Offshore financial centers have options for people and governments looking to protect and grow wealth. Some Offshore financial centers promote tax fraud while others do not. Tax havens are located across the globe. Some are offshore, like the British Virgin Islands, the Cayman Islands, and Hong Kong. Some countries are also tax havens, like Luxembourg, Netherlands, and Switzerland. There are even tax havens in the United States in Delaware and Wyoming.
Creating a tax haven can promote foreign and domestic investments, nurturing long-term commercial growth. Tax havens often offer a lower tax rate to local and multinational companies to attract business. The tax rate is often regionally lower but still competitive. The goal is to improve economic security and boost financial stability in the long term. This kind of tax haven attracts and then generates economic activity.
Tax havens can also be called secrecy jurisdictions. These tax havens can offer very low tax rates or dispense tax altogether. These tax havens are considered non-competitive. A non-competitive tax haven will pull clients and businesses from the surrounding countries with higher tax rates and strict compliance requirements.
Many people are interested in secrecy jurisdictions, including the wealthy, large companies, and celebrities. In most cases, a financier sets up a shell company. The role of this shell company is not to do any actual business but to hold the assets and wealth of those who want to hide their wealth. Most investors pay little to no taxes. While money is moved from one shell company to another, it washes around the globe so that it loses any association with the original source. The original source could be criminal enterprises, money stolen from governmental coffers, or drug trafficking.
The creation and ownership of a shell company are not illegal unless the assets that it holds are. Frequently shell companies are named owners of expensive real estate, airplanes, homes, or yachts. A shell company can become illegal when it is used to launder money or avoid taxes otherwise due in other countries. Big companies in America are often incorporated into low-cost European tax havens. These tax havens include Ireland and Luxembourg. These companies can claim that they are paying taxes but are not paying taxes where they are legitimately owned.
Switzerland is well known for its secret foreign bank accounts. Wealthy Americans avoided paying taxes on their wealth through numbered Swiss accounts. The U.S. Treasury partly changes this practice by requiring foreign banking institutions to annually file a Foreign Account Tax Compliance Act (FATCA). The FATCA means that banks have to report on all accounts owned or held by American taxpayers. American taxpayers with qualifying holdings in foreign banks must file a report of a Foreign Bank and Financial Account (FBAR). The Foreign Bank and Financial Account allows the IRS to compare reports and levy significant fines and penalties on foreign institutions and U.S. taxpayers that fail to report their assets.
Through greater compliance, buy-in from global tax agencies, and investigative journalism, the illegal tax havens and their practices have become more well known. Tax haves can help you achieve your goals. To learn more about tax havens and if they are right for you, speak with our experienced tax attorney today.