The year 2023 promises to be packed full of pleasant surprises, especially in the tax sphere. Due to the privacy and tax security offered by individual nations, they are fantastic tax havens for any investor. Several countries, especially those in the Caribbean, offer many astute investors and businesspeople significant benefits and financially robust opportunities for corporations and individuals alike. They allow people to avoid some potentially astronomical income taxes in their native countries.
What Is A Tax Haven? (The Basics)
A tax haven is a country that offers a reduced, or if you are lucky, no tax liability.
Okay, so who benefits and how?
Although an individual may take advantage of this legal manner of avoiding taxes in a home country, many corporations and large companies benefit the most by the sheer amount of capital they are moving in and out of these tax havens.
But corporations aren’t the only beneficiaries. People like:
- Various investors, these include those who wish to turn their attention to more international businesses
- Startup businesses
- Those who want to purchase or invest with strict anonymity
- And corporations looking to capitalize on their immense earnings
- Companies looking to expand into the global market
What Are The Pros & Cons?
An off-shore location where you never have to pay tax, and often keep a large amount of privacy in the deal? It sounds like tax havens are almost too good to be true. Not everything is foolproof, however. Here are some pros and cons to tax havens.
There is a fantastic amount of privacy in tax havens. Everything you do when filing, negotiating, and other financial activities are kept from the public. Critical decisions aren’t readily available, taking some heat off of essential decisions of a business.
This is further emphasized through the lack of participation that is needed at the end of the host country. Interaction can be extremely minimal, allowing you to take care of your account with privacy seamlessly.
2. Low to no taxes
The very core of the issue, tax havens often charge no tax whatsoever in some way. This ensures that a large amount of money earned by various people or corporations is virtually untouched.
3. It’s easy
To get started with a tax shelter, it doesn’t require that much heavy lifting on the prospective user’s end. Some people have had a more difficult time setting up a bank account in America!
1. The host country’s own economic or political instability
While tax havens provide anonymity and financial security, situations of different magnitudes can arise. Political strife, economic recession or depression, and others can all affect how well and smooth experiences with a tax haven might be.
Political stability should possibly be the number one variable to consider when accessing a tax haven or off-shore account. The last thing you need is for your off-shore account to run into political issues due to revolutions, protests, or any other crackdown or law changes.
2. They aren’t free from legal ramifications
Some tax havens provide an almost limitless lack of transparency and economic freedom compared to the home country of an investor or corporation. World governments can quickly punish and imprison those who are too lax and abuse the leniency of tax havens. This leads to the next con.
3. Illegal Activity & Global Economy
With tax havens and their almost too-good-to-be-true nature, it is no surprise that many may utilize this freedom and privacy for more ill-gotten gains, like using the system for money laundering. This could also manifest itself in the form of a recession if enough economies are tied up within tax havens.
4. Possible high cost
While many tax havens have little to no tax rate, the cost of operating one may be more expensive than you bargained for. However, if you’re using a tax haven, chances are you won’t exactly have any serious doubts about paying some extra money to make sure your money is tax-free.
How To Open A Tax Haven Account
Investing in an offshore tax haven varies from country to country, and can be surprisingly simple. Think of opening an offshore bank account as you would open an account in your home country.
Usually, there is a process of inputting various pieces of personal information: your identification, proof of citizenship, and date of birth.
You will most likely have to show your passport and possibly other things to positively identify you, like bills. Barring any unforeseen complications, like outstanding issues with domestic banks, or if you are behind on your home country’s taxes, you should be able to complete the process.
To summarize the general steps:
- Input personal information
- Go through financial background checks from your home country
- Disclose exactly why you are using the offshore account.
- Choose the currency in which to convert or keep your money
These basic steps may vary in scrutiny from country to country, with some foreign tax havens being more intrusive during the setting up. This serves mainly as a template for what usually happens. Think of more in-depth questioning as insurance for these countries, as they need to do their due diligence and uphold their image of not aiding and abetting criminal activity.
What Are The Costs?
The cost of setting up an offshore bank account will vary from country to country. Some foreign countries will allow you to set up accounts for anywhere usually between $300 to ~$4,000. Although the higher end of the scale may seem rather expensive, think of the extreme privacy and security you would experience from having an offshore bank account.
Paying the extra money may very well be a sound investment in the long run. It is more realistic to plan to spend towards the higher end of that scale, especially in European countries.
What Does The Future Look Like For Tax Havens?
Depending on the location and governmental status of the country in which you invest in an offshore account, tax havens have either a solid or shaky future.
Countries that lie within the jurisdiction of the European Union are subject to more laws that tend to investigate countries that have a number of offshore accounts, which may affect tax laws. However, legislation is more or less slow-moving, allowing you to ‘test the waters’ of what countries would be most secure with your finances.
On the other hand, countries like the United States and Singapore are more secure and independent, free of a larger governing body to determine different statuses. Overall, the future for tax havens is looking rather secure.
The 25 Best Tax Haven Countries
1. The Cayman Islands
Possibly the most efficient tax haven in the world, the Cayman Islands have become one of the number one spots for financiers and corporations. In the Cayman Islands, there is no corporate tax whatsoever. For corporations, this is a fantastic windfall to take advantage of. The Cayman Islands could very well help shield many corporations from increased and substantial taxes.
Another ‘pro’ for utilizing the Cayman Islands is the lack of interest you have to pay on investments. Specifically, the Cayman Islands would benefit corporations and hedge fund managers the most. For those who value privacy, (doesn’t everyone?), privacy laws are excellent, ensuring that people won’t be able to ascertain valuable financial information.
For British investors, there may be some trouble on the horizon; however: In early 2020,
“The Cayman Islands, a British overseas territory, is to be put on an E.U. blacklist of tax havens, less than two weeks after the U.K.’s withdrawal from the bloc. In a clear indication of the country’s loss of influence on the E.U.’s decision-making, the bloc’s 27 finance ministers are expected to sign off on the decision…an attempt to clamp down on the estimated £506bn lost to aggressive tax avoidance every year but member states are not “screened” in the process of drawing up the blacklist.”
Overall, the Cayman Islands have scored the highest in terms of secrecy on the Financial Secrecy Index.
Another beautiful island spot, Bermuda, turns out to be one of the more expensive countries to call home. For investors and those looking off-shore, Bermuda has a 0% tax rate and no income tax whatsoever. This is fantastic news for companies and corporations.
One such company, Nike, in particular, made millions from not paying America’s tax rate. Nearly a quarter of Fortune 500 companies are involved in some way or another with Bermuda as a tax haven.
Bermuda’s emphasis on privacy for prospective bankers is some of the best in the world.
Although Bermuda benefits everyone utilizing them as a tax haven, corporations probably achieve the most benefit from using them.
The Netherlands is one of the most consistently popular tax havens for Fortune 500 companies in particular. Whereas about a quarter of these companies using Bermuda, well over half of the Fortune 500 use the Netherlands as a tax haven.
Like Bermuda, the company Nike has also managed to set up an account as well as avoiding paying Dutch taxes overall through a subsidiary they set up. Although not as openly tax-free as other tax havens, the Netherlands offers a substantially lower tax rate than other European countries.
The government of the Netherlands often states that their country is not a tax haven. Many big-name companies like Google take advantage of this by opening subsidiaries in the Netherlands.
The government, trying to crack down harder to avoid the image of a tax haven, is actively attempting to implement legislation that will affect the status of corporate taxes in the country.
4. The Bahamas
The Bahamas are a popular tax haven in the Caribbean. The Bahamas are a corporation’s dream, as they implement no form of a tax for corporations.
For huge companies like IKEA or Adidas, this is a godsend. Their banks are also the very definition of discreet, with their reputation preceding them for privacy and lack of transparency in terms of sharing information.
Once again, this tax haven best benefits wealthy individuals. However, this doesn’t mean certain corporations can’t utilize the Bahamas and their extremely lax tax codes and laws.
Keep in mind that tax havens are perfect for investors and entrepreneurs looking to expand their base. The Bahamas serves around 5% of Fortune 500 companies. Think of the costs a startup could save by using this tax haven!
Mauritius is an island nation in the Indian Ocean, around 1,200 miles from the coast of the main African continent. As an isolated nation, what better place for a tax haven?
The primary users of this tax shelter are a majority of Indian companies. Unlike its other contemporaries, Mauritius does have a corporate tax. This totals around 15% for corporations.
However, businesses based in the United States, as well as Europe, can benefit from specific tax laws applied to them, which effectively more or less cancels out that 15% tax through tax breaks and other related laws and treaties.
Singapore is a wealthy country in Southeast Asia, where the taxes for corporations are considered ‘nominal.’ Singapore is a hugely thriving economic hub, with an estimated total GDP of over a trillion.
With this rightly earned reputation of being the center of the region’s economy, business, and trade, they allow companies and investors to pay smaller taxes.
Corporations will be around 17%, and individual income tax comes to approximately 22%. Most notably, they don’t levy taxes on capital gains. They also offer attractive tax exemption for specific businesses and fields.
Keeping in line with Singapore’s ‘bread and butter,’ they provide tax exemptions towards firms dealing with foreign banks, global trading, and off-shore funds. There are also other benefits, like significantly broad tax exemptions for startups and corporations alike.
Singapore also keeps a tight watch on any sort of criminal activity, like money laundering. This makes Singapore one of the most solid tax havens you could use, as it serves the interest of nearly everyone involved.
Singapore’s future with tax havens looks solid, as the fierce independence and robustness of its financial sector are not easily breached by wide-sweeping tax laws and changes.
Part of the Benelux economic union countries, alongside Belgium, the Netherlands, Germany, and France, Luxembourg has been a choice tax haven for many for decades. It also happens to be one of the wealthiest countries in the world, for that matter. The country is a financial powerhouse, despite more recent actions to undermine its reputation as a tax haven by the E.U.
A wealthy corporation or individual can take heart with investing in the tax haven of Luxembourg, as it is one of the leading financial institutions in Europe.
Privacy is the central tenet of Luxembourg’s policy as a tax haven. Only the owner of the funds or off-shore account can sign off on sharing personal details about their finances.
Luxembourg keeps everything under lock and key, ensuring their clients are feeling secure. It doesn’t tax interest in off-shore bank accounts. Not only that, but they even offer favorable tax rates to their domestic corporations, giving them tax breaks and sometimes exemptions.
If you want variety, privacy, and a robust economic system, Luxembourg is a pure tax haven.
Along with staying neutral in conflicts, and their chocolate, the Swiss are perhaps best known for the robustness and success of their financial institutions.
Switzerland, based in Central Europe, is a cultural patchwork of nearby Italy, Germany, France, and Austria. As such, different languages are spoken there and has become a tour de force with culture and business alike. The country is known for its constant reliability regarding off-shore tax shelters and is the go-to spot for wealthy Europeans as well as international clientele.
However, the staunch privacy otherwise found in places like Singapore and Luxembourg have been somewhat weakened by investigations and subsequent laws put in place by the E.U. The 2008 financial crisis changed how the world does business, and this includes tax havens. Switzerland signed the “Foreign Account Tax Compliance Act, commonly known as FATCA, which obligates Swiss banks to reveal information about U.S. account holders or face penalties.”
However, with privacy weakened, a sizable portion of Fortune 500 companies have subsidiaries or holdings in Switzerland.
9. Isle of Man
The Isle of Man is located in the Irish Sea, between Great Britain and Ireland. This small island of 83,000 already has lax taxation laws, like no inheritance or capital gains tax. Those looking to invest in this tax haven will be pleased to know the highest taxes would total 20%, which stop at around USD 146,754, or 120,000 British pounds.
If you have a pension, the Isle of Man may very well be the tax haven for you, as holding your pension off-shore can weather the blow it would typically take in your home country. Those in the United States can be expected to bring heavy losses through multiple taxes that are avoided by using the Isle of Man.
Overall, the Isle of Man can particularly benefit the individual, as those with pensions can keep their hard-earned money intact. Along with protected pensions, the no inheritance tax or capital gains are pluses as well.
Malta, the tiny island nation, pays the lowest amount of taxes than any other member of the European Union. While domestic businesses can expect to pay upwards of almost 40% in fees, those who are shrewd and privy enough to seek out Malta’s tax haven can pay as little as 5%.
Malta is suited more towards the corporation rather than the individual. Malta’s low tax rate has raised concerns in the European Union, even going as far as to unofficially dub it ‘the Pirate Base’ and ‘Europe’s Panama.’
Despite some isolated murmurings of ill-repute from some in the European Union, Malta maintains a good image for corporations to partner up with the island country. The low corporate tax means your corporation will weather the blow of heavy taxation in the States.
11. Hong Kong
Much like Singapore, Hong Kong has established itself as an Asian financial powerhouse. It’s a trendy hub of commerce, culture, and entertainment. Things are made easier for those foreign to Hong Kong, with English and Chinese being the main languages.
Hong Kong’s bases its taxing system on actual land area rather than profits. This means a company like Nike will pay taxes based on the size of Hong Kong, rather than the United States tax codes in place.
Hong Kong’s tax rate for corporations hangs around 17.5%. Privacy is paramount in the tax haven of Hong Kong, with the added security of knowing Hong Kong takes its economy and its clients extremely seriously.
Hong Kong does not put the corporations on the actual register, meaning that names don’t show up in public files. If privacy is your main issue with off-shore banking, Hong Kong is the perfect option for a tax haven.
Seychelles is an archipelago consisting of over 100 islands in the Indian Ocean. This chain of islands has become a tax haven favorite over the past years. The government itself has bent over backward to transform itself into the tax haven that investors and corporations want to pursue and investigate actively.
There are zero taxes for corporations in the Seychelles chain of islands. Although there isn’t any tax, there is a $100 annual license fee for corporations taking advantage of the privacy and tax-free benefits of the islands. Those seeking to invest in an off-shore account in Seychelles can do so remotely, and privacy is taken seriously.
If confidentiality is breached in any way, those who do so may be prosecuted by the government. The only way privacy is made known if there is a discrepancy or court order.
The ease of access to Seychelles’s off-shore accounts for investors and those with an account are effortless. Plus, there are no fees or restrictions on dealing with the finances in your account once it is set up.
13. New Zealand
The island nation of New Zealand is located in the Pacific, within proximity of various islands, and not too far from Australia. Over the years, the development of New Zealand’s economy, coupled with its aim to ease up tax laws for foreign accounts, has made it an excellent choice for a tax haven.
Privacy is critical once again, as New Zealand has laws, namely the Limited Partnership Act, in which names and partnerships are not in the public record, except for personal auditing.
New Zealand’s political stability and robust economy can ensure that those who use this tax haven need not worry about upheaval, economic disaster, or any other unforeseen complications that would make accessing or depositing funds problematic.
There is no capital gains tax for corporations in New Zealand. The overall corporate tax rate in the country for New Zealand companies over the years has been steadily decreasing, currently at 30%.
Those who are non-residents of New Zealand pay no taxes on money that they have earned elsewhere. This means your income is untouched unless it was made in New Zealand.
14. Delaware, USA
Unique in the United States, Delaware is a tax-free state, allowing for companies and others to take advantage of Delaware’s lack of taxation on LLCs. This state also provides the same valuable privacy that is offered in many other tax havens worldwide.
Delaware is also unique in that it has no sales tax or inheritance tax. This sets it apart from the rest of the nation as a potentially highly beneficial tax shelter.
Famous for its displays of extreme wealth, Dubai is a city in the United Arab Emirates that serves as a perfect tax haven. Much like Singapore and Hong Kong, Dubai is extremely attractive to business people and corporations worldwide. It has a booming economy, partly thanks to its oil reserves, as well as the tourism industry.
It rakes in over 100 billion annually in GDP and serves as a proficient and handy tax haven as well. Like New Zealand, Dubai has no taxes for corporations that aren’t based in Dubai itself. However, this also applies to corporations based in Dubai, too. Meaning the government doesn’t tax corporations.
However, there are exceptions, like oil companies, hotels and tourism, and foreign banks taxed at various small rates. The government is committed to the privacy of investors and companies, often passing legislation explicitly aimed at protecting privacy.
Dubai is the quintessential tax haven, with no inheritance tax, no capital gains tax, and no estate tax.
Gibraltar is a British territory on the southern tip of Spain. Gibraltar is a tourism hot spot and depends on a significant amount of off-shore finances for its sources of income.
The tax rate in Gibraltar for foreign accounts is 10%, and they also must pay an annual licensing fee for their business in the country. However, as of late, Gibraltar is shifting its image of that of a tax haven to that of a country merely with low taxes.
Chief Minister Fabian Picardo says: “Our corporate tax take used to be 20 or 30 million pounds ($34 million or $42 million),” he says. “It’s now more than 100 million pounds (about $141 million).”
The new structure is also a boon to local businesses, which used to pay much higher tax rates than absentee foreign ones. Perhaps this shift in Gibraltar’s tax preferences may affect the future nature of its status as a tax haven amongst financial professionals.
Another of Europe’s most financially successful countries, Germany’s financial friendlessness towards foreign investors, is a big draw to becoming an off-shore client.
Right off the bat, there is no tax on interest in Germany. An individual’s foreign assets aren’t taxed, and corporations pay a measly 5% overall.
In the grand scheme, Germany is very hands-off when it comes to international banking. And as always, the privacy of the clientele is paramount when choosing Germany as a tax haven.
However, keep abreast of issues like that of ever-changing legislation regarding tax laws in Germany. Back in 2009, German officials clashed with Switzerland over its status as a tax haven.
Ireland is the perfect place for the wealthy artist, as they have tax-free income. Ireland often partakes in low tax practices like this and has an overall business tax rate of 12.5%. Ireland has done this to encourage investors and wealthy companies to relocate and to utilize the attractive and fruitful low-tax environment of the island.
One of the critical factors of Ireland’s tax haven is called the Financial Services Centre, which is an unregulated body and has foreign businesses and investors pouring cash into it, investing billions.
Ireland has been the center of minor criticism for its lax policies by its neighbors for allowing companies like Google to pay less.
The island of Jersey is situated between France and England on the English Channel and is a British crown dependency. It has been known as a tax haven for nearly 100 years when British citizens would relocate their wealth to the Channel island.
The isle of Jersey is infamous for its privacy; with billions of dollars invested in its tax haven system, Jersey keeps foreign investors’ information under deep wraps. Alongside their lack of transparency, there is no inheritance, corporate gains tax, or business tax. There is an income tax rate of 20%.
It’s straightforward to set up an account on Jersey, often with individuals not even having to put a deposit down.
Austria is a landlocked country to the north of Italy and is smack dab in the middle of the financial centers of Europe. Known for having an attractive bond market, Austria is known for its financial secrecy.
For many, including neighboring countries like Germany and Switzerland, this is all the reason they need to invest in an Austrian tax haven.
Its bonds, as well as its secrecy and lack of clientele transparency, has made it immensely popular with investors and companies from neighboring countries, especially those from Germany.
Much like Austria, Andorra serves those who value secrecy above all else on the European continent. Andorra is a tiny country that lies right in between France and Spain in the eastern Pyrenees.
Andorra has the unique status of not being in the European Union. This means it isn’t beholden to any sort of financial regulation that a country like Germany may be subject to.
Many of its European neighbors take advantage of Andorra’s ease of access. Being situated between the French and Spanish borders, physically getting to Andorra is a breeze for many of its neighbors.
For this tax haven, European clientele is perhaps best-suited towards Andorra. They even have their banking service to help and advise clients with their accounts.
Considered by some to be one of the most famous, (or infamous), tax havens. England, and London in particular, are extremely welcoming to corporations regarding low tax rates.
When looking at tax havens, England may be the best bet for those with a corporation. England has its hand in many of the financial goings-on around the world. Many entries on the list are current dependencies of the crown, like the Isle of Man, Jersey, and the Caribbean.
Many of England’s off-shore clients are heavily based on letterbox companies: companies that are merely a name on a mailing address to maximize the effect of low taxability. England has recently been gaining popularity as a top tax haven.
“TJN’s financial secrecy index, which ranks countries on the size and secretiveness of their financial sectors every two years, showed the UK edged closer to the top 10 most secretive financial systems in the world. It ranked 12th out of 133 countries, having shot up from its previous slot at 23rd.”
Brexit has caused somewhat of an upheaval, allowing the United Kingdom to break away from the European Union’s regulations set in place for nearly all the major European countries.
23. Sioux Falls, South Dakota, USA
Although the U.S. has been the reason that many have offshore accounts in other countries, the state of South Dakota, and its lack of regulations, have been an attractive domestic option for American citizens who may want to stay closer to home.
“…the [Chinese] billionaire Sun Hongbin…transferred $4.5bn worth of shares in his Chinese real estate firm to a company on a street corner in Sioux Falls, South Dakota, one of the least populated and least known states in the US.”
Why would a foreign investor seek out the sleepy town of Sioux Falls? Investors are specifically seeking out what’s called a ‘South Dakota Trust,’ which
“…protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and pretty much anyone else. It won’t protect you from criminal prosecution, but it does prevent information on your assets from leaking out in a way that might spark interest from the police. And it shields your wealth from the government, since South Dakota has no income tax, no inheritance tax and no capital gains tax.”
The unique status of the South Dakota Trust can attract the wealthy from all over the globe, as well as domestic investors and entrepreneurs for its airtight privacy and innocuous nature.
The state of South Dakota works best for the individual rather than the corporation, as the South Dakota trust is tailor-made for an individual’s personal circumstances and financial status. South Dakota alone has seen billions of dollars being deposited in accounts in recent years.
South Dakota offers a little more free rein compared to countries within the E.U., as they aren’t beholden to the Union’s regulations. Tax laws in South Dakota aren’t seeing as if they would change in the future, as they have been more conservative both politically and financially for over 40 years.
Sweden doesn’t exactly come to mind when thinking of a tax haven. However, the tide may be turning. They have recently changed many of their tax codes to the point where they are more malleable than in the past.
The primary way Sweden becomes a tax shelter is through bonds called Kapitalförsäkring. This allows users of the insurance bond to avoid paying a higher capital gains tax. This can be used by both foreign investors and citizens alike.
Although not the best tax haven, things could turn the corner and be utilized into becoming an efficiently running shelter very soon.
Cyprus has possibly gone through the most fluctuation as a tax haven than any other entry on the list. Once a favorite off-shore bank for many Societ higher-ups, Cyprus has technically shed the status of tax haven for its compliance with the European Union, and in particular, their dire financial needs during the 2008 financial crisis, had them at the mercy of the financial regulations set in place.
Cyprus’s tax rate is still a rather low rate of 12.5%. Although it is in better standing with the E.U. as of late, foreign investors may want to look elsewhere if they value privacy and independence from a broader political and financial body.
The future of Cyprus as a tax haven isn’t so clear. Specifically, Cyprus has been the number one spot for Serbian businessmen. However, in recent years, especially after Cyprus joined the E.U., prices for maintaining and applying for an offshore account have gotten steadily more expensive.
“In the beginning, Cyprus was very popular because it had many advantages – the state did not give out any information about the owners, the tax was paid only in Cyprus and we had a favourable intergovernmental agreement with this country. Meanwhile, maintaining a business in Cyprus has become more expensive,” explains Milan R. Kovacevic, a foreign investment advisor. He believes it is now cheaper to do business in the Netherlands, France or Sweden, with which Serbia has better intergovernmental agreements compared to Cyprus. Intergovernmental agreements cover dividends, interest and royalties. Previously, Cyprus had extremely favourable dividend yield rates and low corporate income tax.
Although Cyprus still is a solid tax haven, it seems that the tide is turning, and the island nation may lose much of its favorability amongst foreign investors.