Offshore Tax Havens. Benefits of forming a Company in Offshore Tax Havens
Offshore Tax Haven
An offshore tax haven is perhaps the smartest way for individuals and corporations to reduce their tax liability. This is because tax havens are the only perfectly legal way of avoiding unfairly high taxes. Yes, despite the bad press which tax havens get, they are perfectly legal under US, EU and international law.
This is why almost all Fortune 500 companies use popular offshore tax havens like Bermuda, the Cayman Islands, Bahamas, British Virgin Islands, and others. These companies use offshore tax havens because it is 100% legal.
The most important thing is to understand how to go about utilizing an offshore tax haven. We shall look at how to open an offshore company in a tax haven shortly. First, let us consider who can benefit from an offshore tax haven.
Who Needs An Offshore Tax Haven
Any individual or corporation interested in circumventing unfair tax policies can benefit from a tax haven. However, the benefits of offshore tax havens move beyond taxes (more on this later).
The categories of individuals and corporations who can benefit from tax havens include the following:
- Investors interested in setting up an international business
- Wealthy individuals who desire to protect their assets
- Corporate agencies which desire to maximize their profits
- Individuals and Companies who desire to minimize their tax liability
- Individuals interested in investing in a company or purchasing an asset anonymously (i.e. without being directly linked to it)
- Startups interested in setting up an offshore base to expand their operations
- Companies looking for strategic bases to tap into new market
The bottom line is that offshore tax havens can serve the needs of a myriad of individuals and corporate agencies. This is why offshore tax havens currently serve a broad spectrum of entities including Fortune 500 companies, startups, celebrities, international businesses, politicians, and even royals.
These different categories of entities use a number of offshore tax havens including Belize, Bahamas, British Virgin Islands, Seychelles, Vanuatu, Bermuda, the Cayman Islands, Ras Al Khaimah (RAK) and Mauritius. Each of these has its own unique attractions, as we shall find out later. But first, let’s explore how to benefit from tax havens.
How To Benefit From Tax Havens
To enjoy the benefits of a tax haven, all that is needed is to register a corporate entity within the jurisdiction of the tax haven. The most common entities are corporations (companies) and trusts. An offshore company is best suited for those who intend to use the offshore location as part of their business operations. This includes both existing companies which need an offshore subsidiary and new companies which need an offshore base.
A trust is best suited for individuals who want to use the offshore location to safely store their money. This includes those who want to minimize their taxes, purchase assets anonymously or transfer their wealth to others without paying hefty taxes in the process.
The specific categories of corporations and trusts which can be registered vary from one tax haven to another. Most havens offer a myriad of options designed to serve the needs of various types of individuals and corporations.
For the sake of brevity, we shall not examine the different types of corporations and trusts here. Whoever desires more information about the different types available in a specific tax haven should click here
For now, let us proceeds to the actual benefits of having an offshore company in an offshore tax haven.
Benefits Of Offshore Tax Havens
Offshore tax havens typically have laws which provide a number of advantages to individuals and corporations. For an outsider to enjoy these advantages, they need an offshore company within the jurisdiction. The advantages of tax havens include the following:
Minimal or No Taxes
The most common reason why individuals and corporations seek tax havens is to minimize their tax liability. The undeniable fact is that most countries use progressive taxation systems which unfairly tax high earners. In such countries, there is no legal way to minimize taxes.
Offshore tax havens provide the perfect remedy for minimizing taxes. This is because these tax havens tend to have extremely low or even non-existent taxes. A perfect example of this is the Cayman Islands. This tiny British territory has a law which permits corporations to be formed and own assets without paying any taxes.
As a result, the Cayman Islands has no corporate tax. This has made it a favored offshore location for multinationals. In fact, many Fortune 500 companies have subsidiaries in the Cayman, which they use to legally minimize their tax bill.
Other tax havens have similar laws to the Cayman Islands. Most of them don’t have a corporate tax, capital gains tax, personal income tax, inheritance tax, gift tax, and even stamp duty. Some like Ras Al Khaimah (RAK) don’t have any personal or corporate taxes. This basically means that those who have companies in such tax havens don’t incur the cost of taxes.
The minimal or zero taxes make offshore tax havens perfect for individuals who are eager to reduce their tax bill. It makes them especially great for companies which desire to maximize profits or start-ups which desire to minimize costs. The absence of taxes means that such corporations can meet their goals with ease.
Offshore tax havens provide maximum privacy for individuals and corporations. This is because most of them don’t keep publicly accessible company or bank account information. As such, an individual or company which assets channeled through the haven are safe from prying eyes.
In Bermuda, for instance, it is illegal for banks to release the details of account holders to third-parties. Not even the government of Bermuda can access this information. This means that those who keep their funds in Bermuda are 100% assured of their privacy.
Another great example of offshore tax haven privacy is Ras Al Khaimah (RAK). In RAK, there is no public registry of companies. There is also no available record of company shareholders and directors. As such it is virtually impossible to know which companies are operating there. This can protect a company and its directors from a public backlash following revelations of their use of the tax haven.
Such a level of privacy isn’t available in European tax havens like Ireland and Luxembourg. The information on companies using such tax havens is readily available. Over the past year, Amazon and Google have come under fire for channeling their funds through Luxembourg and Ireland respectively and have had to pull out due to a public backlash.
Such a backlash cannot occur in an offshore tax haven because it is virtually impossible for such information to come out. Therefore, any individual or company looking for the most secretive avenue for keeping their money would be best served by an offshore tax haven.
Security is a big deal for anyone searching for a tax haven. This is because in the US and most EU countries, not paying due taxes is a crime. Being found out can lead to hefty fines and other punishments. As such, people are always looking for the most secure tax havens possible.
In this respect, offshore tax havens are the most secure tax havens in the world. There are two reasons for this. The first is that offshore havens are often outside the jurisdiction of US and EU regulatory authorities. As such, they are outside the reach of the EU, US Internal Revenue Service, OECD, FAFT and similar bodies.
This means that even if these agencies and bodies suspect an individual or company of storing the assets in the tax haven, it is difficult for them to investigate. This is because they don’t have access to the relevant financial records.
The second reason is that most offshore tax havens usually don’t have Tax Information Exchange Agreements (TIEAs) with the EU and US. As such, there is no legal framework for them to apply pressure on the tax havens, even if they suspect that their citizens of using them to avoid taxes. This basically reduces the likelihood of those who use offshore tax havens of ever being found out.
Perhaps the greatest advantage of offshore tax havens is that they are extremely convenient to use. Setting up an offshore company is incredibly easy. In most tax havens, the process can be completed within 2 to 4 working days. The cost of registration is extremely low, with some tax havens making it possible to register a company for $500 or less. To make it even more convenient, most tax havens make it possible for people to register companies without even visiting the country.
The convenience isn’t just at registration level. Tax havens typically make operating offshore companies extremely easy. For instance, in RAK, companies don’t have to prepare and submit tax returns. There are also no exchange controls – meaning that moving money in and out of accounts is hustle-free. Many offshore tax havens have similar features which are designed to simplify starting and operating businesses.
The bottom line is that offshore tax havens offer a number of benefits to both individuals and corporations. The exact benefits actually vary from one tax haven to another. To get a clearer picture of what offshore tax havens typically offer here is a brief look at a few of them.
A Snapshot of A Few Offshore Tax Havens
This is one of the most popular offshore tax havens. The Cayman Islands is popular because its law permits corporations to be formed and hold assets without paying any taxes. This means that any assets stashed away in the Cayman Islands are basically untaxed. This is precisely why Fortune 500 companies channel their profits there and save billions of dollars in corporate taxes.
The Cayman Islands are best suited for corporations or individuals with costly assets. It is especially suited for those from tax jurisdictions which levy high taxes on assets. The Cayman Islands can provide a safe avenue for owning assets without incurring any taxes.
The Bahamas is also a renowned tax haven. This is thanks to its lack of personal income tax, capital gains tax, gift tax, and inheritance tax. This makes it extremely popular with both corporations and individuals. According to the Citizens for Tax Justice, around 5% of Fortune 500 companies have subsidiaries in the Bahamas.
The Bahamas is best suited for wealthy individuals eager to minimize their taxes. It is especially perfect for older people who are eager to limit taxes on the inheritance due to their children. The absence of inheritance and gift tax means that they can give away their money without significant portions of it being siphoned off in taxes.
This is another popular offshore tax haven. This is because it offers two advantages. First of all, it levies no corporate tax at all. Secondly, its banks have a reputation for secrecy which rivals that of Swiss banks. These two factors have made Bermuda a prime choice for US companies. According to Citizens for Tax Justice, in 2014, almost 25% of all Fortune 500 companies had subsidiaries in Bermuda.
Bermuda’s zero corporate tax makes it perfect for both existing corporations and startups. This can reduce operational costs which could have been spiked by corporate taxes. Its secretive banking culture also makes it perfect for individuals who want to protect their wealth from prying eyes.
Mauritius is a popular tax haven for companies which are targeting the Indian market. This is thanks to its strategic location in the India Ocean. However, its location aside, it is the country’s tax laws which make it popular.
Unlike other offshore tax havens, Mauritius actually levies a 15% corporate tax. However, companies’ resident on the island can benefit from its double tax treaties. This grants tax breaks for almost all companies originating in the US and EU. To add to the tax breaks, Mauritius also charges no capital gains tax.
Mauritius’ strategic location makes it best suited for companies which are targeting the Indian subcontinent. It can provide a safe location from which to run business operations. This makes it perfect for companies eager to expand into India.
Other Offshore Tax Havens
In a nutshell, that is a snapshot at some of the popular offshore tax havens in the world. Other offshore tax havens include the British Virgin Islands, Belize, Vanuatu, and Seychelles.
Services in Offshore Tax Havens
Worldwide Incorporation Services provides the following services in Offshore Tax Havens:
- Company Formation
- Registered Office and Agent Services
- Company Secretarial Services
- Nominee Shareholder / Nominee Director
- Opening of Bank Accounts
- Full Company Administration Services
- Mailing Address
- Virtual Office
- Trademark Registration
- Yacht Registration
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