A Short Guide to Tax Avoidance by the Use of Caribbean Tax Havens
Most countries tax their citizens on earnings, capital gains, the profits from business transactions and worldwide income, but do not impose these taxes on citizens who choose to reside outside of their own country.
The United States unlike most other countries taxes its citizens on their worldwide income regardless of whether they are residing in the US or elsewhere. A US citizen cannot therefore avoid US taxation either by emigrating or by transferring their assets abroad. This has caused some US nationals to renounce their citizenship and relocate outside of the USA, rather than be subject to the US tax system.
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Tax Avoidance and Tax Mitigation
Tax avoidance (US) or tax mitigation (UK), is the use of various legal measures to reduce taxation and properly used may reduce or completely mitigate taxation on certain transactions.
One method for a person or company to reduce their taxation whilst remaining resident within their home country, is to establish an offshore company, offshore trust or foundation, within a tax haven. The person or company's assets may then be transferred to the new offshore company so that gains, income and profits are earned by the offshore company in a country where these gains will not be taxed.
Another method is for the person to physically relocate and become resident for tax purposes in, an offshore tax haven.
Offshore Tax Havens
Offshore tax havens are countries where taxes are levied at a low rate or not at all. Different jurisdictions tend to be havens for different types of taxes, and for different categories of people and/or companies.
There are almost 60 different countries and states that are considered to be offshore tax havens (Click here for List of Offshore Tax Havens).
The Caribbean offers some of the best offshore tax havens, including :-
- Anguilla Offshore companies exempt from taxation
- The BahamasNo personal taxation, capital gains or inheritance tax
- BermudaOffshore companies exempt from taxation
- British Virgin IslandsOffshore companies exempt from taxation, no personal taxation
- Cayman IslandsOffshore companies exempt from taxation
- DominicaOffshore companies exempt from taxation
- St. Kitts & Nevis
- St. Vincent / Grenadines
- Turks and Caicos
- US Virgin Islands 90% exemption from US income tax, plus others
Off all of the above offshore tax havens, the British Virgin Islands have been chosen as the domicile for 41% of the world's offshore companies, making it the largest offshore jurisdiction in the world by volume of incorporations. The British Virgin Islands has also managed to avoid problems and scandals which have tainted other less well regulated offshore jurisdictions.
Besides offering offshore incorporation, Dominica and St. Kitts & Nevis additionally offer an economic citizenship programme that allows foreign nationals to buy citizenship in these countries. Please read our pages on economic citizenship which deals with this matter in detail.
It is estimated that currently some US$1 Trillion dollars in funds are held in offshore bank account within the Caribbean.
The formation of an offshore company is for many the best route to tax mitigation.
Offshore companies, often referred to as IBC's (International Business Company) can be formed for a single individual, family or an existing company wishing to mitigate their tax liabilities in their home countries.
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What is an Offshore International Business Company?
An Offshore International Business Company is a company incorporated in a tax haven where there are no corporate or personal income taxes, capital gains taxes, reporting requirements, or restrictions on company employment policies.
Typically the only restriction is that the company, being exempt from all local taxes and restrictions, may not conduct business within the territory of the tax haven. This however leaves the company completely free to trade elsewhere in the world and avoid taxation on its profits.
Why would I want an Offshore International Business Company?
An Offshore International Business Company is often owned by individuals seeking to :-
- to protect their assets from claims, lawsuits, or taxation,
- to mitigate taxation on offshore investments,
- to enjoy increased financial privacy and confidentiality.
- to enjoy less restrictive business laws
- to allow individuals to expand their business and trade worldwide
- to allow individuals to reduce their taxes, subject to laws in their local own country
Where should I form an Offshore International Business Company?
Many countries offer the formation of an International Business Company, however the following Caribbean jurisdictions offer some of the best packages available at the lowest costs.
British Virgin Islands
The British Virgin Islands is the leading country in the formation and maintenance of offshore international business companies and currently is a domicile for a total 41% of the worlds International Business Companies.
An IBC formed in the British Virgin Islands is 100% exempt from any local taxation on income, inheritance, capital gains or estate tax, and all taxes based upon income, profits, assets or other financial activities outside of the British Virgin Islands.
A nominal annual fee of US$350 (for most cases) is payable to the British Virgin Islands Government to maintain the registration. By incorporating in the British Virgin Islands, an international business company gains a wide range of competitive advantages, including :-
- Exemption from all local taxes and stamp duty
- Flexible and creative corporate structure.
- Online name reservation and incorporation.
- Customised corporate certificates and document verification.
- Limited public filing requirements, optional disclosure of directors, officers or shareholders.
- No accounting, organisational or annual general meeting requirements.
- Freedom to transfer assets, merge or consolidate with foreign entities.
- Availability of bearer shares and no minimum required capital.
- Shares issued in any currency or for consideration other than cash.
- Access to experienced and trustworthy local industry professionals.
- Highly competitive government and registered agent fees and costs
- Reputable international banks
Anguilla is home to the world leading electronic company registry system "ACORN". An IBC can be formed instantaneously, the digitally signed documents are sent immediately by e-mail from the Registry avoiding incorporation and dispatch delays.
There are no taxes in Anguilla and no duty or levies other than the nominal annual fee which is only $200 irrespective of the amount of capital or the nature of the company, making Anguilla one of the most cost effective jurisdictions.
Shares may be issued to bearer which must be held by the registered agent or licenced custodian.
BVI and Anguilla are both British Dependent territories with similar modern legislation and legal systems based on English common law. The many benefits outlined above also apply to Anguilla.
Nevis offers a fast and flexible service with a wide range of products including LLC law based in the US. The Nevis trust law provides a simple filing process and the trustee does not require a licence.
An IBC formed in Nevis is 100% exempt from any local taxation on income, inheritance, capital gains or estate tax, and all taxes based upon income, profits, assets or other financial activities outside of Nevis.
The annual fee (stated in Eastern Caribbean Dollars) is approximately $350.
Panama stands alongside the BVI as one of the preferred jurisdictions for company formation and is the largest ship registry in the world. Panamanian vehicles appeal to Spanish language clients or those seeking to establish in an independent civil law country.
Formation is extremely inexpensive and can be performed by a lawyer licenced to practice in Panama.
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Tax Havens of the World
Listed alphabetically, with links to information on offshore company formation, offshore property investment, economis citizenship and second passport programmes.