The Truth about Tax Havens

The legitimacy of the core principles of so-called tax havens is undoubtedly a very contentious issue, but one which always draws more than a passing thought. For a number of reasons, tax havens have come under fire as deliberately undermining the tax-governance abilities and collection avenues of various comparatively high-tax countries in the world, one of which is indeed the United Kingdom. Perhaps for an equal number or reasons however, so-called tax havens are lauded by many individuals and corporations as necessary alternatives to what they deem are exorbitantly high taxes they’re subjected to in their countries of birth and primary residence. Either way, there are some intricacies about tax havens you might not be fully aware of which are perhaps worth taking a closer look at.

Now there are just as many different definitions of what a tax-haven is as there are reasons why people take an interest in making use of these so-called tax havens. The wispiest of these definitions is that of a territory, country, or state in which selected taxes are nationally levied at very low rates or not levied at all. However, because so-called tax havens primarily draw interest from individuals and corporations seeking to avoid paying high taxes or avoid paying taxes altogether (whether “legally” or “illegally”), perhaps a more accurate definition of a tax haven would be a territory, state, or country which has laws and other measures in place that can be used to avoid or evade the tax regulations or laws existent in other jurisdictions. You could be compelled to do whatever you can (putting your money in a tax haven) to keep your hard earned money from a government you don’t believe is doing enough with your contributions or you might not be particularly fond of the idea that whatever assets you pass down to your children will be subjected to hefty capital gains taxes.

Either way, the implications of shifting your money to a tax haven in a bid to forgo paying taxes aren’t as straight-forward as what they’re made out to be. For one, the process of moving vast amounts money off-shore is quite pricey in itself, bound to be met with a lot of red-tape. Also, to truly benefit from a tax haven you’d probably have to move to a small island somewhere, which to be fair sounds exactly like something many people would love to do. You could otherwise make use of something like an investment ISA to invest or save some of your money locally and legally shield it from tax.

Perhaps the biggest revelation about tax havens however is the fact that unless you were actually born in a tax-haven country, you’ll never really be able to completely avoid paying some sort of tax, whether it’s in the form of a considerable investment you have to make in order to get permanent residence or economic citizenship, or indeed if you’ll live out your everyday life in a very expensive country. While most tax havens don’t impose direct taxes, the cost of living is usually much higher than in high-tax countries, with taxes ultimately collected indirectly, through channels such as VAT or hefty duties on goods that inevitably have to be imported.