What is and Where are the tax havens?

A tax haven is any country that allows you to reduce the amount of tax you pay.

Let’s state at the beginning that there is nothing wrong with using tax havens provided you are careful not to break any rules in your country of residence.

Some people use tax havens to hide their money from the tax authorities in their home countries. This is not only illegal, it’s very stupid, because one day you will probably be caught and could end up with substantial fines as well as back-taxes and possible even a jail sentence.

Notwithstanding, if you have the legal right to use a tax haven you would be foolish not to take advantage of all the opportunities you can to maximise your wealth.

There are three principal types of tax haven:

Zero – Tax Havens

These are countries that do not have any of the three main direct taxes most of us are familiar with:

  • No income tax or corporation tax
  • No capital gains tax; and
  • No inheritance tax

Some of the nil tax havens, you have probably heard of or read about or even seen in films; you may even have been on holiday in some. Amongst others they include:

Cayman Islands
St Kitts and Nevis
Turks & Caicos Islands

Although there are no direct taxes in these jurisdictions, the governments there still need to generate some income. What they tend to do therefore is to impose licence fees for company incorporation documents or annual registration fees for companies; these charges are usually fixed and relatively small. If you’re considering living in one of these territories, most of these charges won’t apply and you may be able to live with little state involvement in the way of taxes. The only tax charges that might then affect you would perhaps be import duties or local sales taxes.

Foreign Source Exempt Havens

These countries do charge taxes and sometimes they can be at a high level. However, they are tax havens by virtue of the fact that they only tax you on locally derived income.

In other words, if all your income is earned outside the tax haven, you will not pay any tax there. Please be aware though that you may incur a liability for tax in the country in which you actually earn the income. Some examples of foreign source exempt tax havens are:

Costa Rica
Hong Kong

This type of tax haven exempts any income earned from foreign sources from tax, provided the foreign income source does not involve any local business activity.

Some of the other tax havens don’t even allow a company to conduct business of any sort internally if tax advantages are to be claimed.

Jurisdictions such as Panama and Gibraltar would require a company to decide at the time of incorporation whether it was allowed to do local business (and therefore be taxed on its worldwide profits), or only foreign business and therefore be free from taxation.

Low-Tax Havens

The final group of so-called tax havens are countries that do have a system of taxation and do impose taxes on residents’ worldwide income. You may well ask why these are still known as tax havens. There are principally two reasons:

  • Certain countries may grant concessions that offer tax advantages in specific situations (capital gains tax avoidance for example).
  • Appropriate use of double tax treaties that countries enter into with each other which may allow you to lower your tax bill.

Good examples of low-tax havens are:

The Netherlands
The United Kingdom

Other Important Factors to Consider

When considering tax havens per se, whilst the amount of tax they levy is obviously important, it is not the only factor.

You may not for example, want to risk investing your money in an offshore account in a politically unstable country; particularly if there is a risk that your assets could be expropriated.

Tax planning therefore, is only one consideration. Other important considerations are:

  • Privacy. What is the level of confidentiality?
  • Ease of residence. Is it fairly easy to obtain permission to live in the tax haven?
  • Political stability. Is there a risk your cash could end up in the government’s coffers?
  • Communications. How good are telephone and broadband internet access?
  • How easy is it to travel to the country?
  • Lifestyle factors. What is the standard of living? Are schooling and hospitals up to standard?
  • Is the climate suitable?
  • How high is the cost of living?

Ultimately, it’s a question of what you want from life and from your tax haven; are you concerned only with the tax position or are other factors equally important?

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

New legislation to shake up offshore banking in Cayman Islands

The Government of the Cayman Islands unveiled three legal bills that will fundamentally alter its offshore banking legislation. The move comes just weeks before the European Union’s deadline of 31 December, after which the EU will release its latest blacklist.

A deadline has been implemented by the EU for all offshore financial centres to address measures over perceived ‘unfair tax practices’ in order to avoid the blacklist.

Offshore banking legislation changes

New legislation includes the International Tax Co-operation (Economic Substance) Bill as well as alterations to current company laws. All three legal changes must be debated and passed before the end of 2018 and will lead to a major shake-up in the offshore sector.

The changes will mean that offshore companies incorporated in the Cayman Islands will have to prove that they are carrying out tangible work there. If they can’t prove this or that they have some form of solid, economic presence, then they won’t be able to “satisfy the economic substance test in relation to any relevant activity carried on by that relevant entity”, as stated in the new bill.

Officials from the financial services ministry say that an “in-depth consultation” went ahead with commerce regulators and stakeholders, the Cayman Island’s financial industry, the European Union and the global Organisation for Economic Co-operation and Development (OECD) before the laws were completed. They say: “Since January 2018, many representatives from more than 15 financial services and commerce associations, as well as government stakeholders outside of the Ministry of Financial Services, have participated in the consultation. This breadth allowed government to ensure that our legislation is appropriate for both financial services, and local business.”

International financial centre

Offshore centres operate as global financial centres, which inevitably means that legislative changes take a lot of tine to be published. The new laws, and changes to current laws, are built on the Forum on Harmful Tax Practices (FHTP) by the OECD. This comes under the Base Erosion and Profit Shifting (BEPS) Inclusive Framework, that was joined by the Cayman Islands in 2017.

This framework outlines the global standards for tax structures developed to attract profit in jurisdictions where they don’t conduct real economic activities. The forum in turn supports the framework, by reviewing regimes that give better tax rates to these structures, as this can negatively affect tax collection in other jurisdictions.

European Union blacklisting

The EU also use the framework to identify harmful tax practices within jurisdictions it considers ‘non-cooperative’. As the Cayman Islands intend to implement the new laws by the deadline of 31 December, they will avoid being blacklisted by the EU.

Cayman has never been on the EU’s list of ‘non-compliant’ jurisdictions, however it is on a watchlist in terms of addressing economic substance. Officials say that the EU’s concerns “need to be addressed in order to correct the perception that our tax system provides an unfair tax advantage to any company operating in our jurisdiction.”

James Turner, Managing Director of Turner Little Limited says: “These kinds of legal changes will effectively usher in a new chapter for the offshore sector. Exempt companies will be allowed to do business locally but will have to follow the same rules as local businesses do. This will eliminate mailbox companies, who have just used the address in order to gain tax exemptions.

“The FHTP now covers more than 120 countries within its range, with the ultimate aim of making tax issues globally compliant. We are witnessing a real evolution of global standards within financial services. The changes for the Cayman Islands will be seen next year, as currently there are more than 106,000 exempt companies with barely any economic presence in the jurisdiction. It will be interesting to see how this change will affect the offshore sector and the wider economic impact it will have as we move towards a true global standard.”

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

UK cracks down on offshore banking fraud

Since the end of January 2018, UK authorities have been able to use Unexplained Wealth Orders (UWO) to crack down on financial fraud. Incorporated into law as part of the Criminal Finances Act 2017, it’s a specific order issued by a British court to force someone to reveal the sources of their ‘unexplained wealth’. It’s part of a wider push by the Government to combat fraud within legacy and offshore banking.

Combating fraud in offshore banking fraud

The first UWO to be issued under s362A (1) has just been upheld in the High Court, after it was challenged by the respondent. The first UWO was for Mrs Zamira Hajiyeva, who was asked to explain her wealth. The 55year-old woman is married to a jailed banker who owns the Mill Ride Golf Club in Ascot and went to the High Court to try to keep her identity hidden. This was denied by the High Court.

The order demands a statement from the respondent to explain various aspects of their finances. First, they must set out the nature and extent of their interest in a property, explain how they obtained it, reveal whether it is held by trustees of a settlement and give any other information under the order. If the respondent doesn’t comply within a specific timeframe, then the property in questions is deemed recoverable. The order can only be issued by the Crown Prosecution Service, HM Revenue & Customs, the FCA or the National Crime Agency (NCA).

Offshore incorporated business

The property in the order was bought in 2009 by a company called Vicksburg Global Inc. The business was incorporated in the British Virgin Islands and bout the property for £11.5 million. Three years ago, the respondent told the Home Office in her application for ‘indefinite leave to remain’ that she is the beneficial owner of Vicksburg. This was later confirmed by the British Virgin Islands police.

Mr Hajiyeva is the respondent’s husband and was formerly the chairman of the International Bank of Azerbaijan. Between 2001 and 2015 when he resigned his position, he was on a salary of £54,000. Later in 2015, he was arrested and charged with abuse of office, large-scale fraud and embezzlement in connection with his former bank. In 2016, he was sentenced to 15 years in prison and forced to pay the bank about $39 million.

The NCA convinced the courts that both Mr Hajiyeva and his wife are PEPs (politically exposed persons). Under the European Union’s newest Money Laundering Directive, PEPs come under various categories, including supervisory bodies of enterprises owned by the state.

Respondent contested order

The respondent argued that the UWO shouldn’t apply on eight different grounds, including that her husband isn’t a PEP, and that the NCA misrepresented his role to the courts. However, Mr Justice Supperstone of the High Court rejected all of her arguments and said he was satisfied that the Bank of Azerbaijan is a “state-owned enterprise”.

This judgement led to the anonymity order surround Mrs Hajiyeva to lapse. The NCA further suspects that illegal cash funded the purchase of a property called Mill Ride, which was bought through an offshore company based in Guernsey. The Judge says that the respondent’s spending habits appeared to corroborate the fraud allegations against her husband. The court pointed to the £16.3 million that was spent by the defendant between 2006 and 2016 at Harrods in London.

The NCA has identified approximately £4.4 billion of suspicious money in the UK. It wants to use UWOs more rigorously to target potential sources and users of illegal money. The NCA’s Director of Economic Crime has said that he wants to target money-laundering through buying and selling of prime real estate in London. The overall aim is to reduce the appeal of the UK as the ideal destination for money laundering and fraud.

James Turner, Managing Director of Turner Little Limited says: “Although UWOs are a civil matter, only law enforcers can use these orders. It’s likely that they will become more common in the ongoing fight against financial fraud. At the moment, the proceeds of any unexplained wealth are confiscated in accordance with the Proceeds of Crime Act. It’s not clear, however, how law enforcement agencies will determine the origins of stolen money. It’s also not clear whether the agencies will be fighting to return the money to the victims.

“There is a fear that UWOs are too little, too late and that it will mean agencies respond more slowly to initial reports of fraud.

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.