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Tax Haven

Definition of Tax Haven

Tax Haven is defined as a country or place where there are less taxes levied in comparison to that of the other countries. Haven literally means the place with security now in the case of Tax Haven this security is for the low tax payments. It is also being said that in Tax Haven countries there are no exchange regulations and rules and therefore the money can move in or out without any investigations made.

Explanation

Tax Haven countries allow the investors to move their money from other countries to theirs without any formalities thus it becomes easier for the industrialists to move their black money and then finally invest in some countries where they can convert this money to white. Although there has been no such proof to highlight the real fact but it can be interpreted. Also in Tax Haven countries, the industrial growth is very less. The citizens of those countries are advised to import most of the things say for example expensive cars, machines or technologies. Now these tax haven countries can ask for heavy import duty from the customers and thus this is considered as their income.

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How does Tax Haven Work?

Tax Haven is the country that imposes fewer taxes as compared to other countries? In tax haven countries there are no such tax rules and regulations, no exchange regulation. The taxes are not collected from the citizens because there are no regulations for the same whereas the government makes some heavy duty payments to the citizens in case of import of any goods or services. Most big industries make their subsidiary in these tax haven countries. These subsidiaries don’t do any business of their own rather all the paper work is done to pass the money from this subsidiary made. After that as per the convenience, the money is again invested to the other countries. This way the businessman can circulate their money in the business with the help of tax haven countries.

Examples of Best Tax Havens

  • Apple uses the benefit of Tax Haven and saves approx. billions of money.
  • Nike is also the one which uses the Tax haven country to safe side its money to pay taxes.
  • Goldman Sachs invests in Tax haven country because it has lots of investment made in the offshore and therefore to sidetrack that income the company invests in Tax haven countries and saves billions each year.
  • Microsoft Company also holds maximum business in other countries they invest in Tax haven and save taxes hence saves billions and billions of money.
  • Wal-Mart is such a company which has its business in many countries therefore they have to use and take all the benefits of the Tax haven countries to save their money.
  • IBM has its stake in most of the countries and hence uses the Tax havens to slice the tax liability on their income.
  • General Electricityalso does the same to reduce its tax implication.
  • Exxon Mobilis also one such company that sets an example for the Tax haven benefits
  • Pfizer also use the tax haven benefits and saves its tax liability.
  • Chevron also does business in offshore and invests in Tax haven countries to offset the heavy tax duty.

Where are These Tax Havens?

  • Cayman Islands
  • Luxembourg
  • Isle of Man
  • Jersey
  • Mauritius
  • Ireland
  • Bermuda
  • Monaco
  • Switzerland
  • Bahamas

Who Uses Tax Havens?

Tax havens can be used by individuals, businessman, government, political parties, any non-profit organization, charitable trusts, etc. The only criteria can be the person should know how to rotate the money to take the most benefit of the tax haven countries.

Criteria for Tax Haven

  • Less direct and indirect taxes levied from the customers.
  • No exchange regulation is there in these tax haven countries.
  • There is no tax rules defined and regulation made which are to be followed by the citizens of the country.
  • The other criteria for the tax haven also include the lack of transparency of the business transaction because it is mostly used by the individual for the money rotation.

Benefits

Some of the benefits are given below:

  • The most important benefit of investing in a Tax haven is that the company can save taxes and can save their money.
  • There will be the growth of an individual and also of the nation as a whole.
  • The process of Tax saving is absolutely legal and logical. The investment is safe because the country which has been considered as Tax haven has no rules and regulations regarding the tax implication.
  • There is no capital gain tax therefore it encourages the businessman to invest in that country.
  • Tax havens also benefit the economy in a large way they encourage new investment and hence the country also gains.

Disadvantages

Some of the disadvantages are given below:

  • Tax havens can encourage some illegal work also.
  • Tax havens can be very beneficial but on the other hand, it can be something that may attract a higher recovery from the citizens by imposing heavy import duty on the items which are imported.
  • Tax havens may help the big organization but it is always very beneficial for the citizens of that country.
  • Tax havens business transactions are generally fictitious and can be misleading to the other party.
  • There is no transparency in the process therefore the chance of betrayal can be faced by the parties.

Conclusion

Tax havens are a very beneficial tax saving options but the individual should also take some care to understand the dark side of this process. Many individuals, big corporates, and companies get involved in this Tax haven process and invest their money or buy some assets to take the advantage of the less tax implication but this is also being paid and recovered by the citizens of that country because then they are being recovered by paying heavy import duties. Although tax haven is a legal process but this should be understood very clearly by the investor before investing.

Recommended Articles

This is a guide to Tax Haven. Here we also discuss the definition and examples of tax haven along with benefits and disadvantages. You may also have a look at the following articles to learn more –

  1. Tax Planning
  2. Excise Tax Examples
  3. Tax Lien
  4. Tax Loss Harvesting
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