In this article, we take a look at the top 15 offshore tax havens in the world. For more on this, go to the Top 5 Offshore Tax Havens in the World.
Offshore tax havens offer foreign individuals and companies minimal or no tax liability in an economically and politically stable environment. These havens serve as attractive locations for non-residents who want to minimize or entirely evade tax liabilities without facing any legal complications. They allow foreign corporations and individuals to legally stash their wealth in tax havens and avoid getting taxed in their home countries. Simultaneously, tax havens economically benefit from the incoming capital.
Tax havens don’t require foreigners to have a residency in order to park money in the jurisdiction’s financial institutions. They have certain secrecy laws and lax regulations that make it easy for foreigners to stash their money and hide their income from tax authorities in their resident countries.
Recent research reveals that multinational corporations have globally invested a staggering $12 trillion through the utilization of empty corporate shells. Moreover, citizens from financially unstable and oil-producing countries hold a disproportionately significant portion of the $7 trillion personal wealth concealed within tax havens.
While past incidents such as Swiss Leaks, the Panama Papers, and recent disclosures within the offshore industry have shed light on some of the intricate methods employed by multinational firms and affluent individuals to evade their fair share of taxes, the offshore financial realm remains shrouded in opacity. The core services provided by offshore banks, lawyers, and domiciliation companies revolve around secrecy, making it exceedingly difficult to ascertain the exact magnitude of funds channeled through tax havens, their origins, and destinations.
The scale of profit relocation to tax havens is also staggering, with approximately 40% of corporate profits finding their way to these jurisdictions every year. As a consequence, countries such as the US face a significant annual loss of around 16% in corporate revenue to tax havens.
Corporations use several legal means to avoid getting taxed. For example, according to documents filed in the Dutch Chamber of Commerce, in 2017, Alphabet Inc. (NASDAQ:GOOG) – the parent company of Google – reported $23 billion in profits in Bermuda, a tax haven with a zero corporate tax rate. Alphabet Inc. (NASDAQ:GOOG) employed the legal Double-Irish-with-a-Dutch-Sandwich technique for the purpose through a Dutch subsidiary. Under this arrangement, Alphabet Inc. (NASDAQ:GOOG)’s Dutch subsidiary facilitated the flow of royalties earned outside the United States to Google Ireland Holdings, an affiliate based in Bermuda.
By moving intellectual property and licensing it to subsidiaries situated in tax havens, corporations can use the arm’s length principle in transfer pricing. This principle ensures that the pricing of intercompany transactions, including intellectual property licensing, resembles what would be expected between unrelated entities in an open market.
As the world continues to grapple with the challenges posed by offshore tax havens, ongoing debates surrounding the balance between tax optimization, responsible fiscal practices, and the need for global cooperation persist. It remains essential for governments, regulators, and international bodies to work collectively to ensure a fair and equitable tax system that promotes economic growth, stability, and social welfare for all.
Nevertheless, when it comes to stashing your money in offshore bank accounts to minimize tax obligations, there are two crucial factors to consider: confidentiality and accessibility. Thanks to popular culture and media portrayals, you might envision a secretive bank nestled in Switzerland or a secluded island nation in the Caribbean. While there is some truth to this perception, the reality of the world’s largest tax havens is far more diverse. These havens are not confined to small nations alone; they encompass major economic powers that may come as a surprise. This article reveals some of them.
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Methodology
For our list of the top 15 offshore tax havens in the world, we have ranked them in ascending order based on the Financial Secrecy Index (FSI) 2022 report compiled by the Tax Justice Network (TJN). TJN is a renowned UK-based international network that focuses on advocating and addressing issues related to international tax and financial regulations.
The Financial Secrecy Index ranks jurisdictions based on their level of secrecy and the extent to which they facilitate financial secrecy and offshore activities. It takes into account various factors and indicators, including the level of banking secrecy, financial transparency, and the effectiveness of anti-money laundering regulations.
The Financial Secrecy Index by the TJN is based on three scales; secrecy score, global scale weight, and FSI value. The FSI value combines the secrecy score and global scale weight to indicate the extent of financial secrecy enabled by a jurisdiction.
Based on the FSI value of each jurisdiction, here’s our list of the top offshore tax havens in the world:
Top Offshore Tax Havens in the World
15. Cyprus
FSI Value: 510
Though Cyprus officially lost its tax haven status in 2015, the island reclaimed its position by ranking 15 on FSI 2022 report, with a financial secrecy score of 62 out of 100. The country has been an attractive offshore tax paradise due to its favorable tax systems, low flat corporate tax rate, and geographical desirability that is in proximity to Russia and Europe.
The island exempts non-resident companies from taxation and also offers various personal taxation exemptions, making it even more attractive to foreigners. For instance, non-Cyprus residents get tax exemptions on employment income, capital gains, dividends, interest, and royalties.
Moreover, foreigners who reside in the country for at least 60 days during the tax year can become tax residents and benefit from tax incentives.
14. Cayman Islands
FSI Value: 516
The Cayman Islands is ranked as the 14th largest jurisdiction with a high financial secrecy value. Known for their tax neutrality and offshore financial facilities such as offshore banking and trusts, these islands make a lucrative haven for residents and non-residents alike.
The islands also favor the incorporation of offshore companies, meaning they are exempted from tax on income earned outside the country’s territory. This accompanied by the ease of doing business makes the Cayman Islands a popular tax paradise for hedge fund managers, multinational corporations, and American elites.
In addition to this, the Cayman Islands is tax-neutral when it comes to capital gains, income, property, and sales—it has zero tax rates for both citizens and foreigners. However, this notorious reputation has also encouraged various organizations and individuals to perform illicit activities such as money laundering and tax evasion.
13. United Kingdom
FSI Value: 547
Based on the FSI 2022 report, the United Kingdom ranks as the 13th largest contributor to global financial secrecy, accounting for approximately 1.16% of the global FSI share. According to a 2022 report by the Financial Times, UK residents have held an estimated $1.07 trillion (£850 billion) of untaxed wealth in offshore assets. Another report by the Guardian reveals that almost 40% of corporate investment is channeled into tax havens through the UK, making it a major conduit for money outside the UK.
While the United Kingdom may not be popularly recognized as an offshore tax haven, it shares similar characteristics to traditional offshore jurisdictions. For instance, there are no local taxes on businesses operating outside the UK, and dividends distributed through EU member countries are not subject to double taxation.
Moreover, the legal framework within the UK allows the formation of trusts and other financial structures that can be used to hold assets and wealth while potentially evading taxes. These practices, combined with various tax incentives and favorable regulations, have raised concerns about the UK’s status as an offshore tax haven.
12. Netherlands
FSI Value: 556
The Netherlands shares a long history of being an offshore tax haven. It deliberately offers firms the opportunity to become residents within the country’s territory and enjoy benefits like reduced tax charges on capital gains, royalties, and interest. In 2019, it attracted around $84 billion in foreign direct investment.
Corporate taxes in the Netherlands are quite low, which attracts foreign businesses, making the country one of the biggest recipients of FSI in 2022. It is one of the top European corporate tax havens for American firms that have established subsidiaries in the country to avoid paying US taxes.
11. China
FSI Value: 578
China is not typically regarded as a traditional offshore tax haven due to its strict tax regime and regulations. The corporate tax rate in the country is not attractive, at 25%. The progressive income tax on high incomes is also generally regarded high. However, the 2022 FSI report—which assigns China an FSI value of 578 and the world financial secrecy share of 1.7%—suggests that the country is considered to have some level of financial secrecy and offshore financial activity.
Macau, a special administrative region of China, is particularly considered a tax haven due to its favorable tax system and policies for both individuals and corporations. In Macau, foreign income is exempted from tax and corporate taxes are significantly lower than in European countries and the United States. It also offers lower tax rates to residents and non-residents settled in the city.
10. Guernsey
FSI Value: 610
Guernsey is the second largest of the Channel Islands, which stands as an independent entity from the UK. The island boasts its own democratically elected parliament, which exercises control over the state’s laws, budget, and level of taxation. This fiscal and legislative independence empowers the island to swiftly adapt to the ever-changing needs of businesses, enhancing its reputation as an ideal business destination.
Guernsey makes a highly advantageous tax haven for businesses, offering a range of facilities, including a zero corporate general tax rate and exemption from capital gains tax, value-added tax, and inheritance tax. The presence of a variable tax rate further enhances this advantage, frequently resulting in businesses enjoying minimal or even nonexistent tax liability.
9. British Virgin Islands
FSI Value: 621
With a secrecy score of 71 and a worldwide FSI share of 1.83%, the British Virgin Islands (BVI) is recognized as one of the world’s leading offshore tax havens. It’s a compliant jurisdiction that has never been blacklisted by FATF or OECD. This, combined with the island’s subtropical climate and pristine waters, makes the BVI an ideal place for offshore businesses.
The country provides an ideal environment for establishing offshore companies and bank accounts, characterized by zero tax on such entities as well as no tax treaties with other nations. This ensures the secure financial privacy of the companies and account holders, making it an attractive choice for foreigners to protect their assets and wealth.
The BVI also provides tax exemptions on capital gains and profits generated outside the country. Moreover, there are no exchange controls, which makes it easy to transfer funds for investment and trading purposes while maintaining financial privacy.
8. United Arab Emirates
FSI Value: 648
The United Arab Emirates (UAE) is among the world’s fastest-growing tax havens, contributing approximately 1.91% to the global financial landscape. A 2021 report by the Tax Justice Network revealed that over US$200 billion flowed into the country, solidifying its status as an attractive business paradise for foreign investors.
In the 2022 FSI report by the TJN, the UAE surged to number 8 in the rankings, thanks to multinational corporations directing foreign direct investment to the country to benefit from tax savings. The streamlined offshore company formation process and tax-free business model have helped position the UAE as one of the most favorable tax jurisdictions in the world.
However, as part of its commitment to support global tax transparency, the country introduced a 9% tax on corporate gains starting in 2023. Nevertheless, the UAE assures it will remain competitive and attractive for international businesses.
7. Germany
FSI Value: 681
Germany makes it to number 7 on the Financial Secrecy Index 2022. The country not only has a reputation for maintaining the account holders’ privacy but also offers tax incentives to foreign investors, including zero taxes on interest.
Non-resident corporations are exempt from taxes on dividends or income generated from foreign subsidiaries or branches. Foreign companies operating within Germany also enjoy significant tax benefits, as the country’s tax environment imposes a tax of only 5% on capital gains and dividends. These favorable conditions make Germany an appealing destination for businesses and investors looking to optimize their tax positions.
6. Japan
FSI Value: 765
Japan is not typically considered an offshore tax haven, but the global financial secrecy share of 2.25% and a secrecy score of 63% indicates a higher level of financial security in the country. It is one of the safest and wealthiest countries in the world with a large market size and business sophistication, attracting foreigners to invest in the country.
Japan’s lenient corporate tax rates, ranging from 15% to 23% in annual income, also position it as a favorable destination for international businesses. Moreover, companies operating within Japan are only taxed on income generated inside its territories, meaning that income earned by non-residents from sources outside Japan is exempt from tax.
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Disclosure: none. Top 15 Offshore Tax Havens in the World is originally published on Insider Monkey.