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Offshore Banking As A Tantalizing Tax Haven

By: Peter Waterhaze

Offshore banking, commonly known as underground economy is notorious for organized crime, tax evaders, and money laundering. These banks are frequently used as a tax haven. Many people who do not wish to pay their taxes and find places to hide their income without having to pay tax on it, invest in such offshore banks. Tax haven is when people invest in foreign banks where they have to pay a considerably less amount of tax compared to their own country. Many times the tax is not even charged.

Wealthy individuals and businesses often take advantage of this. The good part of this is that parts of the world who might not have enjoyed a very strong economic growth are helped by businesses establishing themselves in their countries. Different countries work in different ways regarding jurisdiction of taxes.There are different laws for different businesses and individual accounts. It is wise to check this before starting accounts and establishing businesses.

These days all countries impose or demand taxes from residents earning within the country. Thus traders and businessmen, first check various laws of different countries, to see which one will benefit them the most and where they will have to pay the least amount as tax, before starting their industry. Many traders even choose countries where they can legally set up offshore companies, offshore foundations and offshore trusts. They later transfer their assets to their new companies or trusts. Hence they do not pay income tax in countries where they are residents of.

USA has a creditable method of ensuring that citizens do not have a chance to evade taxes; by taxing them on both their domestic and international incomes. This has prompted some people to give up their US citizenship to avail of greener pastures in foreign lands. US tax laws however exempt a citizen to up to USD 80,000 of their salary and household costs if they are residing abroad. Some of these kinds of incomes are siphoned away from taxes. US citizens can also establish offshore foundations and trusts, which in turn can be operated as tax havens.

It is most obviously advantageous for a country to be tagged as a tax haven. The tax haven country may not be required to levy huge taxes as their more developed counterparts. Some nations offer attractive tax incentives to companies, in order to lure them to set up businesses and hence bring in scopes of employment of local labor. These have obvious benefits like giving their economies, the much-needed push. There's also an improvement in the standard of living and the local labor pool gets to acquire new technical skills. And with businesses coming and setting up units in the less developed nations, the latter doesn't have to go into a competition with their industrialized counterparts.

Most countries are against the system of Tax havens. They are of the opinion that this system encourages the residents and locals not to pay taxes in their own country. Due to tax havens people will be tempted into money laundering. However, money laundering is not an obvious result of tax havens as it reduces the money only in the black markets. Laws are very tough on money laundering.

It is a popular myth that all tax havens are tax-free, as some do levy taxes on incomes and property. There are however differences in tax laws in various countries. It is prudent to enquire about these laws when you are thinking of operating out of a tax haven. In fact, this is the right way to zero in on a tax haven that will be most suited to your needs.

Article Source: Main Articles

Peter Waterhaze is the chief editor for F offshore, a fantastic resource for information about offshore. For questions or comments about this article why not visit: www.fyioffshore.com/articles
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