Many Caribbean nations are pure tax havens that offer tax security to business owners and investors because of their financial privacy laws, non-existent income taxes, and non-existent corporate taxes. These nations became tax havens to attract foreign investment, bolster their own economies, and reduce their dependence on foreign nations, though their effectiveness has been curtailed to some extent by the proliferation of tax information exchange agreements promoted by the OECD and by U.S. FATCA legislation.
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Anguilla is one of a few British Overseas Territories that functions as a tax haven. No tax is levied on offshore companies that generate income outside of its jurisdiction. Neither does Anguilla impose income taxes, estate taxes, or capital gains taxes on either individuals or corporations, making it a pure tax haven. While Anguilla has no exchange controls regarding monetary or asset transfers and has sought to protect the privacy of offshore bank accounts and businesses with the Offshore Banking Act of 2005, subject to external coercion, some of this privacy has been compromised by various Tax Information Exchange agreements it has signed with a variety of countries, including the United States and Canada.
There are some potential work-arounds achievable with Anguilla’s two Residence-by-Investment programs, though the benefits of this are really only available to those who are at least moderately wealthy. To qualify for Residency by Investment, you must either invest in real estate on the island in the amount of $750,000 and maintain it for at least 5 years, or you can make a one-time contribution in the amount of $150,000 per applicant to Anguilla’s Capital Development Fund that finances public sector projects. Alternatively, you can qualify for the High Value Resident Program by satisfying several criteria, including paying $75,000 per year annual income tax to Anguilla’s Treasury and owning a home in Anguilla whose value exceeds $400,000. As tax residencies go, this isn’t the best deal.
The Bahamas cemented its status as a tax haven in the 1990s when it passed legislation that made it easy to form offshore companies and international business corporations within its jurisdiction. A variety of financial services are available in the Bahamas, from offshore banking and offshore trust management to offshore company and ship registrations. There is no tax liability for income earned outside the Bahamas for offshore companies or individual offshore account holders. The Bahamas also established strict banking secrecy laws, but these too have been compromised by no less than thrity-three different Tax Information Exchange Agreements (TIEAs). Furthemore, the OECD has recently been after the Bahamas and other jurisdictions about their residence-by-investment programs functioning to aid and abet tax evasion and money laundering, so in 2019, the Bahamas introduced tax residency certificates that are subject to the Common Reporting Standards (CRS).
Barbados isn’t a pure tax haven because it taxes offshore companies at a rate of 1-2% and, interestingly, the tax rate decreases as the profitability of a company rises. Even so, Barbodos provides a very low tax environment for offshore companies that incorporate in its jurisdiction and it has a thriving financial sector that provides services in offshore banking and the creation of offshore companies. It also used to be the case that the insurance part of the business of companies licensed to insure the risk of their owners was tax exempt, but this changed in 2018 as regulation tightened across a variety of activities in Barbados under pressure from the OECD. Another benefit, if an offshore business establishes a physical presence in Barbados, is that the importation of business equipment is free of import duties. Beyond this, Barbados does not have withholding taxes or capital gains taxes. Barbados also has double-taxation treaties with a variety of countries, including the United States and Canada, to prevent individuals and corporation being taxed twice on the same income or assets. Liker most small tax havens, however, Barbados has succumbed to coercion from the OECD/G-20 and other forms of international pressure, establishing a wide range of TIEAs with other countries.
Setting up offshore banking and offshore corporations in Belize, or forming trusts or foundations, is not a complicated process. Furthermore, offshore businesses incorporated in Belize are not taxed on income earned outside the country. Additionally, offshore bank accounts and trusts are not taxed on earned interest or capital gains. Furthermore, banking legislation guarantees strict confidentiality, with the names of account holders only being able to be disclosed by court order in relation to criminal investigations. While the government of Belize is strongly committed to protecting financial privacy, it nonetheless has OECD-engineered tax information exchange agreements with fourteen different countries. The good news for Americans and Canadians, however, is that the United States and Canada do not (yet) have TIEAs with Belize.
There is no citizenship by investment program in Belize, but the immigration laws are pretty relaxed and obtaining residency is not difficult. While an official work visa in the country has to be approved by the department of labor, the easiest way to obtain a visa is to enter the country on a tourist visa and apply to renew the tourist visa every thirty days until you’ve had a tourist visa for 50 weeks (you don’t necessarily have to be in Belize this whole time), after which you can apply for permanent residency. The whole process can take up to a year to go through review and be accepted. Another even easier way, if you’re over the age of 45, is to apply for a retirement residency visa. Your dependents can also be included on this visa if they’re under the age of 23. All the retiree needs to demonstrate is that they have an income of at least $2000 per month, which is more than enough to live comfortably in the country. Permanent residents who maintain that status for 5 years may apply for citizenship and get a passport from Belize, after which they can live anywhere in the world and maintain their citizenship status.
British Virgin Islands
The British Virgin Islands (BVI) do not tax offshore accounts, but while legislation is in place to regulate and protect the privacy of corporate, banking, trust, foundation, mutual fund, and insurance operations, they do nonetheless have tax information exchange agreements (TIEAs) with 19 other nations, including the United States (but not Canada). No current plans exist to negotiate more tax agreements.
No taxes are imposed on offshore companies, and international businesses don’t pay taxes on profits or capital gains generated outside the BVI. There are also no exchange controls and no restrictions on the free movement of funds. On the whole, BVI is a good environment for doing business.
We deal with the Cayman Islands more extensively in another post, but the Caymans have a well-established reputation as an international financial hub, and are one of the five largest offshore financial centers in the world. They provide services for offshore companies, bank accounts, trusts, and foundations. Offshore companies are not taxed on income earned outside the jurisdiction of the Caymans and no local tax is levied on international business companies (IBCs)—the Caymans have no income tax, no corporate tax, no estate or inheritance tax, no gift tax, and no capital gains tax. There are also no exchange controls limiting the transfer of money in any way, and offshore businesses are not required to pay stamp duty on asset transfers. In short, the Caymans are a pure tax haven.
While the Caymans have strict banking laws intended to protect privacy and offshore corporations, all holders of company management licenses are still required to have their accounts audited annually by the Cayman Islands Monetary Authority and must submit a bi-annual company manager’s report to the Fiduciary Services Division through an online portal. In addition, the Cayman Islands has TIEAs with 26 different countries, including the United States and Canada.
While not a pure tax haven, Costa Rica is a very tax-friendly nation, offering a variety of tax incentives that have attracted large corporations to the country. For instance, as a business incentive, Costa Rica is giving eight-year exemptions from any taxation to many corporations. After this, corporate entities that have to pay taxes are taxed at extremely low rates and exempt from paying taxes on interest, capital gains, or dividend income. Furthermore, companies incorporated in Costa Rica can conduct business both inside and outside the country, with no local taxes being imposed on companies that do not operate within the jurisdiction. There are no exchange controls, so money and other financial assets can move in and out of the country with ease and, after an account is established, without having to disclose the source of the funds. Costa Rica also has substantial privacy laws that protect offshore interests and fewer TIEAs than many Caribbean tax havens. Unfortunately, they have a TIEA with Canada dating from 2011, and late in 2018, they established a tax information sharing agreement with the United States.
It is relatively easy to become a legal resident of Costa Rica on everything from a retirement residency to an investment residency to permanent residency (after three years in another status). Citizenship is obtainable after 5 years of residency if you are from another Central America country or of Spanish descent, and after 7 years for other nationalities.
The Commonwealth of Dominica—which should not be confused with the Dominican Republic—is a pure tax haven with no income tax, corporate tax, or tax imposed on income or capital gains earned outside its jurisdiction. It does not impose any withholding taxes, gift taxes, or estate and inheritance taxes either. It also has legislation that facilitates the creation of offshore accounts, trusts, and foundations, as well as offshore companies, and which helps protect the privacy of its offshore banking services. Nonetheless, it too has multiple TIEAs, including agreements with the United States and Canada.
Obtaining a Dominica Residence Permit is fairly straightforward. After applying and obtaining a one-year temporary residence permit, if you renew it for 5 consecutive years, you may apply for permanent residency. Alternatively, if you have a work permit on the island for 5 years, you may also make application for permanent residency.
If you are a person of means, however, there is a citizenship-by-investment option that will give you and your family citizenship in Dominica with accompanying passports in as little as four to six months. To obtain citizenship by this route, an individual and family meeting the health and background checks must either contribute directly to a government fund or purchase approved real estate on the island. Dominica offers one of the least expensive citizenship-by-investment programs available, costing $175,000 for a family of four donating to a government fund, or an investment of at least $200,000 in real estate to be held for at least 3 years, plus a donation of $35,000 to a government fund for the same size family.
Panama’s reputation as a tax haven was somewhat tarnished by the whole Panama Papers scandal, but it remains a land of opportunity for those seeking to reduce their tax burden. Offshore Panamanian companies are allowed to conduct business tax-free both within and outside the jurisdiction of Panama. Neither the offshore companies nor their owners are subject to income taxes, corporate taxes, or local taxes, and there are no nationality restrictions on who may establish a corporation in Panama.
Residency in Panama can be obtained through either a friendly nations visa, a retirement visa, or a residency-by-investment visa. For wealthy investors, permanent residency in Panama can be expedited in a month or less. If you maintain Panamanian residency for five years, you are eligible to apply for citizenship through naturalization. Having Panamanian citizenship is advantageous, as it provides the bearer visa-free travel or visa-upon-arrival in 121 different countries around the world, including most of Europe, Asia, and Latin America. Once you have acquired Panamanian citizenship, your spouse, children, grandchildren, and descendants also will all be entitled to Panamanian citizenship.
While Panama has strict financial privacy laws, these have, of course, been somewhat compromised by TIEAs, inclusive of those with the United States and Canada. U.S. persons living and working in Panama are entitled to the Foreign Earned Income Exclusion, but if your net profits from business exceed $300,000, for now you may actually be better off seeking tax residency in Puerto Rico (see the discussion in section 3.4, above).
Saint Kitts and Nevis
St. Kitts and Nevis is a pure tax haven that does not impose any taxes on income earned outside its jurisdiction, so offshore companies and their owners don’t have to pay income tax, withholding tax, capital gains tax, estate and inheritance taxes, corporate tax or any other local tax. Since the country has no exchange controls, money can mostly flow freely into and out of St. Kitts and Nevis with no questions asked.
Utilizing the citizenship-by-investment program in St. Kitts and Nevis is a relatively simple and (for the moderately wealthy) inexpensive process in comparison with many other such programs. Without even traveling to the country, citizenship can be obtained in as little as two months through a donation of $150,000 ($195,000 for a family of four) to the Sustainable Growth Fund, or through the purchase of real estate worth at least $200,000 from a qualifying government project. Alternatively, permanent residency can be obtained after obtaining and renewing temporary residence permits for a period of time. After sustaining permanent residency for 15 years, one can apply to naturalize as a citizen. If you can afford it, investment is the easier path.
While the jurisdiction has resisted tax information exchange agreements, international political pressure has forced them into no less than nineteen, including agreements with Canada and finally, under severe political pressure, with the United States in 2018.