April 26,2023

What is a tax haven?

The term “tax haven” refers to countries that impose low or no tax. Many companies and high net-worth individuals use tax havens to stash away money that would be taxed in their resident countries. It is estimated that around 8% of the world’s wealth is kept in such offshore destinations. Tax havens are also typically secretive about sharing information about account holders.

How do governments earn money from tax havens?

Not all tax havens are entirely tax-free. Many charge relatively lower taxes, but they levy high customs and import duties to compensate for this. Companies might need to pay for new registration and renewal charges. Other fees, like licensing charges, also cover the loss incurred due to low taxes. A low tax rate also attracts business investments.

Advantages of tax havens

  • It enables businesses to save money and reduce taxation
  • Tax haven countries benefit economically as they attract more investments
  • Businesses often don’t have to pay capital gains tax in tax havens

Disadvantages of tax havens

  • Prone to illegal activities
  • High import charges and customs duties
  • Lack transparency

Tax haven countries

Here’s a list of countries that are considered as tax havens:

Bermuda

The Caribbean island nation of Bermuda doesn’t levy any income tax. Currently, there are no personal or corporate taxes in this country.

Singapore

The city-state of Singapore charges low taxes to investors and companies. It also has reasonable corporate tax rates and offers tax incentives.

Mauritius

The island nation is considered a low-tax jurisdiction for businesses investing in Asia and Africa.

Switzerland

The famous tourist destination is also considered a tax haven because of its low tax levels and stringent privacy laws. It has entered into favourable tax treaties with many countries.

Luxembourg

The tiny European nation has business-friendly policies which help businesses to keep their tax liability low.

The Cayman Islands

Similar to Bermuda, this island nation in the Caribbean doesn’t levy personal tax, capital gains tax, corporate tax and payroll tax.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.

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