Provided by Robert Warther, Warther Private Wealth
According to the International Monetary Fund, tax havens cost governments between $500 billion and $600 billion a year in lost corporate tax revenues. Out of the fortune 500 companies, at least 366 of them have a subsidiary in a tax haven, meaning many of the nation’s most successful business use these havens. In 2017, Apple reported $246 billion in accounts offshore, which helped Apple avoid around $76 billion in US Taxes. Some of this was repatriated after President Trump reduced the tax rate from 35% to just 15.5%, but this wont completely dissuade companies from routing money through tax havens.
The Bahamas is one of the most well-known tax havens, stretching all the way back to the 1990’s. In the 90’s, the Bahamas passed a law allowing the incorporation of foreign businesses and banks accounts. It was also one of the first countries to pass strict banking privacy laws. Information on offshore bank accounts and their holders can only be disclosed via a ruling from the Bahamian Supreme court. In the Bahamas, there is no income or capital gains tax for individuals, with the country instead imposing import, property, stamp, and value added tax (VAT) for tax revenue. Offshore businesses also benefit in the Bahamas because there is no corporate tax on revenue unless it is from the local economy, meaning any revenue from another country would have no corporate tax in the Bahamas. The Bahamas currently hosts thousands of IBC’s (International Business Company).
The British Virgin Islands
The Virgin Islands were first discovered by Christopher Columbus in 1493, which is how the islands received their current name. In the 1670’s the British gained control of some of the islands, including Tortola. Following the British introduction of sugar cane, the islands were ruled under an admin of the crown, until they finally gained autonomy from the crown in 1967, as a parliamentary dependency, now known as an overseas territory. Overtime the British Virgin Islands economies have shifted away from agriculture into the tourism and financial sectors, with over 50% of the governments revenue coming from financial services within the nation. Currently the islands have a population of less than 36,000, but over 400,000 businesses operate here, holding an estimated 1.5 trillion in assets. This is because like the Bahamas, there is no tax on interest, dividends or corporate income that is generated outside the islands. They do impose a payroll tax however on any income over $10,000.
Bermuda is a small island located in the Atlantic Ocean between the US and Europe that has become known for its beautiful beaches and light taxes. Bermuda is also a British overseas territory like the British Virgin Islands and has similar tax rules as well. Bermuda does not tax corporate income, interest or dividends but does have a payroll tax. Most notably Bermuda was named as a destination in the Paradise Papers, which was a set of documents that was leaked to the press in 2016. These papers reported that companies such as Nike and Google, among others, sent billions in assets through Bermuda to avoid taxes.
The Cayman Islands
The Cayman Islands are also a British overseas territory. The Islands are in the Caribbean Sea, in between Cuba and South America. Although the Caymans are a British Overseas territory, the tax rules here are different. Like the other havens we talked about, the Cayman Islands do not have a corporate tax, but they also have no income, property, capital gains or payroll taxes. Many consider the Cayman Islands to be tax neutral for this reason. The government here raises revenue through tourism and work permits, import duties and financial transactions. Goods in the country usually have a duty tax on them, ranging from 22-27%. Certain items such as baby formula are exempt from this tax, but other items, such as a car might be taxed based on the value of the vehicle. The government also charges an annual licensing fee to all offshore corporations, which is based on the amount of authorized share capital the company owns.
The Channel Islands
The Channel Islands are 2 small islands located off the coast of France in the Atlantic Ocean. One of the islands is named Jersey, while the others name is Guernsey. Both islands have their own legislative bodies however the United Kingdom is responsible for its protection as well as international relations to the islands. Guernsey, which is the smaller of the two islands, offers a 0% corporate tax for most businesses, except for income from banking and domestic insurance, which is only taxed at 10%. Any income made from real estate here is taxed at 20%. Unlike some of the other havens we have talked about, they do have an income tax of 20%. Jersey, the larger of the Channel Islands, has similar tax laws. On this island there is no corporate tax, EXCEPT for financial services which are taxed at 10%, and utilities, rentals, and development projects, which are taxed at a rate of 20%. They also have a 5% sales tax on goods and services, unlike most of the other havens we have talked about.
Puerto Rico is a popular destination for Americans who are looking to reduce their tax implications. In 2019, a law was passed that allows new citizens of the island to pay close to zero income and capital gains tax. There are some criteria you must meet to claim the tax break, however. First you will need to become a resident who lives there for at least 183 days a year. You must also purchase property within the first 2 years and make an annual donation of $10,000 to a Puerto Rican Nonprofit organization. Businesses who move to Puerto Rico also experience tax breaks, such as no taxes on profits and a low 4% corporate tax rate. Although Puerto Rican’s are American citizens, they are unable to vote federally but they would not owe any federal income tax.
Privacy is one of the biggest draws to the Swiss banking system. It can offer individuals to manage their assets in a discreet manner. The Swiss Banker Association has said that 48% of money in Swiss bank accounts originates from outside the country. Switzerland does not have as significant tax breaks as some of the other places we have discussed, but they do have a below average income tax and offer tax breaks for foreign corporations. Recently Switzerland has become slightly less attractive, due to pressure from the United States and the European Union. Following the 2008 financial crisis both parties pressured the Swiss to reveal information about their account holders. In 2010, Switzerland signed the FACTA bill, which was ratified in 2019 and requires Swiss banks to release the information. The Swiss also signed a similar agreement with the European Union in 2015. Despite these recent reforms, about 35% of fortune 500 companies still operate a subsidiary here.
Even if some of these tax havens seem enticing to you, there are other factors you should consider too. This includes what languages are spoken in each place, what kind of climate they are in, and how far away you are willing to move! It is also important to consider how good the healthcare and schooling systems are for your family. If you are interested in moving to one of these locations, you should consult with a tax professional who will be able to advise you on your individual situation. To file individual taxes in some of these places, you may be required to become a resident. This might require you to renounce your citizenship, especially if you are from the United States.
Robert Warther may be reached (239) 276-7939, or firstname.lastname@example.org.
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