Tuesday, October 20, 2020

Tax havens – legal or illegal?

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Tax havens – legal or illegal?

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Autor

Philipp Burger

Treuhänder mit eidg. Fachausweis Steuerexperte

Let’s be honest: everyone has wished to pay less taxes. At the latest when the new tax bill flutters into your house. That applies to entrepreneurs as well as to private individuals. As higher the profit or the income, as more taxes must be paid. Especially Germany is, compared to other European countries, very expensive for rich people and profitable companies. For this reason, many companies and private individuals use tax havens. But what are tax havens and are they legal?

Tax havens and their definition

The term “tax haven” is actually quickly explained:

Tax havens are countries that are characterized by a particularly low tax rate. This fiscal attractiveness is an incentive for many companies and people to either move their domicile to the respective countries or to open a shell company (or both).

TAX HAVENS ARE GENERALLY NOT ILLEGAL. THEY ARE ONLY COUNTRIES THAT CHARGE VERY LOW TAXES.

Typical tax havens have the following characteristics:

  • Low tax rates
  • Political stability (this is important for the security of the capital investment)
  • Banking Secrecy
  • No automatic exchange of information
  • Large number of shell companies
  • Low formal requirements and regulatory barriers

The main goal of tax havens is to ensure that income earned in a high-tax country (e.g. Germany) is not taxed there, but in a tax haven.

A detailed definition on the subject of tax haven can also be found on Wikipedia.

Tax Haven – and how to use it

For private individuals it is relatively simple: private individuals move their main residence to a low-tax country (tax haven) e.g. with a non-dom program like Cyprus and Malta. In doing so, they take their assets with them so that taxes no longer have to be paid in their home country.

For companies it is a bit harder, but there are many ways to use tax havens legally. For example, they can open a subsidiary in a tax haven and outsource parts of their business. It is also possible to use shell companies.

Companies and private individuals would do well to seek detailed advice from experts in advance to avoid unpleasant surprises later on.

Tax havens – legal or illegal?

The term tax haven is often used in the media in connection with negative headlines about tax fraud. Is it really illegal to use a tax haven? No! In principle, using a tax haven is legal.

The best tax havens worldwide

It is not forbidden to move your domicile or company headquarters abroad in order to benefit form tax advantages. The use is illegal if income and profit are hidden with the help of tax havens in order to reduce taxation. But if you declare everything transparently and follow the tax, laws use is legal.

It is clear that the topic of tax optimization in connection with tax havens offers a great potential for conflict. The task of taxes, for example, is to maintain and expand the infrastructure in a country. If taxes now migrate to other countries with low tax rates, the expansion may only be possible to a limited extent. This puts massive pressure on countries with high tax rates in particular.

Typical tax havens

An analysis of the list of classic tax havens reveals that a striking number are former British colonies. For example:

  • British Virgin Islands
  • Bahamas
  • Cayman Islands

But Panama and the USA, above all the State of Delaware, are also classic tax havens.

But you do not have to travel far. Also in Europe there are many tax havens such as

My conclusion

The use of tax havens in conjunction with legal tax optimization is perfectly legitimate and justifiable. However, the use of a tax haven is not easy and necessarily requires professional advice to avoid unpleasant surprises later on.

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