Characteristics of financial centers

  • Posted By : Admin
  • Tax havens
  • 02-06-2017
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Offshore financial center can be defined as any financial center where extraterritorial activity takes place, that is, the financial activity dedicated to non-residents. This definition also includes all financial centers in the world, where there is no distinction between offshore businesses for non-residents and onshore for residents.

How many types of financial centers are there?

There are 2 types of financial centers. Such centers as the United Kingdom, New York and Tokyo according to the IMF are defined as "International Financial Centers" and therefore are excluded from the definition of offshore centers. On the other hand there are "Offshore Financial Centers" such as Hong Kong, Singapore, Cayman Islands where the activity takes place outside the residence of the individual. In addition to the banking activities themselves, the financial centers provide for non-residents other services such as fund management, insurance, trust formation, tax planning and activity of international mercantile companies. Offshore financial centers usually are used to save taxes, protect assets and give anonymity. Who would not like to reduce taxes on profits simply by having their business registered outside their country of residence? Calculate all taxes that your company pays a year or what you would pay in taxes and social insurance by opening your new business and the sum will be a minimum amount that you can save every year if you decide to move your business out of your country of residence. Add the fiscal flexibility of these jurisdictions favorable for the development of business and anonymity in commercial activity.

Do you feel secure knowing that the government of your country controls your money and that the tax agencies can have access to your bank accounts at any time? Investing in offshore financial centers one obtains complete anonymity of all his income and transactions, and avoids control over capital movements and patrimony protection. Why not choose a completely legal path and at the same time facilitate the saving of taxes, anonymity and protection of heritage? See the characteristics offered by offshore financial centers and compare them with those of your high taxation country.

Characteristics of offshore financial centers

  1. Low or 0% tax rate for non-residents: most often, non-residents are not subject to any level of taxation, unless for registration fees and maintenance expenses. This does not mean that residents do not pay taxes. They quite often pay high direct or indirect taxes.
  2. Banking secrecy and secrecy established by law: in many countries, violation of banking secrecy protocol is punishable by a jail sentence.
  3. Attractive commercial financial legislation: there are only a few requirements for funding admissions and company registration.
  4. Absence of exchange controls and total freedom of capital movement, little regulation and administrative control, including poor banking regulation; in some enclaves its appeal lies not so much in the low banking development, but in their banking rate status and highly qualified personnel: Switzerland, Luxembourg, Austria and Jersey, for example. However, financial sector regulation through independent agencies is now extending to almost all tax havens.
  5. Flexible legal system: most of the offshore centers base their system on the common law, very favorable for business, for inheritance planning and registration of Trusts.
  6. Political and economic stability: it is a crucial factor because when stability hits bankruptcy like what happened in Panama with the U.S. invasion in 1989, the money and business migrate to other places.
  7. There are almost no agreements to exchange tax information with high-tax countries. However, today and in response to pressure from various international institutions and powerful countries many low-tax enclaves were forced to sign agreements to avoid double taxation with high-tax countries. So that in some centers the appeal for the user has become the opposite: the existence of advantageous agreements to avoid double taxation. Many of these agreements include provisions for exchange of information.
  8. Good communication and telecommunications infrastructure: the contact with banker or investments manager can be established 24 hours a day through online banking, live chat or by phone. In general, a tax haven must have good infrastructure.
  9. Multilingual assistance specialized in international finance.

A disadvantage of the tax havens is its remoteness, but the fact is that close to Spain there are territories that, under certain conditions, are authentic tax havens such as Andorra and Gibraltar and a little further, Monaco, the Channel Islands or the Channel La Mancha, Switzerland and Luxembourg. The establishment of a tax haven in your own or nearby country is a way to capture foreign capital and alleviate the unemployment situation of surrounding regions. 

Tax havens have full banking services, normally at the highest level and comparable to those of the major financial centers worldwide. They provide loans in different currencies and often at more advantageous conditions than in a high tax EU country. Banking secrecy law is essential and institutions can only violate it under certain conditions which vary from country to country and which the user should know very well before opening an account. 

Today, the pressures of international agencies to prosecute money laundering and terrorism are turning tax havens to “international financial centers", characterized by a favorable legislative environment for business, taxation mitigated, but more transparent, regulated and cooperating with other countries and with the same bodies.