Companies such as Google, Pfizer, Apple, Microsoft, Oracle, Alphabet, and Cisco, among others, have used offshore services in the past. Namely, they have conducted business operations via companies registered in tax havens. The corporate income tax has been set at 21% in the USA, for example, while tax havens charge 0% as a corporate tax. It is plain to see that companies that use tax havens save a lot of money on taxes.  

What is a tax haven?

A tax haven is a country or a territory that charges low or zero taxes on incomes and/ or assets. This makes them attractive for living and doing business there. Businesspeople establishing companies in tax havens pursue a single goal: they don’t want to pay taxes in high-tax jurisdictions. Legal certainty and political stability are important for tax havens because they have to guarantee the capital security. Efficient management (efficient administrative structures and a low level of corruption) and low taxes ensure the inflow of money to tax havens. Banking privacy can be legally protected in some jurisdictions too. Low taxes and a high level of secrecy are the two key factors that make tax havens so attractive.  

Are tax havens illegal?

No, they are not. Many HNWIs become residents of tax havens to pay less in taxes. This practice is not illegal.

At the same time, tax havens can be used for illegal purposes. Some companies redirect their incomes to shell companies with headquarters in tax havens such as Bahamas or Caymans, for example. This practice is illegal because they report making less profit that they have made in reality. The fact that tax havens do not share the information about their residents with the international community annoys the governments of large countries with strong economies.  

Personal income tax rates in different countries: for the sake of comparison

Different countries charge income taxes at different rates. As far as personal income is concerned, Côte d’Ivoire has the highest tax rate of 60%. Yes, you have to give away more than half of what you have earned in that country. On the other hand, the personal income tax in a tax haven such as the Bahamas or the United Arab Emirates, for instance is 0%. You get to keep as much as you have made there. Below we give a few examples of personal income tax rates in different countries.

  • Côte d’Ivoire — 60%
  • Germany — 45%
  • Great Britain — 45%
  • USA — 21%
  • Bahamas, United Arab Emirates, Cayman Islands, etc. — 0%

Corporate income tax rates in different countries

Corporate income is also taxed in most countries. In some of them, companies that reinvest in their own development can legally pay lower taxes on their incomes. Another way of reducing the corporate income tax is putting the headquarters of the company in a tax haven. Puerto Rico has the highest corporate income tax rate of 37.5%. Such tax havens as the Isle of Man, Bahamas, Bermuda, and so on charge 0% taxes on corporate income. Corporate income taxes in different countries:

  • Puerto Rico — 37.5%
  • Germany — 30%
  • USA — 21%
  • Great Britain — 19%
  • Bermuda, Caymans, etc. — 0%

Best tax havens in the world

An independent country can be a tax haven: Panama and Malta can serve as examples. In other cases, autonomous parts of a large country can be tax havens. Examples include the Isle of Man, Jersey, Caymans, and Delaware. Tax havens are used much more widely than you probably believe.

Caribbean paradise in Cayman Islands

Palm trees, transparent blue water, and luxury without end. Officially, Caymans is an overseas territory of the UK but it enjoys wide autonomy and it is possibly the best-known tax haven. You can establish a company in Caymans, transfer your assets there, and pay nothing in taxes. Incomes, profits, inherited assets, etc. are not taxed in Caymans. Forty largest banks and 40% of all hedge funds are based in the jurisdiction. Companies such as Wells-Fargo, Pepsi, and many others make full use of the fiscal advantages that Caymans offers.  

  • GDP: $3.84 billion
  • Population: 63 thousand
  • Fiscal Secrecy Index (FSI): 3
  • Corporate income tax: 0%
  • Personal income tax: 0%

The Cayman Islands is located to the south of Cuba in Central America. The largest and the most populated island is Grand Cayman known for its fantastic beaches and sea turtles.

Ireland as a tax haven

Ireland is often referred to as a tax haven even though its Government official claim that it is not. We will give you only two examples and you can come to your own conclusion if Ireland is a tax haven or not. Apple Company once reported making 180 billion dollars via its Irish-based offshore companies thus avoiding paying almost 60 billion in taxes in the USA. More than a quarter of the companies on the Fortune 500 list have subsidiaries in Ireland.

  • GDP: $11.00 billion
  • Population: 4.95 million
  • FSI: 26
  • Corporate income tax: 35%
  • Personal income tax: 48.0%

The Irish views will take your breath away but the wind can be strong. A nice consequence of the latter fact is that there are no mosquitoes in Ireland.

Bahamas – one more Caribbean paradise

There is no capital gains tax in Bahamas nor inheritance, gift, and income tax. In addition, the level of banking privacy is high and tax evasion is not considered a criminal offense. In 2010, American companies reported that their Bahamian subsidiaries had made 10 billion dollars in profits. This was 123% of the country’s GDP! Five percent of the companies on the Fortune 500 list have subsidiaries in the Bahamas. There were times when around 400 banks were stationed in the jurisdiction. Times are changing, however, as Bahamas has signed an agreement on automatic exchange of fiscal information with the authorities of other countries.

  • GDP: $11.26 billion
  • Population: 394 thousand
  • FSI: 19
  • Corporate income tax: 0%
  • Personal income tax: 0%

The Bahamas is located to the east of Florida and it is a highly popular tourist destination for Americans.

The beaches on Exuma Cays are famous throughout the world as their white sand and clear water cannot be matched.

Tax havens for living and working

There are countries and territories where you can find attractive fiscal benefits. We have given you only a few examples of such countries. The fact that some tax havens are located in paradise-like places makes them even more inviting. True, living in Bahamas, Caymans, or Bermuda is rather expensive but think how much you could save on taxes if you relocated there!