A tax haven, or “offshore financial center,” is a country (or state) in which foreign investors pay taxes at an abnormally low rate, possibly even zero. By shifting their funds into or through tax havens, businesses and other investors can avoid paying taxes in high-tax countries. Residency or business presence is typically not required in order to benefit from a tax haven's policies (though it may be in tax-free countries. Additionally, tax havens share little or none of their investors' financial information with foreign tax authorities.
These policies attract a generous amount of capital inflow for tax havens, which may impose mild fees, charges, or a minimal tax on foreign investments in order to generate government revenue. This inflow of funds, which is substantial even with the haven's low-to-zero tax rates, facilitates economic growth in the tax haven country.
Top 10 Tax Haven Countries in the World - Tax Justice Network 2021 (CTHI value):
Country | |
---|
British Virgin Islands | 6.45% |
Cayman Islands | 5.99% |
Bermuda | 5.67% |
Netherlands | 5.54% |
Switzerland | 5.11% |
Luxembourg | 4.1% |
Hong Kong | 4.08% |
Jersey | 3.89% |
Singapore | 3.87% |
United Arab Emirates | 3.76% |
Legal issues with tax havens
Tax havens exist in a legal gray area in that many of the activities associated with them are legal, but many are not. For example, using a tax haven to store funds earned overseas, thereby avoiding paying higher taxes in one's home country, is legal. So is funneling investments in a trust or company through a tax haven. On the other hand, using a tax haven to hide earnings entirely, or to launder money earned through illegal means, is not legal.
Although the definition of what exactly counts as a tax haven differs from source to source, modern tax havens typically adhere to guidelines set out by regulatory bodies such as the Organization of Economic Cooperation and Development (OECD) and the U.S. Government Accountability Office. Modern corporate tax havens have high levels of OECD compliance and establish bilateral tax treaties, which are legal agreements between two countries that reduce the rate of taxation for businesses located in one country but earning money in another. Many tax havens have the ability to legally enable tax treaties close to zero by using base erosion and profit shifting tools (BEPS).
The world's most renowned tax havens
British Virgin Islands
Considered by many to be the world's leading tax haven, this British Colony's economy holds more than 5,000 times its worth in foreign investments. Local officials claim the country is not a tax haven, but this argument is undermined by the fact that the BVI has a mere 36,000 residents, but is the listed home of more than 400,000 companies and holds approximately $1.5 trillion (USD) in assets.
Luxembourg
One of the world's richest countries, Luxembourg is also one of the world's leading tax havens. According to a report from Citizens for Tax Justice and U.S. PIRG Education Fund, approximately 30% of U.S. Fortune 500 companies have subsidiaries in Luxembourg. For example, web retailer Amazon.com funnels all of its sales in Europe through its official European headquarters in Luxembourg.
Cayman Islands
The Cayman Islands recently held banking assets equal to one-fifteenth of the world’s $30 trillion in total banking assets. In addition to having no corporate tax, the Cayman Islands impose no direct taxes on residents, including property, income, and payroll taxes. The Caymans are especially popular with hedge fund managers because the corporate and income tax rates are 0%, even on interest or dividends earned on an investment. The Caymans are home to subsidiaries of Fortune 500 companies such as Pepsi, Marriott, and Wells Fargo.
Bermuda
Most consumers know this U.K. island territory for its tourist-friendly beaches, but those in the financial sector may also know it as a notoriously popular tax haven. Bermuda's Gross Domestic Product (GDP) per capita is abnormally high thanks to its lack of taxes on corporate income, interest, dividends, and royalties. These tax rates have induced companies such as Google and Nike to park billions of dollars in accounts in Bermuda, thereby avoiding U.S. taxes.
Netherlands
The Netherlands' former finance minister, Jan Kees de Jager, has been quoted as saying the country's financial systems are far less exploitable than those of Switzerland or the Cayman Islands. However, it is likely that Google, Fiat Chrysler, IBM, and the many Fortune-500 companies lowering their taxes by funneling their profits through Dutch subsidiaries feel otherwise.
Switzerland
Switzerland is known worldwide for the secrecy of its banking sector, which holds the details of its clients' financial accounts and dealings in strict confidence. This trustworthiness makes it easy for both individuals and corporations alike to hide wealth with great effectiveness. Moreover, although some of Switzerland's laws regarding secrecy have been removed, the country's tax rates remain quite favorable.
United States
Although not a tax haven to the same degree as the other countries listed, the United States offers a unique tax scenario thanks to the fact that each state sets its own income tax rates. As such, states with no income tax, such as Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, can often be utilized as tax havens by countries wishing to minimize their tax burden.
FAQs
British Virgin Islands
Considered by many to be the world's leading tax haven, this British Colony's economy holds more than 5,000 times its worth in foreign investments.
Where is the best tax haven country? ›
British Virgin Islands
Considered by many to be the world's leading tax haven, this British Colony's economy holds more than 5,000 times its worth in foreign investments.
What countries are blacklisted for uncooperative tax haven? ›
Following this latest revision, the EU blacklist now consists of the following 12 jurisdictions: American Samoa, Anguilla, Antigua and Barbuda, Fiji, Guam, Palau, Panama, the Russian Federation, Samoa, Trinidad and Tobago, the U.S. Virgin Islands, and Vanuatu.
What is the best tax haven for US citizens? ›
According to our research, the Caribbean offers some of the most popular tax havens in the world, providing benefits such as very low tax liability and financial privacy. Among the most used Caribbean tax havens are the Bahamas, Panama, and the Cayman Islands.
What is the best country to save taxes? ›
Some of the most popular countries that offer the financial benefit of having no income tax are Bermuda, Monaco, the Bahamas, and the United Arab Emirates (UAE). There are a number of countries without the burden of income taxes, and many of them are very pleasant countries in which to live.
Which US state is a tax haven? ›
Some large businesses and high-worth individuals choose to reside in one of the nine U.S. tax haven states that have no state income tax. These include Alaska, Tennessee, Wyoming, Florida, South Dakota, New Hampshire, Texas, Nevada, and Washington.
What is the best tax haven citizenship? ›
Most suitable countries for getting a tax haven and dual citizenship
- Dominica. – We can consider Dominica the best choice for businessmen who are looking for the best place to establish businesses and companies. ...
- Saint Kitts and Nevis. ...
- Antigua and Barbuda. ...
- Grenada. ...
- Saint Lucia.
Which country has the most tax evasion? ›
There is lack of legitimate and accurate means of establishing whether the top-ranking cases of prosecuting tax evaders and tax amnesty may have minimized the estimated amounts of wealth invested overseas. It is important to note that this puts the US, as the country with the highest level of tax evasion.
Is there a country that pays no taxes? ›
Which countries don't have taxes? At present, there are 14 countries without income taxes. These include Antigua and the neighboring Barbuda, Saint Kitts, the United Arab Emirates, Vanuatu, Brunei, Bahrain, the Bahamas, Bermuda, the Cayman Islands, Monaco, Kuwait, Qatar, Somalia, and Western Sahara.
What are the secret tax havens? ›
Tax havens can offer rebates for taxes or tax incentives for attracting outside investment. Example countries that also rank high in secrecy and have low-to-no taxes are the British Virgin Islands, Bermuda, Guam, Taiwan, and Jersey.
The Best Tax-Free Caribbean Islands You can Easily Relocate to
- #1 Anguilla. Anguilla is a British Overseas Territory in the Caribbean. ...
- #2 Cayman Islands. The Cayman Islands are also a British Overseas Territory (BOT). ...
- #3 The Bahamas. ...
- #4 Turks & Caicos. ...
- #5 British Virgin Islands. ...
- #6 Caribbean CBI Countries.
Which state in the USA is tax-free? ›
Which Are the Tax-Free States? Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax. Note that Washington does levy a state capital gains tax on certain high earners.
Which country is most tax-friendly for retirees? ›
You're ready to embrace the expat life with confidence.
- Panama. Panama tops most lists of the best countries to retire in, and there are good reasons for that. ...
- Costa Rica. ...
- Portugal. ...
- Ecuador. ...
- Greece. ...
- Belize. ...
- Nicaragua. ...
- The Philippines.
What country has no capital gains tax? ›
Not all countries impose a capital gains tax, and most have different rates of taxation for individuals compared to corporations. Countries that do not impose a capital gains tax include Bahrain, Barbados, Belize, the Cayman Islands, the Isle of Man, Jamaica, New Zealand, Sri Lanka, Singapore, and others.
Where is the best place to live to avoid income tax? ›
Currently, nine states have no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Living in these states allows you to keep more of your hard-earned money.
What is the most highly taxed country? ›
The long-troubled West African country, Ivory Coast, has the highest income tax rate in the world. People living there are giving away a whopping 60% of their income to the government.
What is the most tax-free country in the world? ›
List of Top 10 Tax Free Countries in the World
Serial No. | Tax-Free Countries of the World | GDP of the Countries (In Per Capita U.S. Dollars) |
---|
1. | The Bahamas | 35,541.82 |
2. | Cayman Islands | 84,509.00 |
3. | United Arab Emirates | 47,663.00 |
4. | Bahrain | 24,932.00 |
6 more rowsMar 11, 2024
What is the most tax-efficient country? ›
There are 17 tax-free countries in the world, which means they have zero income tax. 4 of these countries offer citizenship or residence permits by investment. Among the countries with the lowest tax rates in the world are Malta, Cyprus, Andorra, Montenegro and Singapore.
Which country has the best income tax system? ›
2023 Rankings
For the tenth year in a row, Estonia has the best tax code in the OECD. Its top score is driven by four positive features of its tax system. First, it has a 20 percent tax rate on corporate income that is only applied to distributed profits.
Where is the best place to live in the world with no taxes? ›
These include Antigua and the neighboring Barbuda, Saint Kitts, the United Arab Emirates, Vanuatu, Brunei, Bahrain, the Bahamas, Bermuda, the Cayman Islands, Monaco, Kuwait, Qatar, Somalia, and Western Sahara. There are also a few countries that have no property taxes.