An introduction to our international and offshore tax report - free to all subscribers
There was a time when offshore tax havens were the preserve of the super rich. Legislation, complex rules, cost and even the problem of communication made the use of any offshore financial centre difficult for those on more modest incomes. In the last 20 years, however, the situation has altered dramatically. Many offshore centres have enacted new, more straightforward legislation. The growth in international trade has resulted in a simplification of the rules governing offshore companies and trusts. Furthermore, as the use of offshore vehicles has become more common the cost involved has fallen substantially. With the advent of the Internet and facsimile machines communications are no longer an issue. In other words, tax havens can now be put to use by virtually anyone with a mind to do so.
Interestingly, a staggering one third of the world 's private wealth is held in the oldest tax haven of them all - Switzerland. Furthermore, the world's fifth largest financial centre after Hong Kong, London, New York and Tokyo is one of the smallest tax havens - the Cayman Islands - which now hold in excess of $500 billion of assets.
Yet despite the increased use and acceptance of offshore tax havens it is often difficult for those who are unfamiliar with the way in which they operate to take advantage of the benefits they offer. How can tax havens be used? Which tax haven is most appropriate to their needs? Who can they trust to help and advise them? What will it all cost?
THE GROWTH OF THE OFFSHORE INDUSTRY
Over the last 20 years there has
been a steady flow of capital and wealth from high tax to low or zero tax jurisdictions.
Such jurisdictions are formally known as International Financial Service Centres,
but are often referred to - more evocatively - as tax havens. Indeed, many people
now believe that there is more money offshore than there is onshore. The reasons
for this huge shift in wealth are not, primarily, to do with the avoidance or outright
evasion of tax. The catalysts which have driven the growth of the offshore financial
services industry have really been:
- Fear of political and economic instability - not every country in the world is
as stable as the UK.
- The ever-increasing trend in market globalization.
- The spread of financial market deregulation that began in the 1980s - and which
has by no means ended.
- The lifting of trade barriers.
- The lifting of foreign exchange controls.
It must also be remembered that what may be a high tax jurisdiction for one person or corporate entity, may be a tax haven for another. Personal levels of taxation are relatively high in both the UK and the Republic of Ireland. Yet both feature strongly as tax havens so far as corporations and individuals from elsewhere are concerned. Nor should it be forgotten that the growth in offshore companies (now believed to be running at more than 200,000 new companies per year) has partly been fuelled by the existence of more and more double taxation treaties, whereby tax-payers can opt to pay tax in the least expensive of two different regimes.
IS OFFSHORE TAX PLANNING FOR YOU?
Unfortunately, offshore tax planning is often dismissed as being the preserve of huge corporations and the very rich.
In fact, they can be used - perfectly legitimately - by every one from pensioners who wish to receive interest gross and thus to postpone taxation, to successful entrepreneurs keen to reduce their share of the tax burden, and from expatriates to people who wish to preserve their assets for future generations.
Although you do not have to be particularly rich to go offshore, it does require a greater level of thought and action. Whether you wish to take advantage of the benefits offered through tax havens on a personal basis - or to set up a corporate structure - to do so properly (and without risk) will almost certainly involve more planning than if you were to stay "onshore". In a way this isn't very surprising. After all, if you go abroad on a holiday, or to live, you expect to have to deal with new situations and additional risks. Why should it be any different for your money?
If you approach the whole subject of going offshore with doubt and scepticism, then almost certainly it is not for you. On the other hand, if you're intrigued and curious then it's much more likely to be a valuable tool in your tax planning armoury.
MORE THAN JUST SAVING TAX
Offshore tax planning often involves much more than saving tax. It is now quite accepted that an offshore structure can serve to protect assets from all sorts of threats. For instance, you may remember the conflict that arose when a number of large accountancy firms decided to relocate themselves in the Channel Islands in order to avoid the potential cost of professional negligence claims. If you have any reason to wish to protect your assets then an offshore structure could well suit your needs. By the same token, if you have some - perfectly legitimate - reason for wishing to keep your ownership of an asset confidential, an offshore trust or company may be ideal. A similar structure could well help with your estate and investment planning.
The Schmidt Offshore Report is intended to fulfil the need of intelligent, sensible individuals who want accurate, up-to-date advice written in plain English.
Just some of the topics we have already
covered or will be covering include:
- Banking confidentiality
- Double tax treaties
- Money laundering legislation
- Opening offshore bank accounts
- Offshore financial service regulations
- Offshore property ownership
- Setting up offshore companies
- How to appoint an offshore adviser
- Transferring cash offshore
- Residence and domicile
- Setting up trusts
- Sheltering business profits
- Tax evasion versus tax avoidance
- Becoming a tax exile
- Transfer pricing
- UK legislation affecting international tax planning.
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