We kicked off this week examining the significance of the Panama Papers, the most significant leak of tax haven information to ever come to light. We noted this has impacted major world leaders, companies, banks and law firms.
But you might be wondering, “what is a tax haven, anyway?” And, “where are the top tax havens that the wealthy stash their (legitimate or otherwise) cash?”
Read on for the answers.
A tax haven can be defined as a territory or jurisdiction with a very low or non-existent tax rate. Tax havens appeal to those who face relatively higher taxes or penalties related to their wealth, or fear their home government may introduce such taxes in the future. Tax havens also tend to appeal to wealthy individuals who live in politically unstable countries.
There are many tax havens in the world, and a surprising finding from the Panama Papers is that the United States is a substantial tax haven. This is mostly because of the laws in the states like Delaware, which makes the creation of anonymous shell companies easy and efficient.
However, the top five most well-know tax havens include:
Switzerland – Famous for their secret banks and somewhat looser restrictions, Switzerland is a top choice for moving money off shore. The country offers political neutrality, discretion and a long history of banking competence. The skiing isn’t bad either.
Luxembourg – The fund capital of Europe isn’t particularly touchy when it comes to knowing who owns what. An estimated 1 trillion out of the 2.5 trillion Euros invested in mutual funds in the tiny country can’t be traced to an owner.
The Cayman Islands – You know you’re a tax haven when you have more registered corporations than people in your country. The Cayman Islands house an astonishing 1⁄15th of all banking assets globally, amounting to roughly $2 trillion.
The Bahamas – The weather isn’t the only reason people become residents here…or at least tax residents. The nation of the Bahamas was the first Caribbean country to adopt strict banking secrecy laws and are a preferred tax haven for US and European residents.
Jersey and the Isle of Man (tie) – This might look like cheating, but it’s not, because both of these jurisdictions are part of the United Kingdom, making the UK technically the largest tax haven in the world. Jersey and the Isle of Man offer protection from a number of taxes, specifically “inheritance tax” which in the UK can run close to 50%.