OFFSHORE TAX PARADISE
Offshore tax haven. Advantages of setting up a company in offshore tax havens and opening bank accounts.
KGN specializes in company formation in offshore tax havens
Offshore tax haven
An offshore tax haven is perhaps the smartest way for individuals and companies to reduce their tax burden. This is because tax shelters are the only completely legal way to avoid unreasonably high taxes. Yes, despite the bad press tax shelters get, they are perfectly legal under US, EU and international law.
This is why almost all Fortune 500 companies use popular offshore tax havens such as Bermuda, Cayman Islands, Bahamas, British Virgin Islands and others. These companies use offshore tax shelters because it is 100% legal.
The most important thing is to understand how to go about taking advantage of an offshore tax shelter. We will look at how to open an offshore company in a tax haven shortly. First, let’s look at who can benefit from an offshore tax haven.
Who needs an offshore tax haven?
Any person or company interested in circumventing unfair tax policies can benefit from a tax shelter. However, the benefits of offshore tax havens go beyond taxes (more on this later).
The categories of individuals and companies that can benefit from tax shelters include the following:
- Investors who are interested in establishing an international company
- Wealthy individuals who want to protect their assets
- Companies that want to maximize their profits
- Individuals and companies who want to minimize their tax burden
- Individuals interested in investing in a company or buying an asset anonymously (ie without being directly connected to it)
- Startups interested in establishing an offshore base to expand their operations
- Companies looking for strategic bases to exploit new markets
It is important to emphasize that offshore tax shelters can meet the needs of a myriad of individuals and businesses. This is why offshore tax havens currently serve a wide spectrum of entities, including Fortune 500 companies, start-ups, celebrities, international companies, politicians and even royalty.
These different categories of entities use a number of offshore tax havens, including Belize, Bahamas, British Virgin Islands, Seychelles, Vanuatu, Bermuda, Cayman Islands, Ras Al Khaimah (RAK) and Mauritius. Each of these have their own unique attractions, which we will find out later. But first let’s examine how to take advantage of tax shelters.
How you can take advantage of tax shelters
To enjoy the benefits of a tax haven, one simply needs to register a company 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 activities. This includes both existing companies that need an offshore subsidiary and new companies that need an offshore company.
A trust is best suited for people who want to use the offshore location to keep their money safe. This applies, among other things, to those who want to minimize their taxes, buy assets anonymously or transfer their wealth to others without paying huge taxes in the process.
The specific categories of companies and trusts that can be registered vary from tax haven to tax haven. Most tax shelters offer a myriad of options designed to meet the needs of different types of individuals and businesses.
For the sake of brevity, we will not go over the different types of companies and trusts here. Anyone wanting more information on the different types found in a specific tax shelter should click here
Now let’s move on to the actual benefits of having an offshore company in an offshore tax haven.
Important advantages of offshore tax havens
Offshore tax havens typically have laws that provide a number of benefits to individuals and businesses. In order for an outsider to enjoy these benefits, they must have an offshore company in the jurisdiction. The advantages of tax shelters include following:
Minimal or no taxes
The most common reason why individuals and companies seek tax shelters is to minimize their tax burden. It is an undeniable fact that most countries use progressive tax systems which tax the high earners unfairly. In such countries there is no legal way to minimize taxes.
Offshore tax havens are the perfect means of 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 small British territory has a law that allows companies to be incorporated and own assets without paying tax.
As a result, the Cayman Islands have no corporate income tax. This has made it a favorite offshore location for multinational companies. In fact, many Fortune 500 companies have subsidiaries in the Cayman Islands that they use to legally minimize their tax bill.
Other tax havens have similar laws to the Cayman Islands. Most of them have no corporation tax, capital gains tax, personal income tax, inheritance tax, gift tax and even stamp duty. Some countries such as Ras Al Khaimah (RAK) have no personal or corporate tax. This basically means that those who have companies in such tax havens do not have to pay tax.
The minimal or no taxes make the offshore tax havens perfect for people who want to reduce their tax bill. This makes them particularly good for businesses looking to maximize profits, or for start-ups looking to minimize costs. Since there are no taxes, such companies can easily meet their goals.
Offshore tax havens provide individuals and companies with maximum privacy protection. That’s because most of them don’t store publicly available business or bank account information. A person or company whose assets are channeled through the garden is thus protected from prying eyes.
In Bermuda it is e.g. illegal for banks to pass on information about 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.
Ras Al Khaimah (RAK) is another good example of an offshore tax haven. In RAK, there is no public company register. There is also no information about the company’s shareholders and directors. It is therefore practically impossible to know which companies operate there. This can protect a company and its directors from public backlash following revelations of their use of tax havens.
Such a level of privacy does not exist in European tax havens such as Ireland and Luxembourg. The information on companies using such tax shelters 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 public opposition.
Such a reaction cannot take place in an offshore tax haven because it is virtually impossible for such information to get out. Therefore, any person or company looking for the most secret way to store their money will be best served by an offshore tax haven.
Security is an important factor for anyone searching for a tax shelter. In the USA and most EU countries, it is a crime to avoid paying taxes. If discovered, it can lead to large fines and other penalties. Therefore, people are always looking for the safest tax havens.
In this regard, offshore tax havens are the safest tax havens in the world. There are two reasons for this. The first is that offshore havens often lie outside the jurisdiction of US and EU regulatory authorities. As such, they are outside the purview of the EU, US IRS, OECD, FAFT and similar bodies.
This means that even if these agencies and bodies suspect a person or company of keeping assets in tax havens, it is difficult for them to investigate the case. This is because they do not have access to the relevant financial records.
The second reason is that most offshore tax havens usually do not have Tax Information Exchange Agreements (TIEAs) with the EU and the US. There is thus no legal framework for them to put pressure on the tax shelters, even if they suspect that their citizens are using them to avoid taxes. This fundamentally reduces the likelihood that those using offshore tax havens will ever be discovered.
Perhaps the biggest advantage of offshore tax shelters is that they are extremely convenient to use. It is incredibly easy to set up an offshore company. In most tax shelters, the process can be completed within 2-4 working days. Registration costs are extremely low, with some tax shelters allowing you to register a company for $500 or less. To make it even more convenient, most tax havens allow people to register businesses without visiting the country.
It is not only at the registration level that it is convenient. Tax havens typically make it very easy to run offshore companies. In RAK, companies need e.g. not to prepare and submit tax returns. There are also no currency controls – meaning it’s easy to move money in and out of accounts. Many offshore tax havens have similar features designed to simplify the start-up and operation of businesses.
It is important to emphasize that offshore tax shelters offer a number of advantages for both individuals and companies. The exact benefits actually vary from tax shelter to tax shelter. To get a clearer picture of what offshore tax havens typically offer, here’s a brief look at some of them.
A snapshot of a few offshore tax havens
It is one of the most popular offshore tax havens. The Cayman Islands are popular because the law allows companies to be formed and hold assets without paying tax. This means that any assets stashed away in the Cayman Islands are largely untaxed. This is precisely why the 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 expensive assets. It is particularly suitable for individuals from tax jurisdictions that levy high taxes on assets. The Cayman Islands can be a safe option to own assets without having to pay taxes.
The Bahamas is also a known tax haven. This is because there is no personal income tax, capital gains tax, gift tax and inheritance tax in the country. This makes it extremely popular among both companies and individuals. According to Citizens for Tax Justice, approx. 5% of Fortune 500 companies affiliate in The Bahamas.
The Bahamas is best suited for wealthy individuals who want to minimize their taxes. It is especially perfect for older people who want to limit the taxes on the inheritance for their children. Since there is no inheritance or gift tax, they can give their money away without a large part of it being taxed.
This is another popular offshore tax haven. This is because it provides two benefits. Firstly, no corporation tax is charged at all. Second, the country’s banks have a reputation for secrecy that rivals the Swiss banks. These two factors have made Bermuda a prime choice for American companies. According to Citizens for Tax Justice, nearly 25% of all Fortune 500 companies in 2014 had subsidiaries in Bermuda.
Bermuda’s zero corporate tax rate makes it perfect for both existing businesses and start-ups. This can reduce operating costs, which could have been increased by corporate taxes. The country’s 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 targeting the Indian market. This is due to its strategic location in the Indian Ocean. But apart from the location, it is the country’s tax laws that make it popular.
Unlike other offshore tax havens, Mauritius actually charges a corporate tax rate of 15%. However, companies resident on the island can take advantage of the island’s double taxation agreements. This provides tax relief to almost all companies originating in the US and the EU. To add to the tax breaks, Mauritius also charges no capital gains tax.
Mauritius’ strategic location makes it best suited for businesses targeting the Indian subcontinent. It can be a safe place to do business from. This makes it perfect for companies looking to expand into India.
Other offshore tax havens
It is, in short, a snapshot of some of the popular offshore tax havens in the world. Other offshore tax havens include the British Virgin Islands, Belize, Vanuatu and the Seychelles.
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Services in offshore tax havens
KGN offers the following services in offshore tax havens:
- Company formation
- Registered office and agent services
- Corporate secretarial services
- Nominated shareholder / nominated director
- Opening bank accounts
- Complete business administration
- Mailing address
- Virtual office
- Trademark registration
- Registration of yacht
KGN | Offshore tax havens