follows: it is a country or a jurisdiction, which provides tax preferences (very low tax rate, or even zero tax rates) for foreign investors, which make doing business in this places very profitable. There are more than 50 countries and areas around the world that can be considered as tax havens, although there is no generally accepted definition of this term.
More and more entrepreneurs and businessmen ask themselves a question what jurisdictions to use for tax optimization. Along with the tax privileges when choosing a jurisdiction for creating a business, equally important are the political environment and conditions for a comfortable residence. What tools to use, what to choose: classic offshore tax havens or territories with special economic status? Let’s try to clear up in details.
Tax havens – offshores
There are several reasons why do such countries adopt a policy of tax havens. Some offshore countries live at the expense of tourism and the financial sector. Typically, these are sparsely populated areas on the island formations. Such jurisdictions are characterized by the complete absence of the country control and any forms of taxation (income tax, corporate tax, tax on dividends, etc.). In practice, such tax has ns, are used only for the registration of the offshore companies (and opening bank accounts), for doing business outside the jurisdiction, with reduced tax rates.
Typically due to a number of the objective reasons, there is an underdeveloped social infrastructure and an extremely low standard of living on their territories. For example, in the tax haven of the Cayman Islands, there is social protection of the population: pension and social contributions are compulsory only for employers. The main source of the replenishment of the national budget is the customs taxes on imports.
Here is the list of tax haven countries around the world (not complete):
- Cayman Islands
- Trinidad and Tobago
- The British Virgin Islands
- Marshall Islands
- Costa Rica
- Cook Islands
- Isle of Man
- New Zealand
- The Gambia
Persian Gulf tax havens
Features of the economic zones in the Middle East are more and more often used as an effective tool for tax optimization. The Middle Eastern Countries adopt a loyal tax policy to attract direct investments to the national economy.
Having great reserves of the oil and gas sector, these countries have created the national welfare and ensured a relatively high GDP per capita. For example, in the United Arab Emirates, the corporate taxes are imposed only on the enterprises and the companies which are engaged in the oil and gas industry and the banking sector.
Such a scheme makes it possible to exempt the foreign investors and entrepreneurs from paying the corporate taxes, including the tax on the increase of capital and income tax. It should be noted that there is a relatively high standard of living in the Emirates and company registration and maintenance of business does not involve significant expenditures.
The similar tax policy is adopted in the other Middle Eastern countries, such as Oman, Bahrain, Kuwait, and Qatar. The majority of the countries of the Persian Gulf are the oil giants that can afford the loyal tax policy at the expense of the export of the oil and other sources in order to attract direct investments.
European tax havens
Switzerland can be considered a representative of the European part of the continent. Switzerland is characterized as a country with very flexible tax policy. The corporate tax rate for the company may depend on the number of the factors, among which there are: the type of the business or commercial activity; the volume of the expected investments into the national economy; the number of the new workplaces, etc. For persons who have a tax resident status, the tax rate can amount about 35%, and for the foreign citizens, there is the opportunity of creating the contractual tax relations. When calculating the rate of taxation the housing costs of the founders and expenses for rental of the office premises are taken into account.
Preferential zones with reduced taxes
In addition to the offshore countries, there are some territories s with the special economic status (and reduced tax rates). As a rule, such status provides the preferential tax treatment and the simplified procedure of registration or incorporation of the foreign company. On the territory of such a specialized area, one can obtain a tax resident status, which requires the payment of the applicable fees and taxes. Meanwhile, the registration of the offshore company involves only the payment of the annual fixed contribution. A separate category in this group consists of the countries which provide the preferential or simplified taxation schemes.
African tax haven
There is one tax haven, an offshore zone with reduced taxes in Africa – Liberia. In this jurisdiction, the offshore company can be registered either by a resident or by the foreign citizen. The companies, which do not possess a tax resident status and operate outside the jurisdiction, are exempted from all kinds of corporate taxation. Significant benefits regarding taxation are provided for the local companies, which create new jobs in the market and contribute to the active diversification of the economy, including the participants of the investment projects. The bonus for the international business includes the following benefits: favorable investment climate, the loyalty of the regulatory authorities, the absence of the currency exchange regulation and exemption from taxes when transferring the financial assets.
Top 10 tax haven countries
- Cyprus. Cyprus is a worldwide known tax haven. There are several schemes for obtaining a residence permit and permanent residence, as well as an accelerated program for obtaining citizenship of Cyprus for large investors. Cyprus is a member of the EU and has long been popular with Europeans as a jurisdiction for optimizing corporate taxation. The income tax of Cypriot companies of 12.5% is one of the lowest in the European Union. At the same time, until recently, Cyprus could not be considered as a tax haven for individuals. The income tax scale is progressive. The revenues range from to 20%, to 35%. In order to become a tax resident of Cyprus, you have to spend 183 days a year in Cyprus, that is, six months + 1 day.
- Seychelles and Belize. These tax havens are somewhat similar, since the cost of registering a company in Seychelles, as well as starting a business in Belize, takes about two days and costs about 400 euros. In both of these offshores, the founders of private companies are fully exempt from taxes. These jurisdictions are characterized by the absence of exchange controls and requirements for annual reporting and auditing. Among other things, it should be noted a convenient time zone of Seychelles. A characteristic feature of Belize is the most simplified (in comparison with other offshores) registration process.
- Panama. Panama is one of the most rapidly developing tax haven in the world. Panama is considered one of the largest international trade and financial centers. A growing economy, political stability, a well-developed infrastructure, and no currency control are ideal conditions for starting a business in Panama. Local legislation does not impose requirements for mandatory annual reporting and authorized capital. And, of course, a huge advantage is the relatively fast and cheap registration of offshore in Panama. The cost is from 850 euros.
- The British Virgin Islands. The British Virgin Islands is one of the oldest tax havens. The advantages of this jurisdiction include exemption from all taxes and the no requirements on reporting. However, if recently this territory was one of the most popular and profitable for investors, now the situation has changed somewhat. Since July of this year, an agreement between the British Virgin Islands and the United Kingdom on the exchange of information on the beneficiaries who registered the company in the BVI has come into force. Thus, businessmen who want to open a company in the British Virgin Islands no longer have to rely on confidentiality. Also, the company's maintenance prices have increased significantly and taking into account the opening of lists of beneficiaries; the BVI does lose its attractiveness compared to other tax havens.
- Hong Kong and Singapore. The tax havens of Hong Kong and Singapore are famous for their powerful economies, as well as the availability of financial and human resources. The cost of registering a company in Hong Kong is about 1,300 euros, Singapore is a little more expensive – from 3,600 euros. Both countries have clear requirements for filing annual reports and exempt from tax companies operating outside the mainland. Recently there appeared some difficulties with opening accounts for foreign citizens. An excellent alternative is opening an account in European banks.
- Gibraltar. Buying a ready-made offshore in Gibraltar implies full tax exemption. A tax haven of Gibraltar is an overseas territory of the United Kingdom and therefore has several advantages associated with its membership in the EU. The disadvantages of this tax haven include the mandatory submission of reports, the requirements for the presence of a resident secretary and an audit. Moreover, Gibraltar is blacklisted in offshore zones in many countries. Gibraltar has never signed double tax treaties.
- Malta. Global Residence Scheme, an immigration scheme for obtaining a residence permit for tax purposes was launched in Malta in 2013. The scheme is intended for citizens of countries outside the European Union. An applicant must buy a property in Malta worth at least 275,000 EUR (or rent for the amount of 9,600 EUR per year). If the property is located in Gozo or the south of Malta (that is, not in Valletta), then the purchase amount must be at least 220,000 EUR, and the rental amount is at least 8,750 EUR per year.
- Monaco. Wealthy foreigners can get a residence permit in a tax haven of Monaco, which is granted without the right to work in the Principality. To obtain a residence permit, you need to buy or rent real estate, have an account in a bank located in Monaco for the sum of 1,000,000 EUR and have medical insurance. The procedure for obtaining a residence permit consists of two stages: 1) obtaining an immigration visa at the Consulate of France, 2) personal submission of documents in Monaco.
- Switzerland. Political and economic stability combined with a high standard of living, developed infrastructure, low crime rates, and many other advantages have made Switzerland a desirable place to move and live. From a government point of view, Switzerland is a confederation, in which each canton sets its own taxation rules, which leads to competition among cantons for attracting wealthy citizens and their capital. The usual income tax rates in Switzerland are quite high, as the scale is progressive (the higher the income, the higher the tax rate).
- United Arab Emirates. If you open a company in the UAE that is registered in the so-called “free trade zone,” you can get a residence permit for 3 years. There are no income taxes in the tax haven of the UAE. There are also no corporate taxes for companies registered in free trade zones. There are also no taxes on property and the growth of capital in the UAE. Residence permit in the UAE provides an opportunity to live in the country all year round.
You must have some knowledge of fiscal and corporate law of this or that country to make the right choice of the jurisdiction for setting the international business. It will be rather difficult for the average entrepreneur. But you can always entrust your concerns to the team of qualified professionals, and get the wanted result as soon as possible.
Each of the proposed jurisdictions has its characteristics and features which are very important for every single business solution. Contact us and get the experts advice for free.