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Financial Website Directory Ireland

What Are Tax Havens?

Author: Jason A Russell
Category: Regional: United Kingdom: Tax Preparation UK
Date Added: July 18, 2012 10:38:44 AM
Page Views: 2045

A Tax Haven is simply a country that allows you to pay less tax. People use tax havens to minimise their tax (duty) and conceal assets for asset protection purposes. Some people use these jurisdictions to hide their cash from tax authorities in their home countries which is evasion as opposed to legal avoidance. This is not very intelligent because with expert, effective tax planning, tax can legally be avoided anyway. Those that generally use these havens for tax evasion reasons have often made their money in illegal ways. Contrary to common perception, these people are not welcome in most jurisdictions. People who indulge erroneously in tax evasion, run the risk of imprisonment because Governments have no "sense of humour" when it comes to loss of revenue. Prison is a lot more expensive that paying for legal tax avoidance. This article will focus on legal avoidance of duty with respect to the use of tax havens.

Nil Tax Havens

Some jurisdictions are where zero tax is levied by the country. These locations have none of the standard taxes on:

  1. Income
  2. Companies
  3. Inheritance

Such havens are perhaps locations where you have been on holiday and some are listed here?

  1. The Cayman Islands
  2. St Kitts and Nevis
  3. Dubai
  4. Monaco
  5. The Bahamas
  6. Bermuda
  7. Vanuatu
  8. The Turks and Caicos Islands
  9. Anguilla

These countries need to generate some income to operate but it is usually in the form of import duties, registration fees for companies and levies on Government documentation etc. However, these are negligible expenses.

Foreign Source Exempt Tax Havens

These countries do levy taxes and in some instances they can be quite high, however any income that arises from overseas, is not taxed. This is significant for many people and many expats choose to retire or operate from these locations after having left businesses in their home locations. This form of avoiding duty suits many people's lifestyle choices and their businesses. You cannot have any local work done on your foreign business to qualify as exempt.

Examples of these jurisdictions are:

  1. Panama
  2. Costa Rica
  3. Hong Kong
  4. Seychelles
  5. Singapore


Low Tax Havens

These jurisdictions have tax, but it is considerably lower than what you would pay in your home location. The reason for choosing such a location is that many nil tax havens do not have treaties with other countries and this could cause a problem in avoidance. The combination of a low tax jurisdiction and utilisation of a double tax treaty would perhaps work better for your needs.

An Example

If you were to be awarded or purchase shares on the New York Stock Exchange you could choose to hold them in a Bahamas based company or Cayman Island Holding Company, but the dividends would be subject to withholding tax of 30%. If you chose to use a jurisdiction such as Belgium or The Netherlands, there would be very little duty deducted in the US, assisting in tax avoidance.

Some low tax jurisdictions are listed below:

  1. Cyprus
  2. The United Kingdom, (which will surprise many readers)
  3. Barbados
  4. Switzerland
  5. Denmark
  6. Belgium
  7. The Netherlands
  8. Austria


Asset Protection

Some people prefer to use these jurisdictions for the purpose of asset protection because of the anonymity afforded to companies, trusts and foundations that are situated in these locations. Some jurisdictions do not have registers of directors or share holders and this makes it easy to conceal ownership of various valuable assets like homes, share portfolios, property portfolios, bank accounts etc. This means that if a person is ever sought by a creditor, there is nothing to be taken as nothing is owned by that person. It was John D Rockefeller who was famously quoted as saying "I want to own nothing, but control everything". Offshore Holding Companies, Trusts and Foundations in these jurisdictions make this an easy outcome to achieve.

This is a very brief look at tax havens but for a better explanation of how you may choose to use them for planning purposes you may like to read through the excellent, easy-to-read book by Lee Hadnum on the subject entitled, The World's Best Tax Havens.

Jason Russell is a consultant with The Tax Experts, a UK based firm that specialises in legal UK Tax Avoidance Schemes and Tax Planning. The firm offers income tax planning, capital gains tax advice, corporate tax planning, inheritance tax planning and avoiding stamp duty and land taxes on residential and commercial property purchases. To learn more about The Tax Experts please visit