The Attributes of Tax Havens

S. A fourth use involves transactions that are created to escape taxation completely via fraudulent means, also known as "tax evasion."

Tax Havens possess many distinct characteristics which make them attractive to men and women and corporations. (1) Low rates of taxation: the standard haven has either no dollars tax or an strong rate (on all or specific forms of income) lower than that of nations whose resident taxpayers use the haven. (2) Bank and commercial secrecy: the haven will normally have secrecy rules based upon either statutes, common law precedent, or administrative practice. (3) Lack of exchange controls: Tax havens generally have a dual currency system, distinguishing in between residents and non-residents and among local and foreign currency. In this system, residents are subject to currency controls though non-residents are subject only to controls with respect to local currency.

A business formed inside a tax haven, beneficially owned by nonresidents and conducting most of its firm outside the haven, might be treated as being a non-resident for exchange control purposes and its operations are not subject for the haven's exchange control regulations (as lengthy as it is dealing inside a foreign currency). (4) Disproportionately large financial sector: The normal haven encourages offshore banking business, distinguishing between resident and non-resident activity. Non-resident exercise will commonly be taxed far more lightly, be free from exchange or other controls, and have no reserve requirements. (5) Modern communication facilities: the haven will have both modern-day physical transport (air and sea) and networks (post, telephone, cable, and telex). (6) The haven will commonly be a party to only limited tax treaties, providing for modest or no exchange of information. Other characteristics will normally include political and economic stability, favorable disposition for the foreign capital, and also the availability of competent professional advisors (accountants and lawyers).

Trusts established in the Cayman Islands are subject to neither capital gains nor dollars taxes under Caymans law; in addition, trusts designated as non-resident are exempt from certain regulations and are granted broader powers. To qualify for a non-resident designation, the trust needs to be set up by non-residents for beneficiaries who are also non-residents (and never intend being residents) and have to not buy the Cayman Islands or in Cayman currency. Because of these advantages, most mutual money within the Caymans have been established as trusts instead of companies. The mutual fund management business serves as the settlor of the trust along with a Caymans bank specializing in trust operations acts as the trustee; "exempted" corporations handle the management and distribution operations on the fund.

Three well-liked tax havens are the Cayman Islands, the Netherlands Antilles, and also the Channel Islands. The Cayman Islands and the Netherlands Antilles have been in between probably the most popular tax havens in the world and have attracted a lot more U.S.-controlled or source assets than any other locations, save Bermuda and Switzerland (although in some categories of assets they've even surpassed these a couple of states).

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