Tax Havens and how they can Help You
Offshore tax planning has become increasingly popular over the years as taxes rise and the wealthy seek to escape the tax regimes in their home countries. However, it is not only the rich that can benefit from Tax Havens and their use will extensively increase your wealth and the speed at which you can accumulate it. Before looking at offshore tax planning you need to consider two key components. You need to understand the taxation regulations in your home country and you need to understand the taxation legislation in the tax haven you would like to make use of. Without both sets of information you may finish up spending a lot of money and not achieving your aims. It is therefore very important that you get expert tax planning advice.
Low Tax and No Tax Havens
A tax Haven is a country where tax laws and levels of taxation are very favourable. Some are “no tax” jurisdictions and some are “low tax” jurisdictions. Others, which are “foreign source exempt” tax havens, which means that residents do not pay any tax on income sourced from work or businesses abroad.
Tax Havens for Anonymity– A Supplementary Benefit
It is perfectly legal to use tax havens to save on tax but you must remember that your home country’s own tax laws have definitely to be taken into account otherwise you may find yourself paying more tax than you expected. It is also pertinent to point out that the use of tax havens is also for anonymity and personal privacy reasons. Individuals who want to keep their financial lives out of view also find tax havens attractive. There are also those that use the privacy laws of tax havens to hide their taxable earnings, which is tax evasion and a crime in most countries punishable by fines or even prison sentences. However, it can all be achieved legally with the right tax planning.
It is necessary to mention here what double taxation treaties are and how they can perform for you. Many low tax havens have numerous tax treaties with high tax countries around the globe. The tax treaty determines how a tax resident of its own who has profits arising in another country with whom it has a double taxation treaty with, will be taxed. For instance if you have properties in the UK and decide to settle to New Zealand and consequently sold them you would normally be taxed in the UK on those sales but instead you are taxed in New Zealand. However, New Zealand has no Capital Gains tax so you would pay no tax provided you stayed non-resident from the UK for more than 5 years.
Choosing a Tax Haven
When choosing a tax haven to live in there are many factors, which have to have to be taken into account aside from the tax benefits. Privacy is an important aspect to many people so the level of disclosure must be looked at. Then one must consider the criteria for gaining residency. Some tax havens are only for the rich, while others can accommodate a wider spectrum of immigrants. Political stability needs to be taken into account as civil disruption can cause huge problems as you don’t want your cash ending up in the Government treasury after a radical modification of legislation. If you intend to run a business from a tax haven the communications need to be good in terms of internet, telephone and air travel. One also wishes to consider lifestyle factors like the cost of living, recreational facilities, medical facilities, schooling and everything else, which impacts n the high quality of your life. There is no sense in being tax free but miserable.
Methods of Making use of Tax Havens for Tax Planning
There are multiple methods for using tax havens to reduce tax; they are only limited by the imagination. They can be used to save on virtually every type of tax in the UK. We will now look very briefly at ways of reducing each type of tax in the UK through the use of a tax haven. For income tax avoidance a contractor may use a method that employs the now superceded Employee Benefit Trust. To avoid capital gains tax the tax and income tax a tax payer may have used the Trading Partnership. For corporate tax avoidance the company could use re-invoicing with an offshore company. A Non Domiciled Tax payer may choose to use an offshore company framework to avoid inheritance tax. The purchaser of an expensive property avoids stamp duty by the use of an offshore company structure.
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