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Tax Engineering

What is a tax haven?


Question

What is a tax haven? Any country can be considered a tax haven?

Answer

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A tax haven is a country with a tax-free regime applied to companies and individuals that are not tax residents in this same country. Tax havens have favorable laws to encourage investments offering opacity and easiness to invest. 

For a country to be considered a successful tax haven it must meet the following 5 conditions:

  • Null or close to 0 rate of taxation.
  • Banking secrecy.
  • Little bureaucracy.
  • Enviable geographic location.
  • Political stability.

If the country you are in meets any of the points listed above, Bingo!! You have just visited a tax haven. 

Tax haven classification by income per capita 

All financial centers are not rich, there are countries that absorb more capital than others. As income per capita tax havens can be classified into 2 types: 

Rich tax havens 

These are countries capable of capturing millions of euros per day. The citizens have a very high income per capita (54,000 EUR) and these are usually very expensive countries to live. The most famous and richest tax havens are: Monaco, Cayman Islands, Hong Kong, San Marino, Switzerland, Jersey, Isle of Man, Panama and Dubai.

The country's per capita income is closely related to the quality of financial services it offers. The richest tax havens assume more risks and offer the same financial services as the first world countries, such as: 

  • Credit lines and Mortgages for companies and individuals.
  • Virtual POS Terminals.
  • Credit and debit cards without limits.
  • Investments in Forex.
  • Investments in international funds.
  • Life insurance.

Poor tax havens 

The cost of living in these countries is much lower and its citizens tend to have a more modest per capita income (30,000 euros) and lesser possibilities to raise that number. The so-called poorest tax havens are: Saint Vincent and the Grenadines, Saint Lucia, Saint Kitts and Nevis, Seychelles, British Virgin Islands, Dominica, Trinidad and Tobago, Cook Islands and Aruba. 

Even though poor tax havens don't offer such a wide list of financial services, its fiscal regime it still very favorable for foreign countries that want to save on tax, a completely legal choice and decision. 

Therefore, it is time to understand that tax havens are not islands where pirates hide to avoid paying taxes. These are usually more regulated and guarded countries. The European Union has spent years fighting against its tax havens demanding more fiscal regulation and the first step it took was to identify the countries that have tax rates of less than 10%.

List of Euro-tax havens

The list of countries considered as tax havens by the EU are: Guernsey, Jersey, Switzerland, Andorra, Liechtenstein, Serbia, Bosnia-Herzegovina, Montenegro, San Marino, Macedonia and Albania. 

As you can see, the consolidated tax havens such as Switzerland and Jersey are included, but also there are other countries that have never been tax free, such as Serbia, Bosnia. The main reason for that is that these countries were at war during many years and a good way to rebuild the country and attract international investments is by creating favorable tax regime and lowering taxes. 

Conclusion

Tax havens can be seen from two points of view: 

  1. The first opinion is from the point of view of high taxation countries that have a moralistic and hypocritical opinion criticizing tax havens. However, the same experts don’t dare to criticize such countries like the United States where we can find states like Delaware with a tax saving regime for companies registered in this American state and where Greater 500 Wall Street companies have their representative office to eliminate their taxes considerably. In the case of the United Kingdom and most of its colonies, such as Gibraltar, Cayman, Jersey, the favorable laws for tax elimination are consented by the United Kingdom allowing these tax havens to operate all over the world. 
  2. The other point of view goes in favor of tax havens since the main source of income for these territories are tourism, finance and they have no other form of income because of the few resources that these countries have. Tax havens defend its use and the advantages it can offer to individuals and companies to conduct business legally in any country in the world.


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