Tax havens are low-or zero-tax countries that have corporate laws that ensure maximum financial confidentiality and minimize regulatory interference in the activities of both individuals and companies.
Often, tax heavens, also called offshore jurisdictions, specialize in providing financial, legal, and business services to non-residents that provide the following financial opportunities:
Tax reduction benefits
International holding business structures
Offshore countries provide a more liberal financial environment for international business, along with stricter privacy laws that attract foreign companies and entrepreneurs looking for alternative systems from the traditional model with a high level of taxation and transparency for business owners.
What is an offshore country?
An offshore financial center or (OFC) can be defined as “a country or jurisdiction that provides financial services to non-residents on a scale that is not comparable to the size and financing of its domestic economy”.
The reality is not so simple since many ordinary countries (for example, the United States, Great Britain, Ireland, Cyprus, Malta) also offer significant tax incentives for non-resident companies and flexible structures for creating companies that are usually associated with traditional “offshore” tax centers; the British Virgin Islands, Panama, and Seychelles).
Therefore, an offshore country has nothing to do with location and is more related to corporate and tax laws governing the activities of non-resident companies.
Some countries facilitate the management of corporations established in their jurisdiction (Dominica) or offer attractive investment and financial services (the Cayman Islands), while others become known for their strict asset protection and privacy laws (Nevis).
Offshore countries are not just small Caribbean Islands. Contrary to popular belief, in some US states it is easier to face an anonymous shell company than in other well-known tax havens, such as the Cayman Islands and the Bahamas Virgin Islands.
And since the United States rejected the signing of the international standard on automatic exchange of financial information between tax authorities of different countries CRS (Common Reporting Standard), it became one of the most secrets and closed offshore financial countries in the world, taking immediately the 3rd place, after Switzerland and Hong Kong.
There are many modern jurisdictions that can be considered as offshore financial centers, although they can usually be perceived as a modern financial center.
Each country offers a different legal structure for forming low-tax companies for individuals and non-resident companies that offer tax incentives for all income from foreign sources.
Creating an offshore legal entity abroad can significantly reduce your tax losses. Especially if you have a business with income from foreign sources. Depending on where you live, if your country does not have laws on controlled foreign companies (hereinafter referred to as CFC), then you can actually remove your tax burden. If you live in a country where CFC laws apply, it is likely that a significant tax reduction is possible since a change of residence and tax residency will be required to completely eliminate the tax.
Diversification of assets through multiple holding companies and offshore Bank accounts will spread the risks and increase the security of your assets in the event of bankruptcy, confiscation, or bankruptcy of one of your banks (as was often seen during the 2008 crisis in countries such as Hungary, Argentina, and Greece).
The globalization of your company opens up a number of other opportunities for you, including access to regional investment, tax cuts, and trading in new markets for your products.