16 SELECTING THE BEST TAX HAVEN FOR YOUR PLANS
Here are 12 important factors for gauging a tax haven’s suitability
for your purposes and the criteria for determining
the T-7 tax havens. When researching potential tax havens,
have your foreign contacts provide you with current information on
their jurisdiction’s status; changes frequently occur and often go
unnoticed. An offshore professional will gladly provide you with
what you need to make an intelligent decision. The countries profiled
in Part Three cover 40 tax havens, all worth further discussion.
Less notable venues have been eliminated to save you time and unnecessary
deliberation. All tax havens in this book are still viable
and open to consideration or, in the case of certain once-strong
havens that have recently experienced significant changes such as
the Bahamas, they must be addressed even though they are no
longer recommended for use.
Your object should be to secure the most advantages from the tax
haven you have selected while satisfying your primary objective.
These are the most important criteria to consider in choosing your
haven:
1. Tax structure
2. Political and economic stability
3. Exchange controls
4. Treaties
5. Government attitude
6. Modern corporation laws
7. Communication and transportation
8. Banking, professional, and support services
9. Legal system
10. Secrecy and confidentiality
11. Investment incentives and opportunities
12. Location
The country profiles in this book give a reasonable amount of information
to help you narrow down your selection. The fastest way
may be to start with the T-7 list of the world’s best offshore havens; if
none of them seem to fit your plans, you can take a more thorough
look into the many other tax havens and their unique characteristics.
TAX STRUCTURE
This is probably the single most important factor in considering a tax
haven, although several others should be seriously considered as well.
Tax havens commonly have two tax systems, one for local business and
one for those to whom they cater in their offshore trade. As an offshore
client, you need to know what taxes, if any, will affect your banking
or what taxes, if any, might be imposed on the corporation you
establish for business purposes. There are no-tax havens, foreignsourced
income havens, tax treaty countries, and special use tax
havens.
POLITICAL AND ECONOMIC STABILITY
Stability is a serious consideration in choosing any tax haven. However
nice Montserrat might have seemed, you wouldn’t have wanted your
offshore business located there when the lid blew off the volcano, taking
much of the island with it. Nor do you want to be in Liberia, a tax
haven that was dumped from my list due to endless murder and mayhem.
Almost all the tax havens here are very stable, with the exception
of Cyprus. But although the Turks and the Greeks apparently would
rather not stop fighting, Cyprus has managed to hold its own as a tax
haven, unlike a venue such as Nauru in the Central Pacific, which was
yanked from international banking after it was discovered that their
banking system was mostly a laundromat for the Russian mob.
EXCHANGE CONTROLS
Restricting the free flow of funds between countries is a form of governmental
control and annoying to anyone having to conduct international
business within these countries. “Flight capital” occurs frequently when
people are restricted from freely moving their money in and out of their
country. Let’s hope we don’t experience it in the United States anytime
soon. However, it is possible. That is why you want to consider the potential
negative repercussions of geopolitics on your finances, investments,
and assets. Going offshore is the best way to avert these troubles. In recent
history, many people have employed the same methods and then
followed their money out of their country as well. Most serious banking
centers and tax havens do not have exchange controls that would affect
offshore business.
TREATIES
Know where your prospective tax havens stand on tax treaties, particularly
ones signed with your own country. They are important when
doing tax planning. Many tax havens impose a low or no tax on foreign
earned income and have no tax treaties. Where there are tax
treaties, your offshore business might be ideally suited to reap significant
tax benefits. An ordinary tax treaty usually helps you escape double
taxation. Another type of treaty is called a Tax Information
Exchange Agreement (TIEA), but it is not really a tax treaty. The sole
purpose of the TIEA is to permit the U.S. Internal Revenue Service
(IRS) to obtain otherwise secret or highly confidential financial and
other information from foreign financial institutions and from
lawyers, for tax investigations against U.S. tax payers. The TIEA is
being used to crack down on alleged offshore tax evasion, and many
tax havens are expected to agree that it is in their interest to sign such
an agreement. But it is not in your best interest.
The Mutual Legal Assistance Treaties (MLAT) are bilateral agreements
used in criminal investigations to obtain information and evidence.
Although many tax havens are party to this agreement, it does not
cover tax evasion. A list of countries that have signed this type of treaty is
included in Chapter 30. Consult a U.S. attorney who is well versed in
these matters, or an offshore legal professional knowledgeable on how
existing treaties with the United States would affect your offshore plans.
GOVERNMENT ATTITUDE
Political parties holding office can have a positive or negative effect
on their offshore industry. Go with a tax haven that promotes the offbarb_
shore field and the benefits of doing business from their venue. If an
election process exists, transitions between administrations may go
smoothly, and you won’t have to run for cover. But, should you ever
need to quickly redomicile an offshore corporation to another venue
(which could be necessary for a variety of reasons), Nevis is an excellent
choice, and the government will honor the original incorporation
date of the company from the country from whence it came.
MODERN CORPORATION LAWS
Today, most tax havens have modernized their corporation laws and
incorporation procedures to keep up with the stiff competition. Tax
haven corporation laws often have features not found in U.S. corporations,
and these usually afford more advantages and flexibility.
The offshore corporate vehicle of choice is the international business
corporation (IBC), which is specifically designed for offshore
use by nonresidents, and is generally exempt from taxes. As for incorporation
and annual maintenance costs, the fees are usually
competitive to get into one, and reasonable to keep it alive. There
are exceptions, such as in Bermuda and Switzerland where these
costs are relatively hefty.
COMMUNICATION AND TRANSPORTATION
Unless you plan to retire or immigrate to your chosen tax haven country,
or your business warrants shipping, chances are you won’t be staying
there for long, if at all, so transportation isn’t too important. Most
tax havens today have upgraded to state-of-the-art facilities so that
conducting international business without being present should not
be a problem. If you are doubtful, ask your tax haven contact.
BANKING, PROFESSIONAL, AND SUPPORT SERVICES
Top-notch banking, professional, and support services will make your
life easier, especially if you are operating from long distance. Most of
the tax havens have reliable experts in the field. If a recommendation
or personal introduction is desired, for further information, refer to
“Offshore Evaluation Service” in Part Four.
Banking offshore has been affected by outside influences, as well
as by the internal changes the offshore venues may have experienced.
Familiarize yourself with these developments and assess where your
tax haven stands and may be headed tomorrow. The Bahamas and the
Caymans were touted as ironclad tax havens, but both tanked quickly
under pressure, giving in to outside influences.
LEGAL SYSTEM
Half of all tax havens are based on English common law, which is generally
a good thing. The concept of confidentiality in financial transactions
is customary, and even without secrecy laws, they will generally
provide greater confidentiality than you experience in the United
States. That is because many were former British protectorates or
Crown Colonies, some of whose external affairs are still handled and
protected by England. English common law has a long tradition and
case law history from which to draw. In countries like Panama, Mexico,
France, and elsewhere, civil law is the prevailing system, and is based
on Napoleonic law, or “guilty until proven innocent.”
Confidentiality is being eroded even in certain common law countries
and some attacks on banking privacy are succeeding. In Great
Britain, thanks to a special ruling recently passed, the U.K. Revenue
(the British IRS equivalent), and Customs can now force banks and
other financial institutions to turn over all financial records held in
their databanks on their customers, all in the name of tax evasion prevention,
even though there is little proof to substantiate the claims
against individual depositors. This tactic is similar to the one used by
the IRS against offshore debit and credit card holders. English Revenue
and Customs wasted no time in exercising their new power, and
for starters, have gone after Barclays Bank account holders, including
their offshore accounts held in tax havens like Guernsey, Jersey, and
the Isle of Man. These high-handed measures have become a trend and
will get even worse as the G-7, the European Union, and other nations
try to reduce mounting deficits as a result of pension crises, escalating
health and welfare costs, and all-around poor fiscal management by
many governments. Talk of “harmonizing taxes” and “creation of a
level playing field” and “unfair tax competition” are all lines directed
at eliminating the tax competition offered by lower-taxing countries.
Only if these offshore avenues are significantly reduced or plugged
SELECTING THE BEST TAX HAVEN FOR YOUR PLANS 59
can the high tax bodies of the world jack up taxes further to support
their missions. Otherwise, they fear that even further revenues will be
lost to tax havens and other lower taxing countries.
SECRECY AND CONFIDENTIALITY
Panama is a good example of a tax haven that is attractive for bank
secrecy. There are statutory guarantees protecting financial privacy
and providing a very high level of confidentiality. Stiff civil and
criminal penalties help keep lips sealed. A handful of money havens
stand out as having possibly the strictest secrecy laws anywhere.
Many tax havens and banking centers, however, have succumbed
to the pressures of the OECD and the United States, and have
abandoned their secrecy policies, as with those tax havens that
signed a Tax Information Exchange Agreement (TIEA).
The best money havens for maximum secrecy are the countries on
my T-7 list, and, concerning this topic, I must also add Andorra. Although
in terms of confidentiality these eight are my favorites, still
others (such as Luxembourg, Vanuatu, and even Denmark) have secrecy
laws and could be useful. Although all are subject to change, as
with the T-7, they are likely to remain strong for some time.
Let the buyer beware. Even tax havens peddling secrecy do not want
criminal elements. Secrecy can be penetrated under circumstances
where criminal activity is involved.
INVESTMENT INCENTIVES AND OPPORTUNITIES
Tax havens have many attractive financial benefits and unique characteristics
that draw business to these islands, enclaves, and legislative
wonders. Some of these countries encourage onshore investment to
develop industries in the hopes of creating new jobs and stimulating
their own economies. These incentive programs frequently come in
the form of tax holidays, grants, and loans.
LOCATION
Today’s state-of-the-art communications have transcended the importance
of where a tax haven might be located. The time zone will make
a difference if you are far away, in which case, you will want to adjust
your calling times to reach people during business hours. At times, I
have found myself awake at all hours of the night to talk to people in
certain parts of the world. Certain investors tend to stay close to
home. The English use the Channel Islands; Americans like the
Caribbean; Asians and Australians use the South Pacific and Asian
tax havens; Africans might use Madagascar or the Seychelles. The Italians
like Switzerland and Monaco, or so the story goes. The answer to
which will be your best tax haven is to minimize your concern with location
in favor of the most important factor—solving your financial
objectives, wherever that may take you. You needn’t limit your options
because of your proximity to a tax haven. Language is occasionally a
barrier, but professionals in most sophisticated banking centers and
tax havens speak fluent English, the business language of the world.