What is a tax haven and if it really exists? Yes, this is true. A tax haven is a broader concept than just a country with the absence of some or most corporate taxes or certain tax breaks. This is a country where you can live enjoying the money you earn. There are many wonderful places and opportunities to live and operate through an offshore company online without paying taxes on the personal income of foreign origin. There are zero tax havens in the world, where most of the taxes are absent.
Also, there are countries that tax on the territorial principle and foreign income (even tax residents with permanent residence) are not taxed. On the planet, there are developed, beautiful, and safe countries that offer special conditions of residence for successful and wealthy people. Some tax havens are better for living, others for doing business.
Meaning of a tax haven
In tax haven states, taxes apply only to the profit derived from commercial activities directly in that country. If you register a company in Seychelles and open fashion boutique in Victoria (the capital of Seychelles), then you will pay tax from this business. But if you created software and sell it through IT-company registered in Dominica with a bank account in Malta, while living in Seychelles, then you will have no taxes on personal profits from the sale of this product.
And if you suddenly get bored of doing business through the Internet and one day will wake up with the desire to establish a business right on the territory of your tax paradise, then you won’t be disappointed. Tax haven countries offer tax breaks for certain types of companies or financial activities.
Sometimes tax breaks are explained by the sincere desire of the governments of certain tax haven countries to do their job and really make the lives of their fellow citizens and voters better. The governments of such jurisdictions make the mechanism of its state tax system a useful tool for entrepreneurs, not an obstacle defending the rights of their citizens when signing interstate agreements. Singapore is the best example.
Creating comfortable tax conditions in the country is actually just a means to attract the best foreign brains and investments.Atrium Business Solutions
And nowadays these countries with tax benefits are interested in investments no less than many years ago when they approved offshore legislation.
How to use tax haven
So, what are offshore tax havens rules to be taken into account? First of all, if you are exempt from local taxation in the jurisdiction where you have registered your foreign company, this does not mean that you are permanently free of all tax liabilities. You still have to comply with the fiscal legislation of the country where you live permanently and are a tax resident. For example, if you are a United States citizen, you are taxed on your income worldwide.
If you live in states with a territorial taxation system that makes up most of the world (e.g. Great Britain, Canada, Panama, etc.), you are given more opportunities to properly structure your foreign assets to ease the tax burden, as you will pay taxes not on income around the world, but only on the one that was obtained in your country of permanent residence.
Generally, offshore companies operate in the same way as any other company in the modern world and can conduct almost the same commercial activities, have identical administrative structures, issue shares to shareholders, etc. The key difference of offshore is the structure of taxes, the level of confidentiality, and asset protection. Many countries seek to attract foreign companies and investors by making corporate and offshore tax laws friendly to non-residents and international corporations.
However, offshore jurisdictions offer foreign companies tax-free status provided that they restrict commercial activity in the country of registration and do not participate in any transactions with residents. Furthermore, the corporate laws of many offshore jurisdictions are written to ensure the privacy of clients whose details are not usually provided to the public, phishing lenders, or intrusive foreign parties.
Benefits of offshore tax haven
Any business will benefit from the inclusion of an offshore company in the structure of its operating activities if it is done correctly and without breaking any laws. Offshore havens can also be perfectly used for forming a holding company for asset storage or bank accounts, for physical or intellectual property, patents or investments, and for many other financial and investment activities. The benefits will be determined primarily by what you hope to achieve.
As a rule, the following businesses benefit establishing offshore enterprises:
- Investment activities.
- Intellectual property management and Internet services.
- Forex and exchange trading in securities and physical goods.
- IT-companies and E-commerce.
- International trading companies and professional service activities.
- Asset and capital protection and management.
- Holding companies.
- Management of foreign real estate, property (vessels and planes). art and antiques.
Online business and anything that does not depend on physical infrastructure work best because it provides a person with more opportunities to change the location and is independent of the country of residence to determine the tax burden. Also, many jurisdictions offer easy transition opportunities between jurisdictions without any necessary restructuring or complex corporate documentation.
Individuals choose offshore companies for numerous reasons. Foreign jurisdictions give asset protection and security level that is not typically found in traditional onshore territories. This is due to the fact that offshore financial centers have favorable corporate laws and liberal rules that allow enterprises to exist without expensive overheads, restrictive requirements, and cumbersome disclosure policies.
A large number of countries today can be considered as tax havens:
- Nevis, The British Virgin Islands, Dominica, Seychelles, Anguilla: countries where the majority of the regular taxes are not-existent.
- Hong Kong, Panama, Liberia: states where only income from commercial activity in the territory of the state where your offshore company is registered is taxed.
- Cyprus, Ireland, Great Britain: countries with extremely low taxes, also are parties to an interstate double tax treaty.
- The Channel Islands, the island of Maine: jurisdictions with special tax privileges.
- Jamaica, Antigua, Barbados: territories where international companies are completely tax-free.
- Belize, Panama, Andorra, Singapore, Hong Kong: countries with territorial taxation (where it’s possible to live not paying personal income taxes on money earned abroad).
Moreover, offshore jurisdictions offer protective legal systems that protect the assets of non-resident customers adding their money into the country’s economy. Asset protection is that security measures foreign investors need to start investing reliably in a foreign country. Consequently, lots of foreign financial and banking systems have established a number of strict legal codes to ensure the vitality of the industry.
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