Using Offshore Banking As Tax Havens

Offshore banking is commonly used as a tax haven by those who either wish to evade taxes in their country of residence or at least pay far less. A tax haven as the name implies is when accounts are made in a foreign country where taxes are considerably less and sometimes are not even charged.

Wealthy individuals and prosperous businessmen exploit the advantages of offshore banking to the fullest. However, on a brighter side, the less developed economies of the world benefit by businesses landing on their shores. There are considerable differences in tax laws in different countries. There are different regulations for commercial and personal accounts. And it is always worth enquiring before you actually open an account and set up your business.

These days all countries impose or demand taxes from residents earning within the country. Thus traders and businessmen, first check various laws of different countries, to see which one will benefit them the most and where they will have to pay the least amount as tax, before starting their industry. Many traders even choose countries where they can legally set up offshore companies, offshore foundations and offshore trusts. They later transfer their assets to their new companies or trusts. Hence they do not pay income tax in countries where they are residents of.

The USA taxes residents on global income as well as domestic, this will prevent residents of the USA from evading the taxes by using these methods. This makes some residents give up their US citizenship to allow them to evade taxes by using the above methods. However US laws will allow a citizen to exclude up to $80,000 of their salary and household expenses if they are living overseas. Some of this type of income can be deducted from taxes. US citizens can also set up offshore foundations and trusts, which can be used as a tax break.

It is most obviously advantageous for a country to be tagged as a tax haven. The tax haven country may not be required to levy huge taxes as their more developed counterparts. Some nations offer attractive tax incentives to companies, in order to lure them to set up businesses and hence bring in scopes of employment of local labor. These have obvious benefits like giving their economies, the much-needed push. There's also an improvement in the standard of living and the local labor pool gets to acquire new technical skills. And with businesses coming and setting up units in the less developed nations, the latter doesn't have to go into a competition with their industrialized counterparts.

There are critics who cry foul at these tax havens, accusing them of encouraging people to evade taxes in their native lands. They also feel that these alluring tax havens also give rise to money laundering. However, all of these are not true as tax havens mitigate the emergence of black markets and sometimes brandish quite stringent money laundering laws.

Not all tax havens are completely tax-free and some do charge taxes on income and assets. Different countries will vary in the laws and regulations. It is wise to look into this carefully when considering using a tax haven. In this way you will find a tax haven that is right for your needs.

Peter Waterhaze is the owner of F offshore, the web's premier resource for information about offshore. For questions or comments about this article visit: www.fyioffshore.com/articles
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