home
***
CD-ROM
|
disk
|
FTP
|
other
***
search
/
Current Shareware 1994 January
/
SHAR194.ISO
/
finance
/
whyswiss.zip
/
HAVENS
< prev
next >
Wrap
Text File
|
1993-02-13
|
6KB
|
117 lines
The Use of Tax Havens
Tax havens are one of the most important subjects
for an international entrepreneur, yet few understand
and use them properly. One group discount them as
hiding holes for dirty money, which is not a legitimate
use for tax havens. Others think they are only for
banking money after you have made it. Not true either.
Money grows much faster if a tax haven is part of your
business planning, and almost any international
business has an opportunity to use tax havens. It is
the purely domestic business, confined to one country,
that cannot benefit from the international fiscal
loopholes. Switzerland is a major financial center,
but not generally a tax haven.
Simply stated, a tax haven is any country whose
laws, regulations, traditions, and, in some cases,
treaty arrangements make it possible for one to reduce
his overall tax burden. This general definition,
however, covers many types of tax havens, and it is
important that you understand their differences.
No-Tax Havens. These are countries that have no
income, capital gains, or wealth (capital) taxes, and
in which you can incorporate and/or form a trust. The
governments of these countries do earn some revenue
from corporations; "no-tax" means that what you pay is
independent of income derived through a company. These
states may impose small fees on documents of
incorporation, a small charge on the value of corporate
shares, annual registration fees, etc. Primary
examples are Bermuda, Bahamas, and the Cayman Islands.
No-Tax-on-Foreign-Income Havens. These countries do
impose income taxes, both on individuals and
corporations, but only on locally derived income. They
exempt from tax any income earned from foreign sources
that involve no local business activities apart from
simple "housekeeping" matters. For example, in such a
haven there is often no tax on income derived from
export of local manufactured goods.
The no-tax-on-foreign-income havens break down into two
groups. There are those that allow a corporation to do
business both internally and externally, taxing only
the income coming from internal sources, and those that
require a company to decide at the time of
incorporation whether it will be one allowed to do
local business, with the consequent tax liabilities, or
one permitted to do only foreign business and thus be
exempt from taxation. Primary examples in these two
sub-categories are Panama, Liberia, Jersey, Guernsey,
Isle of Man and Gibraltar.
Low-Tax Havens. These are countries that impose some
taxes on all corporate income, wherever earned.
However, most have double-taxation agreements many the
high-tax countries that may reduce the withholding tax
imposed on income derived from the high-tax countries
by local corporations. Cyprus is a primary example.
The British Virgin Islands is another, but no longer
has a tax treaty with the U.S.
Special Tax Havens. These are countries that impose
all or most of the usual taxes, but either allow
special concessions to special types of companies (such
as a total exemption from tax on shipping companies,
or movie production companies) or allow very special
types of corporate organization, such as the very
flexible corporate arrangements offered by
Liechtenstein. The Netherlands and Austria are
particularly good examples of this.
To understand the precise role of tax havens, it is
important for you to distinguish two basic sorts of
income: (1) return on labor and (2) return on capital.
The first kind of return is what you get from your
work: salary, wages, fees for professional services,
and the like. The second kind of return relates,
basically, to the return from your investments:
dividends on shares of stock; interest on bank
deposits, loans and bonds; rental income; royalties on
patents. It is the second kind of income, income from
an investment portfolio, that tax havens are useful
for. Forming a corporation or trust in a tax haven can
make the second form of income totally tax free, or
taxed so low that you will hardly notice. Certain types
of businesses can be effectively based in a tax haven.
If you publish a newsletter, for example, you might be
able to set up the entire operation in a totally tax
free country such as the Bahamas or the Cayman Islands.
If your income comes from copyright royalties, perhaps
on the computer program you invented, the Netherlands
is famed as a base for sheltering royalty income.
Tax havens are a very complex subject, but the
hours you spend studying their use will probably pay
you more per hour than the hours you spend directly
earning an income -- an unfortunate commentary on the
confiscatory taxation policies of most governments.
For the best detailed information on tax havens,
order The Tax Haven Report from Scope International
Ltd., 62 Murray Road, Waterlooville, Hants., PO8 9JL,
United Kingdom. Price is approximately US$135,
including airmail postage worldwide, and they accept
Visa or MasterCard.
Just stop and think for a moment how much faster
your money can grow if you are not paying out an
average of 40% to a taxing government somewhere.