A tax haven or Offshore jurisdiction offers minimal tax liability for the investors. Many multinational companies operating in the United States and Europe have their Offshore counterparts in tax haven countries. It is a legal tax-saving strategy many companies follow to avoid paying heavy taxes levied in their home countries. By shifting the base to an Offshore location or a Low Tax Country, companies can enjoy tax-saving benefits.
Also, countries like the UAE have signed the Double -Taxation Treaty and issuance of the Tax Residency Certificate.
Benefits of Investing in a Tax Haven
It will allow you and your business to not pay any additional taxes in the UAE if you are already paying taxes in your home country, as well as enjoy the benefits of zero income and corporate tax in the UAE.
The major advantage of Offshore destinations or tax havens are:
- The businesses can operate out of their home country, virtual offices, or from anywhere in the world
- Leverage the tax benefits as all the business transactions are carried out via the offshore company or the company registered in the Low Tax countries.
Criteria for Tax Havens
The Organization for Economic Cooperation and Development (OECD) has a number of factors to identify tax havens. Here are a few:
- No or nominal tax on relevant income or corporate revenues
- No effective exchange of information policy in place thus maintaining the confidentiality of investments
- No transparency in investments/funds
- No Substantial business activities carried out in the local market
- Countries benefit by way of attracting capital to their banks and financial institutions, which can then be used to build a growing financial sector.
- Individuals and businesses benefit by saving tax, the tax rates are very minimal (in single digits) compared to high taxes in their home country.
Major Tax Savings Countries
Some of the most popular tax savings countries that offer the financial freedom of having no income tax are the United Arab Emirates, Bermuda, Monaco, Bahamas, and Andorra.
United Arab Emirates
UAE has a stable government, economy, and top-notch trading infrastructure. Hence, UAE has many opportunities for business.
The Airport is one of the busiest in the Middle East. Also, Seaport connects to almost every part of the world. The lifestyle and diverse population of the UAE make it a multicultural destination and a popular location for business operations.
Government support for entrepreneurial efforts is highly commendable. There are designated Freezones across UAE for you to set up your desired business and start operating seamlessly. All of the above makes UAE the best country for tax savings and opening a new business.
There are a number of oil countries in the Middle East that have no income tax.
Tax payment in the Bahamas depends on residency and not on actually obtaining citizenship.
An individual can apply for a residency requirement by paying for an Annual Residence Permit or obtain a Permanent Resident Status by purchasing a property in the Bahamas.
The Bahamas is a relatively less-expensive place to live. The country has good infrastructure and services. It is mostly a tourism-driven economy that is open for business investments from global investors in return offering a minimal tax environment.
The Bahamas is a popular destination for US Citizens looking for cheaper relocation options.
Ireland has one of the lowest corporate tax rates (12.5%) in the European Union. The country has a relatively low-cost English-speaking labor force.
Multinationals who choose to register a company in Ireland prepare for an economic presence and enter the local market. There is a steady flow of investments coming from the US, Europe, India, and Japan.
Also, a lot of Multi-National Companies like Google have opened their headquarters in Ireland, employing around 2,500 people and establishing their presence actively in the Ireland market.
For investors and businesses who are planning to expand their operations in the Americas, company formation in Belize is the right choice. Belize has a very minimal corporate tax and businesses are also subject to the exemption from taxation if they qualify as per the Income and Business Tax Act.
Belize is a popular Offshore business location. Investors can register an International Business Company(IBC). IBCs are tax-free and the investor information is protected. Hence, it is one of the most preferred business destinations for foreign investments from Europe, the US, and the rest who are looking for tax savings country.
Why Do Investors Prefer Low-Tax Countries to No-Tax jurisdictions for company formation?
Many multinationals prefer to register their subsidiaries in low-tax jurisdictions and not in no-tax jurisdictions. One of the main reasons for low tax jurisdictions is a series of requirements adopted by the Organization for Economic Cooperation and Development (OECD).
The requirements aim to avoid base erosion and profit shifting (BEPS). OECD defines BEPS as “tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
Hence, many companies are preferring to establish subsidiaries having a real economic presence (employees, offices, business operations) in low-tax countries.
The Offshore companies or letter-box companies (a company that just meets the registration formalities, but does not have any economic activity) will not act as a tax savings scheme according to OECD regulations.
Companies set up in a low-tax and low-cost jurisdiction which complies with all tax requirements, at the same, benefits from a favorable tax regime and affordable business infrastructure.
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Contact: Aurion Business Consultants