Tax havens - an offshore home for your special money.
Thank goodness for offshore financial centers
which attract business by maintaining lower tax
rates, fewer disclosure requirements, looser
requirements or regulations than in the Western
nations, where political pressures to tax wealth
have created a restrictive environment for
financial dealings. Generally speaking, tax
havens are better places for your money to live
rather than yourself personally, other than as an
"official" domicile. These centers have always
attracted investors and businesses wanting to
avoid exchange controls or high tax rates. That
is why holding companies with taxable profits are
often located there. Offshore centers also
attract banks, because bank depositors may also
want secracy, or low tax rates.
A measure of political stability is essential.
There is not much point in sending your money
away from a 59% rate if 100% of it is then seized
following a revolution. Unlikely, perhapes, but
not impossible on a long term view. It is worth
remembering that war-torn Lebanon was once
regarded as a secure offshore center. This is why
the Carribean centers often have to make up in
secracy what they may lack in stability, and why
Switzerland, though less keen on secracy than it
was, tries to make up for it with 700 years of
relative calm.
The offshore tax and investment industry is
central to the almost unimaginably vast world of
multinational financial transaction. Consider the
sheer size of the business accounts, in large
part, for the 60 odd centers, many located in
Europe or off its coasts. About half the world's
financial transactions now take place offshore.
And it is estimated that some 2,000 billion US
dollars is held in offshore trusts, 1,000 billion
US dollars in shipping, a further 1,000 billion
US dollars in bank deposits, 750 billion US
dollars in captive insurance companies, and mere
250 billion US dollars in mutual funds.
In the Turks & Caicos Islands, a small but
typically sunny offshore banking center, the
hottest new business is pre-matrimonial bank
accounts. Local bankers say that plutocratic
American couples planning to marry, but expecting
to split up soon after, take out indervidual
accounts, unknown to one another. That way, they
keep at least part of their wealth out of the
alimony arrangements when they divorce. This kind
of activity is what offshore banking is all about
- avoiding unnecessary inspections of one's
personal affairs, whether by divorce lawyer or,
more often, the tax man. It also involves
services which the wealthy are most likely to be
able to afford, but which many others want.
Offshore financial centers are those outside the
world's major economies, but only just. many are
small islands, like Jersey or Guernsey, with few
people and even fewer who believe in higher
taxes. As such, they make good places not only to
put holding companies with taxable profits, but
to locate banks. These centers are geographically
or culturally close enough to the leading
industrialised countries to give depositors and
investors some hope that their money will be
handled efficiently and responsibly, and that
there is someone who knows how to mend the fax.
Offshore capital naturally grows much more
rapidly than taxed capital, because it can
reinvest the whole of its gains and income. The
comdollar arithmetic is quite dramatic. A
successful hedge fund management, such as George
Soro's Quantum Fund has grown at 20% per annum or
more. If it comdollars at 20%, the fund doubles in
3.8 years and triples in six. A similar invested
onshore fund paying tax on its income and gains
at an average of 40%, would have only 12% left to
reinvest.
The increased globalisation of financial and
capital centers has led to increased competition.
And that in turn has thrust forward new and in
some cases surprising candidates as contenders
for the European offshore business. The Channel
Islands, Cyprus, Liechtenstein, Luxembourg, the
Isle of man and Switzerland are the European
centers which combine the largest number of
attractive ingredients. Of these, the three most
important are often regulation, confidentiality
and tax.
Tax havens, just like any contemporary
information, are always changing and for that
reason we suggest you check up on facts written
here. A tax haven, aside from having low or no
taxation, should also exhibit the following
characteristics:- stringent bank secracy rules
should exist; banking should be important to the
country's economy; modern transportation and
communication facilities must be available; there
must be a lack of currency controls; financial
business must be actively solicited; there should
be an absence of tax treaties.
When considering tax havens, off-shore
corporations, secret trusts or whatever, consider
how much money you are saving against how much it
is costing. Many people get too carried away with
creating a web of holding companies which
initially cost a small fortune to set up and then
ultimately have to be maintained with annual
fees. In leaner times, or after your realisation,
these will not be maintained and money will be
lost down the drain.
