By: Tina Samuels
A tax haven is a location that offers taxes breaks or lower taxes in that area. It can either be a state, territory or country, with most being offshore locations, but a few in the United States as well. There are many benefits to putting your money in a bank located in a tax haven, which investors and corporations have done repeatedly. In the past, they were somewhat of a mystery, where corporations wanted to keep it unknown so the government wouldn’t be aware of it. However in recent years, the exact locations of tax havens, like the Cayman Islands, Nevada and Monaco, have been very well known. There are even major corporations in tax havens, such as Apple, Microsoft, Bank of America, Cisco and many more.
OECD Rules for Tax Havens
The Organization for Economic Co-operation and Development (OECD) is in charge of defining tax havens. They base their distinctions on three main factors: the amount of taxes, protecting financial information and not having transparency.
The Amount of Taxes
This factor is for countries or states that either don’t have taxes or very minimal taxes, also known as nominal taxes. It often includes lack of personal income, gift, inheritance or capital gains taxes.
Protecting Financial Information
The location must also offer protection of the investor’s personal financial information, to be identified as a tax haven. They will have some sort of practice or law that keeps their financial information safe, not be shared with outside governments or authorities.
The final factor for tax havens is to have a lack of transparency. This is transparency in legal, administrative or legislative provisions. The OECD wants to be sure the nation has laws that are applied consistently for everyone and that foreign tax authorities have no say in the matter.
Here is a list of the top 10 tax havens in the world, according to Daily Intel. Each of them has their own benefits and drawbacks.
Switzerland is one of the most well known tax havens in the world, known as a “neutral” country. But since they are known for their tax haven status, they are also a bigger target.
Although Austria signed an agreement in 2009 to get removed from the Organization for Economic Co-operation and Development’s list resulting in sharing banking information, they still have a place on the list. Austria doesn’t have inheritance tax, and they provide tax breaks for citizens.
Singapore is rising quickly in popularity as a tax haven, even drawing the attention of co-founder of Facebook, Eduardo Saverin. There is no capital gains tax in Singapore, which is one of the reasons it has become such a popular location.
British Virgin Islands
The British Virgin Islands have no inheritance tax, capital gains tax, sales tax or gift tax, making them one of the most popular tax havens. Unfortunately this also means the government is aware of their existence, putting investors at risk.
Monaco has strict laws in relation to tax evasion, but if you can connect with a bank there, you have multiple perks. Any investor wanting to avoid tax and get into a tax haven will find benefits to choosing Monaco.
Hedge funders are particularly fond of putting their money in the Cayman Island, which is why the name is used so often in movies and television shows. Celebrities, investors and even politicians like Mitt Romney choose the Cayman Islands as their go-to tax haven.
Not all tax havens are located outside the U.S., in fact two states have tax havens in the U.S.: Delaware and Nevada. Delaware is the local corporate tax haven and hold more than 50 percent of corporation funds in the U.S. that are incorporated in Delaware. Companies like Bank of America and apple that have addresses in Delaware, take full advantage. In Nevada, there are no personal income taxes and is another great place in the U.S. for tax breaks.
Tax havens are a safe alternative to paying high taxes in the U.S., U.K. or other countries where they are known for their rising taxes and strict regulations. It is something for investors, individuals, and corporations to explore.