List of Key Tax Haven Jurisdictions

A tax heaven is a country or territory where certain taxes are levied at a low rate or not at all. This makes it an interesting venture for individuals and/or corporate entities to move themselves to areas with reduced or nil taxation levels.

On a more technical note, The Economist has tentatively adopted the description by Geoffrey Colin Powell (former economic adviser to Jersey) wherein he states that: “… a tax haven has the characteristics of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance…”

What are the main features and characteristics of Tax Havens?

The central feature of a “tax haven” is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. Major characterisics of such haven jurisdictions exhibit the following:

  • Nil or nominal taxes
  • No requirement for a substantive local presence
  • Lack of effective exchange of tax information with foreign tax authorities
  • Lack of transparency in the operation of legislative, legal or administraive provisions
  • Self promotion as an OFC – Offshore Financial Centre

 

What do tax havens achieve?

They create a situation of tax competition among governments. Different jurisdictions tend to be havens for different types of taxes, and for different categories of people and (or) companies.  The low tax structure and free movements across exchanges encourages investments.

Classical example is Dubai and its “zero percent tax incentives” in certain categories. Invariably these attract FDI (Foreign Direct Investment) and fuels the economy since other jurisdictions with stringent tax policies drive away investors.

It is estimated by the US National Bureau of Economic Research that about 15% of countries in the world are tax havens.

So which nations are generally classed today as “tax havens”?

THE G-20 TAX HAVEN BLACKLIST

The London G20 summit on 2 April 2009, brought together the leaders of the top 20 economically powerful nations who collectively agreed to define a blacklist for tax havens.

This list was to be segmented according to a “four-tier system” based on compliance with an “internationally agreed tax standard.” The list is drawn up and maintained by the OECD. The four tiers are as follows:

They include tax havens that have committed to the policy but have not yet fully implemented the OECD standards –  They include countries like Andorra, the Bahamas, Cayman Islands, Gibraltar, Liechtenstein and Monaco.

Financial centers that have committed to but have not yet fully implemented the standards. They include nations like: Chile, Costa Rica, Malaysia, the Philippines, Singapore, Switzerland, Uruguay and three EU countries i.e. Austria, Belgium, and Luxembourg

Those that have not committed to the standard (now an empty category) – Note that this bottom tier category of non co-operative tax havens recently included Uruguay, the Philippines, Malaysia and Costa Rica. They have now been moved up to the 3rd tier.