Frequently Asked Questions about Tax Havens
In this section of our site, we answer frequently asked questions, FAQ, about tax havens and frequently asked questions about offshore business (outside the country of your residence).
If you do not find the answer to your question, please send us your inquiry by e-mail and, as soon as we have the answer ready for you, we will include them both in here.
We are contributing in this way to the knowledge about offshore business and enriching the most frequently asked questions about tax havens, offshore, and real estate investments abroad. Thanks to these exchanges, we can make our site more dynamic and complete.
Is it legal to own an offshore company?
Yes, absolutely. It is no accident that several of the world’s leading publicly traded companies and the most powerful banking groups have a large shareholding in offshore companies, which are registered in tax havens. Their objective is quite simple to understand: by doing so, they pay less taxes.
What is the meaning of the term offshore?
Offshore means “outside the territorial waters”. In the case of a financial operation, it means outside the country of residence, and therefore it is an extraterritorial operation.
Why go offshore?
There are two powerful arguments for the widespread interest in going offshore: first, to protect their capital and, second, to effectively reduce their tax burden. There are currently more than 200 jurisdictions that provide one or more incentives for non-resident investors. Several of these jurisdictions are considered tax havens.
With rising taxes in many parts of the world, businessmen are trying to lower their fiscal charges. Thus, if you or your company earns more than 30 thousand euros per year, you will certainly find great advantages in using several variants of the offshore world.
As an example, tax havens guarantee several advantages to their residents or to the offshore company registered there. Among the most interesting and studied cases is that of the Principality of Monaco, where individuals do not pay income tax, but companies are taxed at a high rate.
In contrast, the situation in Panama is more complete, since domiciled individuals and corporations are not subject to taxation there, as long as they do not operate any economic activity in the Panamanian territory. While going offshore is accompanied by anonymity, secrecy and discretion, experts consider that the offshore industry moves more than 60% of the world’s capital.
What is meant by a tax haven?
These are nations (generally very small) with very favorable tax laws within their operating systems for foreign individuals or legal entities that manage to establish a legal residence there. The objective is to attract more money to these countries and offer, in return, the payment of zero taxes.
What is the perfect tax haven?
There is no conclusive answer, as each offers certain advantages that are not always found in the legislation of another tax haven. They are united by the fact that all these procedures are legal; although this logically does not apply to cases of tax fraud, smuggling or tax evasion.
Why do tax havens exist?
As long as governments in developed and “developing” countries continue to increase the tax burden on individuals and companies, interest in going to tax havens and “low tax” countries will grow.
This has resulted in the emergence of an interesting profession: the tax engineer. Such are tax specialists who deal with tax planning. Through their knowledge of the global market and the characteristics of tax havens, tax engineers can devise strategies, which are always legal, to find ways for their clients to pay less taxes.
By hiring a tax engineer, the company tries to reduce its taxes and thus maximize the profits obtained from its international activities. Tax engineers use tax havens as the locations to carry out their strategies.
How can I use an offshore company in a tax haven?
There are several taxes that can be avoided with an offshore company in a tax haven.
For instance, there is the transfer tax on the sale of real estate, ships and aircrafts. The rates range from 2% to 10% of the object’s value. With an offshore company, the person or company can buy real estate and then resell it without having to pay these taxes.
The procedure is relatively simple. The interested party creates what is known as an offshore company, located in a tax haven. This real estate is acquired by this company. Once the person decides to sell the property, he/she simply transfers the ownership of the offshore company (Real Estate Holding Company).
This would cost around 600 Euros, a figure much lower than the 10,000 that it would cost, in terms of taxes, to carry out the procedure using the usual method. You would only have to pay the fees of the lawyer who will take care of the transfer of the company.
This also applies to inheritance. You create a trading company in a tax haven, of which you own 100% under confidential ownership. The ownership of the property is then transferred to the company through a transfer of documents. Then, the real owner (the person who wishes to transfer the property), signs a document, which is not dated, by which he assigns the totality of his shares in the offshore company.
Upon death, the heirs date the document and proceed to register the transaction in the tax haven. The cost of this transaction is very low and there is no inheritance tax to pay. It should be noted that for succession planning it is better to use a Private Interest Foundation. The main difference is that the corporation is a figure used purely for commercial activities, and the Private Interest Foundation is mainly used for the protection of the patrimony.