10 Tax Havens

When I originally pitched the idea of making this list my manager thought that I would be unearthing the evil, seedy underbelly of tax dodging paradises and that somehow we would get in legal trouble; despite the fact these tax laws are all common knowledge and have been taken advantage of before.

But, tax havens have become a major talking point with Apple, Amazon, and Starbucks, among others, being outed for their loose following of financial laws.

So, with my P45 in hand as I make my way out of the door, here are 10 tax havens and why they have become so popular with some of the corporate world’s biggest players.

1. Panama

Famous for a massive canal that stretches for 82 kilometres and the 2015 data leak for fraud, tax evasion, and evading international sanctions thanks to Mossack Fonseca’s dodgy dealings for some of their clients. The story has been called the Mossack Fonseca papers and had over 11.5 million leaked documents that detailed financial information for more than 214,488 offshore entities and implicating some of the most recognisable political names in the world.

Panama were annoyed that the leak and Mossack Fonseca’s actions would lead to a negative reputation for the country, so here’s some good stuff about the Central American country:

• Since 2010, Panama has been the second-most competitive economy in Latin America
• Panama is a founding member of the United Nations and the World Health Organization
• The Panama Canal connects the Atlantic and Pacific Ocean, it has been named as one of the seven wonders of the modern world – it takes a ship an average of 10 hours to go through the entirety of the canal
• Panama is also home to the oldest continually operating railroad in the world, The Panama Railroad, which runs alongside the Canal
• Panama is the only place in the world where you can see the sun rise on the Pacific and set on the Atlantic. 

2. Luxembourg

The country, alongside San Marino, that England seem to face in every World Cup/Euro qualifying stage, Luxembourg’s taxation has seen them become a favourite of the mega-rich since the 1970s. They offer tax incentives for corporations which encourage foreign companies to move there. Companies are charged around 1% if they channel their profits through Luxembourg, which helps the big boys to save billions on tax bills – especially in if they’re from the US.

3. Ireland

Why would you put your taxes in Ireland? Because otherwise, your tax bills would be “Dublin”.

Sorry, I couldn’t resist.

But, awful puns aside, the Irish government doesn’t require companies that operate in several countries to provide public accounts of turnover, subsidies received, profit, or amount of tax paid – this lack of financial transparency has caused a surge of “special-purpose vehicles” to be set up within the Emerald Isles. These special-purpose vehicles held assets which reached 763 billion euros in 2017.

4. Bermuda

Despite being a UK territory, Bermuda is popular with American companies who are looking to slash tax bills through “profit-shifting”. Charity organisation Oxfam stated that Bermuda was the world’s worst corporate tax haven: back in 2012, U.S organisation had reported $80 billion of profit in Bermuda. Enough to make my eyes water.

The outrage was stirred because Bermuda is a British Overseas Territory and Oxfam believed that a territory operating as a tax haven undermines Britain’s effort to implement fair tax laws.

5. Jersey

Another British territory, however this one isn’t famous for a triangle that has held more disappearing acts than David Copperfield. This one is famous for milk and more tax havenism. Even though Jersey falls under the British monarchy, they have complete financial and political autonomy – they don’t have inheritance tax, they don’t charge VAT, and deposits from rich people and businesses brought the revelation that most charges could be avoided. In 2008, Jersey removed all taxes for corporations doing business on the 45-square-mile island, all corporations except financial services companies (charged at 10%) and utilities, rentals and development projects (charged at 20%).

6. Cayman Islands

The Cayman Islands is one of the more notorious tax havens on this list – the Cayman Islands is a British Overseas Territory that is 4,500 miles from the UK. On the island, fish fingers cost £8.50 because no-one pays tax: would you rather pay 20% tax and get fish fingers for £2.00 (the Sainsbury’s retail price for 10 Birdseye fish fingers) or £8.50 and pay no tax?

Low taxation is probably the reason as to why there are twice as many companies in the Cayman Islands as people – on paper at least.

7. Hong Kong

Hong Kong is a part of China, but China have permitted autonomy which allows for secrecy in tax laws. It is home to the largest number of skyscrapers in the world with 353, 80 more than second place New York and wealthy foreigners who bank their money in Hong Kong do not get taxed on income earned outside the region. Salaries earned within Hong Kong’s borders are taxed at a rate of 15%, which is cheaper than most places. As of 2015, foreigners had $2.1 trillion in assets managed and $350 billion banked in Hong Kong, and they refused to share information to the US and European Union regarding foreign bank accounts – maintaining the privacy of those who store their wealth there.

8. Singapore

Singapore has the 3^rd highest GDP per capita in the world on the Human Development Index. Singapore is listed as a tax haven because it only charges 20% on personal incomes in the highest tax bracket – low by anyone’s standards, especially as the UK charges over double at 45%. Singapore has a history of offering other incentives for companies on their shores, including the Productivity and Innovation Credit Scheme – which came to an end YA 2018.

9. Netherlands

The Netherlands is a lovely place, but it does have a BEPS (see profit-shifting) corporate tax tool named after it. The “Dutch Sandwich” is used by US multinationals to avoid incurring EU withholding taxes on untaxed profits. Google tucked into a Dutch Sandwich back in 2016 which save them a reported $3 billion in taxes. The Netherlands is the highest European country listed in the 15 most prominent tax havens, coming in at third in a list compiled by Oxfam entitled “Tax Battles: the dangerous global race to the bottom on corporate tax”.

10. Bahamas

The Bahamas has great tax laws for foreign investors because citizens and residents pay no taxes on personal income, inheritance or capital gains. Laws in the Bahamas also mean that the privacy of banks is protected, that may be why more than 250 banks and trusts are licensed to do business there. Why wouldn’t they?

International business companies in the Bahamas don’t have to pay tax unless the revenue is produced locally, they are also exempt from stamp and estate duties for 20 years from the date of their incorporation – add that to average summer temperatures of 32 degrees and you’re laughing.

Making Tax Digital is coming into play for VAT-registered businesses with a taxable turnover which falls over the VAT threshold from 1^st April 2019 in the UK, making tax administration more effective, efficient and easier for taxpayers. Our AAT Accounting courses will reflect these changes, once they come into play.

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