Tax Havens Made Clear: A Comprehensive Guide

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If you’re looking for guidance on whether the judicious use of a tax haven might legally lessen your tax liability and improve your family’s financial situation, look no further. This Expensivity guide introduces and explains the relevant issues, then points you to resources that will get you started on protecting and preserving your family wealth.

Here’s an outline of what follows. Feel free to explore the information provided in piecemeal fashion, or settle in and read the whole thing—after all, your current wealth and financial future are matters of vital concern.

1.      Increased Taxes and Inflation are Coming: Are You Ready?
2.     Tax Havens versus Tax Shelters
3.    Main Characteristics of Tax Havens
     3.1.  Non-Existent or Nominal Taxes

      3.2.  Personal Information is Secure
      3.3. Residency is not Required, But
      3.4. … Physical Residency Can Be Beneficial
      3.5.  Political, Legal, Economic, and Infrastructure Stability
      3.6.  Efficient Banking, Professional, and Support Services
      3.7. How Tax Haven Governments Make Money
4.    Will Your Information Ever Get Exposed?
     4.1. The International Situation
      4.2.  The IRS
      4.3.  The G-20 and the OECD
      4.4.  TIEAs and MLATs
      4.5.   Breaches of Tax Haven Security

5.      Countries without Income Taxes
     5.1.  Is Life Without Income Tax Possible?
      5.2.  How Countries without Income Taxes Function
      5.3.  The List
            5.3.1.   Bahamas
            5.3.2.   Bahrain
            5.3.3.   Bermuda

            5.3.4.   British Virgin Islands
            5.3.5.   Brunei
            5.3.6.   Cayman Islands
            5.3.7.   Kuwait
            5.3.8.   Maldives
            5.3.9.   Monaco
            5.3.10. Nauru
            5.3.11. Norfolk Island
            5.3.12. Oman
            5.3.13. Pitcairn Island
            5.3.14. Qatar

            5.3.15. Saint Barthélemy
            5.3.16. Saint Kitts and Nevis
            5.3.17. Somalia
            5.3.18. Turks and Caicos Islands
            5.3.19. United Arab Emirates
            5.3.20. Vanuatu
            5.3.21. Vatican City State
            5.3.22. Wallis and Futuna
            5.3.23. Western Sahara
6.         Offshore Banking and Investment: A Primer
     6.1.  The Legalities of Offshore Banking
     6.2.  Foreign Financial Accounts: The Tax Implications
     6.3.  How to Open and Access Offshore Bank Accounts
     6.4.   Are There Advantages to Cryptocurrencies?
     6.5. Offshore Brokerage Accounts
     6.6.  Should You Create an Offshore Shell Corporation?
     6.7.   Summary: The Pros and Cons of Offshore Investments
7.     Offshore Tax Havens in the Caribbean
      7.1.  The Nature of Caribbean Tax Havens
      7.2.  Anguilla

      7.3.  Bahamas
      7.4.  Barbados
      7.5.   Belize
      7.6.   British Virgin Islands
      7.7.  Cayman Islands
      7.8.  Costa Rica
      7.9.    Dominica
      7.10.  Panama
      7.11.  Saint Kitts and Nevis
8.    What’s So Special About the Cayman Islands?
     8.1.  Tax Laws in the Cayman Islands
      8.2.  How to Get Cayman Islands Residency
           8.2.1.   Temporary Permits
           8.2.2.   Certificates of Direct Investment
           8.2.3.   Residency Certificates through Business Presence

           8.2.4.   The GCCP and the CEC Global Corporate Program
           8.2.5.  Citizenship

9.       European Tax Havens
     9.1.  The Nature of European Tax Havens
     9.2.  Andorra
     9.3.  Bulgaria
     9.4.  Czech Republic

     9.5.  Denmark
     9.6.  Georgia
     9.7.  Jersey

     9.8.  Liechtenstein
     9.9.  Luxembourg
     9.10. Malta
     9.11. Montenegro
     9.12.  Switzerland
10.        What’s So Special about Switzerland?
     10,1.  The Swiss Banking Law of 1934
     10.2.  Number One on the Financial Secrecy Index
     10.3.  The Mystique of the Swiss Bank Account
     10.4.  Financial Security
     10.5.   Is the Bloom Off the Rose?

11.    Asian Tax Havens
     11.1.  Hong Kong

     11.2.  Malaysia
     11.3.  Philippines
     11.4.  Singapore
     11.5.  Thailand

12.       Getting Advice
     12.1.  Going Offshore to Limit Tax Liability: Key Takeaways
     12.2.  What Resources are Available?
            12.2.1.   Atrium & Associates, Ltd.

            12.2.2.   BBCIncorp
            12.2.3.   Escape Artist
            12.2.4.   Flag Theory
            12.2.5.   ICO Services
            12.2.6.   Offshore Citizen
            12.2.7.   Offshore Companies International
            12.2.8.   Offshore Company
            12.2.9.   Offshore Protection
            12.2.10. Rural Sourcing
            12.2.11. SFM
            12.2.12. Tax Business Advisors
            12.2.13. Worldwide Incorporation Services 
      12.3.  Caveat Emptor: Avoiding Bad Actors
      12.4.  Getting the Job Done

13.      Final Reflections: On the Morality of Taxation

1. Increased Taxes and Inflation are Coming: Are You Ready?

Benjamin Franklin famously remarked that death and taxes were the only certainties in life. We’d all like to avoid both, but let’s focus on tax avoidance since it seems more doable. It’s clear that taxes are going to increase under the current administration and various economic “stimulus” packages are producing and will continue to produce inflation and a devaluation of the dollar. These things are inevitable.

Biden’s Plans for the First Major Tax Hike since 1993

Biden Plans Major Federal Tax Increase

Biden Wants to Raise Taxes to Subsidize Childcare and Education

Biden Intends to Double the Capital Gains Tax from 20% to 39.6%

Forget $400,000: Biden Is Lowering the Tax Threshold to Include Everyone

Inflation is Coming to the U.S.

Inflation is Coming for Your Wealth

If You Think the Dollar Has Lost Value Now, Just Wait

The Dollar’s Crash is Only Just Beginning

Nobody wants to give more of their hard-earned money to Uncle Sam and have less for their family and for the charitable causes they believe to be important. Nobody wants to pay more money for goods and services with a dollar whose value is declining with respect to other currencies. If you haven’t been concerned about these things, you need to be.

Dumpster Fire – Image Credit: Wikimedia Commons

Thankfully, there are some things you can do to counter the effects of higher taxes, inflation, and the dollar’s devaluation. The judicious use of a tax haven has the potential to ameliorate all of these problems. We at Expensivity want to get you started with a comprehensive guide.

2. Tax Havens versus Tax Shelters

The difference between a tax haven and a tax shelter is straightforward, though both can be helpful to reduce the overall tax burden on an individual or a company. Tax havens are jurisdictions around the world where the tax laws are lenient or non-existent, thus enabling a considerable reduction in tax liability for those able to relocate some or all of their assets to that place from their home country. A tax shelter, on the other hand, is simply a tax-planning strategy, often involving certain kinds of investment accounts, securities, or other kinds of investment that minimize your tax liability within your home country’s taxation system.

Used properly, tax havens and tax shelters are methods of tax avoidance. Tax avoidance is the employment of legal methods to minimize the amount of income tax owed by an individual or business. It can be as simple as claiming all of the deductions to which you are entitled when you file your taxes, or it could mean using certain investment vehicles that have a tax-privileged status, or it can involve more complicated strategies, such as making offshore investments, creating offshore companies, and holding offshore bank accounts in jurisdictions that will reduce your tax liability at home. These latter tax benefits are associated with tax havens and they are not just available to multi-national corporations, they can be used by non-resident companies and individuals too.

For example, if a high net worth individual wants to protect his or her wealth for the sake of family and for charitable purposes rather than having a significant portion of it siphoned off by taxation, one thing that can be done is to set up a shell company in a tax haven. Legal ownership of some portion of the individual’s personal assets is then transferred to this shell company in which the individual retains controlling interest, and profit from financial management of offshore investments accrues to the company, not the individual, thus mitgating tax liability in the home country. We will discuss this strategy in more detail in section 6.

Many countries frown upon this strategy, the United States especially, and threading the needle of legality is something that is best done with professional advice. It’s very important to make sure you’ve done due diligence on the legal parameters of this approach and that you’ve set everything up properly and you’re in compliance with all the relevant laws in your home country. You’ll probably want the services of reputable law firms based in your chosen tax haven and the guidance of tax attorneys at home as well. Deatails regarding this scenario are discussed below, but keep in mind that your aim is legal tax avoidance, not tax evasion. Tax evasion is not cool. Just ask Wesley Snipes. Tax authorities love snipe hunting.

Wesley Snipes – Photo By Gage Skidmore, CC BY-SA 3.0, Image from Wikimedia Commons (https://commons.wikimedia.org/w/index.php?curid=71244832)

Tax Court to Snipes: Pay the IRS

Snipes Loses $23.5 Million Tax Case: Offers IRS 4% Settlement

IRS Denies Wesley Snipes Offer in Compromise

3. Main Characteristics of Tax Havens

We’ve already seen that tax havens are jurisdictions around the world where the tax laws are lenient or non-existent, but let’s be more specific about their characterization. The oldest tax havens in the contemporary world are places like Switzerland, Liechtenstein, and Panama, which have each had this status for about a hundred years.

GAO: International Taxation and Tax Havens

OECD: List of Uncooperative Tax Havens

But what are the prime characteristics of the locations that have acquired the reputation of being a tax haven? We can distill several from the characterizations given by the United States Government Accountability Office (GAO) and the international Organization of Economic Cooperation and Development (OECD), which is based in Paris and has thirty developed countries as members. These characteristics are:

3.1.  Non-Existent or Nominal Taxes

Understandably, the most important thing about tax havens is that they have either no taxes or very nominal taxes. Though the details of how things work differ, tax havens are presented to non-residents as places where they can escape the high taxes of their home countries if they relocate their assets and businesses to that jurisdiction. But non-existent or nominal taxes is insufficient by itself as a criterion. Many countries offer tax incentives to non-residents to attract foreign investment, but this doesn’t make them tax havens. There has to be provision for privacy, which leads to the next characteristic.

3.2.  Personal Information is Secure

A tax haven is a place that protects your financial information from foreign tax authorities through legal and administrative machinery that prevents them from gaining access to information about your businesses or accounts. The legal structures and procedures of a tax haven are designed to shelter your financial interests from prying eyes. This generally means that the jurisdiction has not signed information-sharing treaties with different governments, or there are provisions that allow an end-run around the information-sharing agreement. Indeed, some tax havens are becoming much less popular due to having signed such treaties.

3.3. Residency is not Required, But

Normally, a tax haven does not require foreign individuals or businesses to establish a substantial as opposed to a legal local presence. Tax benefits are achievable by setting up the requisite accounts and instruments in the legislative structure of the tax haven without actually being there. In practice, this can lead to thousands of foreign businesses sharing the same local address.

3.4. … Establishing Physical Residency in a Tax Haven Can Be Beneficial

While residency in a tax haven is not required, seeking it may be necessary in the long run to ensure the efficacy of the tax avoidance strategy. For this reason, many tax havens offer “citizenship through investment” to high net worth individuals as well as various less expensive ways of establishing a long-term residency that can lead to citizenship. By investing in a tax haven in these ways, citizenship and a local passport can be acquired, leaving individuals free to consider establishing businesses under their new nationality, or more drastically, renouncing citizenship in the home country and living abroad to avoid tax liabilities that might otherwise follow them around the world. Of course, renouncing citizenship sometimes requires the payment of an “exit tax” on leaving the home country as the native land extracts its last pound of flesh.

Why You Need a Second Tax Residency in a Tax Haven

Americans: Panama vs. Puerto Rico—Which is Right for Your Business?

The Best Citizenship by Investment Programs: Getting a Second Passport

If you are an American citizen, for example, the IRS will follow you all over the world, demanding you pay tax to the US government on everything you earn even though no US resources may have been involved in generating your income. If you decide you’ve had enough of this and want to expatriate, however, the procedure is complicated and you’ll have to pay a substantial exit tax.

Renunciation of U.S. Citizenship

IRS: The Expatriation Tax

The good news is that, for the next few years, there is a way for overtaxed Americans to avoid such a drastic step: establish your primary residence in Puerto Rico. If you move to Puerto Rico, you can keep your American passport and pay no taxes to the IRS. You will have to pay territory taxes in Puerto Rico, but these are much more modest. This possibility came about because, in the wake of declaring bankruptcy in 2017, Puerto Rico introduced legislation designed to attract high net worth individuals and businesses to the island. Act 22 of the Puerto Rican legislature specifies zero percent tax from capital gains on assets acquired after moving to the island. This includes stocks and fund investments and dividends as well as local real estate. It does not include capital gains on real estate still owned on the mainland. Furthermore, Act 20 specifies a 4% corporate tax rate on net business income earned on the island. This includes internet businesses or other businesses providing services to people living outside of Puerto Rico.

To take advantage of these arrangements, you must not have been a resident of Puerto Rico in the last 15 years and you must become a resident by December 31, 2035. This strategy also is really best suited to those netting more than $250,000, because you are required to pay yourself a salary from the business—which is taxed at the ordinary progressive territorial rates that aren’t negligible—before you can then pay 4% on net corporate profits after you’ve paid yourself. If you’re making $100,000 or less from your business, it’s a better strategy to move it outside of any U.S. jurisdiction and pay zero tax using the Foreign Earned Income Exclusion. Panama is one of the best tax havens for this purpose (we’ll discuss this later).

How to Keep Your US Citizenship and Pay No Taxes to the IRS

Will Moving to Puerto Rico Mean Zero Taxes? Not Exactly

The Foreign Earned Income Exclusion Tax Advantage

→ IRS: The Foreign Earned Income Exclusion

3.5.  Political, Legal, Economic, and Infrastructure Stability

Another thing that characterizes tax havens, and without which they would not be able to attract investors, is political, legal, and economic stability. An orderly government with stable and congenial laws and orderly transitions of power, and an economic environment that is pro-business and complemented by a stable currency, is a must. While the local currency must be stable, however, this stability must not be the result of exchange controls in which the local government limits the purchase and sale of currencies. Such limitations are dangerous for outside investors. Efficient laws for incorporation within the tax haven and for companies entering and exiting must also exist if foreign investors and businesses are to find the local prospects attractive. Finally, it is very helpful if the chosen tax haven has a well-developed infrastructure of communication and transportation facilities that expedite the conduct of business.

→  Exchange Controls

3.6. Efficient Banking, Professional, and Support Services

Complementing a stable political economy with a well-developed communication and transportation infrastructure to make a tax haven attractive are extensive banking, professional, and support services for the transfer of financial assets. We will discuss offshore banking and its benefits in section 6.

3.7. How Tax Haven Governments Make Money

Given the benefits that tax havens provide to high net worth individuals and corporations, it is reasonable to ask what is in it for them. Since tax havens have very low or non-existent personal and corporate income tax, they usually make their money in three basic ways: (1) corporate registration and renewal fees; (2) customs and import duties; and (3) departure taxes. Let’s consider these in order.

First of all, tax havens regularly impose a registration fee on businesses that seek to incorporate in their jurisdiction. Subsequently, these businesses frequently pay a renewal fee every year. These fees are not often huge, but they are substantial enough that when thousands of companies are registered in the jurisdiction, considerable income is generated. For example, a 2011 research paper commissioned by the International Monetary Fund discovered that there were (at the time) over 600,000 offshore companies registered in the British Virgin Islands alone. In 2019, there were over 100,000 offshore companies registered in the Cayman Islands.

Beyond this, and dependent on the type of business in which a company engages, other fees may be imposed. For instance, there are usually licensing fees for banks, mutual fund companies, and other businesses in the financial services sector. Taken cumulatively, all these fee sources generate considerable recurring revenue. Taking the British Virgin Islands as an example again, it’s estimated they collect over $200 million each year in corporate fees.

Secondly, tax havens usually impose customs and import duties on everything that comes into the country. These indirect taxes can make the cost of living in a tax haven quite high because they are applied to the cost of items before being sold locally. High import duties in the Cayman Islands are evident in food prices, among other things. For instance, in 2016, packages of frozen fish sticks in regular supermarkets were selling for about $12.00 (£8.50). This issue and others are chronicled in the BBC documentary, Britain’s Trillion Pound Paradise.

Third and last, tax haven countries, especially in the Caribbean and Indian Oceans, are often popular tourist destinations that welcome hundreds of thousands of visitors each year. All these visitors provide another source of revenue, not just in terms of tourism dollars and the inflated costs paid by tourists for goods and services while there, but also because some of these countries impose a departure tax, that is, a fee levied on persons when they leave the country.

Departure Taxes of Various Countries

4. Will Your Information Ever Get Exposed?

Needless to say, many countries are not happy about the existence of tax havens that lower the amount of money they rake into their coffers. They want to be able to help themselves to whatever share of their citizens’ wealth they have legislated themselves to be entitled to, and they’re disturbed that some of their citizens and domestic companies have moved their assets abroad to avoid having to pay taxes on the income they generate. As a consequence, scrutiny of offshore banking accounts and financial activities has increased and a variety of national and international organizations are applying pressure to establish treaties and exchange agreements that would eliminate the tax advantages that tax havens provide.

In light of all this, the crucial question becomes whether you can be certain that your financial information will remain secure. Where the behavior and zealousness of tax authorities is concerned, it’s hard not to think in terms of a paraphrase of the Duke of Exeter delivering the English King’s ultimatum to the King of France in Shakespeare’s Henry V: “If you hide your wealth, even in your heart, there we will rake for it.” Indeed. The Tax Man Cometh.

Image Credit: Wikimedia Commons

4.1. The International Situation

Countries with an income tax generally have one of two approaches—territorial or residency-based. In a territorial system, only income from sources inside the country is taxed. For residence-based taxation, residents are taxed on their local and foreign income, while non-residents are only taxed on their local income. Then there’s the IRS, which like a handful of zealous tax authorities worldwide, not only taxes on a residence-basis, but even taxes the worldwide income of their non-resident citizens, that is, they have citizenship-based taxation. The one concession the U.S. makes to these financially-pained expatriates is that deductions or credits are allowed for the taxes paid to other countries, though this makes little difference if the expat is dealing with other countries that have little or no income tax. Faced with this reality, some American citizens committed to living abroad ditch their American citizenship to get rid of this financial albatross around their necks.

A table summarizing the taxation policies of most of the nations in the world can be found here:

→ International Taxation

Beyond this, the tax authorities in many countries of the world have been on a quest for many years to establish international tax transparency on a global basis, especially for multi-national enterprises (MNEs). A good summary of these efforts can be found here:

→  Country-by-Country Tax Reporting: 20 Years in the Making.

4.2. The IRS

Mene, mene, tekel, upharsin. You have been weighed in the balance and found wanting. In other words—for present purposes—the IRS says you haven’t paid all the tax you owe.

→  The IRS says credit card rewards aren’t income… unless you actually make some real money with them, in which case they want a share

The bane of American existence, the sole purpose of the IRS is to rake the government’s self-proclaimed share of every citizen’s and corporation’s wealth into the government’s coffers. The IRS carefully scrutinizes individuals who move their wealth offshore and, in recent years, has made a concerted effort to audit those they suspect are concealing their actual worth using offshore instruments. As IRS Commissioner Charles Rettig remarked during the 2019 tax season, “Our criminal investigation and civil enforcement teams work closely with the Justice Department in the international arena to ensure our nation’s tax laws are followed. Taxpayers considering hiding funds or assets offshore should think twice; the civil penalties and criminal sanctions can be severe.”

→  IRS: Failure to Report Offshore Funds Remains a Crime

While it is not illegal to maintain foreign accounts and there are often legitimate business and investment reasons for doing so, the IRS regards concealing funds in offshore banks, brokerage accounts and (in an even more subtle way) in nominee entities like shell companies, to be a form of tax evasion. Individuals who use such instruments conceal financial assets to which they then have access through credit cards, debit cards, and electronic fund transfers. The IRS doesn’t like this. Here is a listing of the kinds of foreign financial assets they demand be reported and the possible penalties associated with not doing so:

→  IRS: Foreign asset reporting requirements and non-compliance penalties

The desire to preserve personal and family wealth is very understandable, as is the concern that government spending of the wealth it appropriates is often wasteful. Despite the understandable indignation this provokes on the part of many, the tightening of the tax regime and the reality of escalated threats and increased investigation and prosecution by the IRS have in recent years led many taxpayers to disclose their participation in offshore schemes. This spate of confessions has increased in volume since IRS investigations, audits, and prosecutions have produced billions of dollars in criminal fines and “restitution” from private individuals and businesses, as well as the bankers who have assisted them.

The effort to force foreign financial institutions to provide financial information on the assets of U.S. citizens and foreign nationals led the U.S. government to pass the Foreign Account Tax Compliance Act (FATCA) in 2010 along strict party lines, with no Republican support. President Obama signed it into law. It took effect in 2014, so look out, FAT CAts! The legislation requires foreign financial institutions to report on the assets they are holding for American persons or be subject to the withholding of payments over which the U.S. government has control. Welcome to big-stick diplomacy, new millennium-style.

→  FATCA (Foreign Account Tax Compliance Act)

In their munificence, the IRS also recognizes that taxpayers have different circumstances with which they must contend, so they’ve provided several convenient ways that taxpayers can part with their money and be in compliance with U.S. tax laws:

→  IRS: Remedying undisclosed foreign assets

Where the IRS is concerned, then, the bottom line is that if you wish to pursue tax reduction strategies involving foreign accounts, businesses, and investments, you probably need to consult with a tax attorney who specializes in such matters. This will allow you to remain safely within legal parameters while optimizing how much of your own money you can salvage from government appropriation.

→ Biden Seeks $80 Billion to Fund More Audits of High-Earners

4.3.  The G-20 and the OECD (Organization for Economic Cooperation and Development)

For years, the G-20 and the Organization for Economic Cooperation and Development (OECD) have worked to eliminate or reduce the effectiveness of tax havens. A report on the current status of these efforts is linked immediately below and includes the current and very extensive list of jurisdictions who have entered into the convention on mutual administrative assistance in tax matters (see pp.59-60).

→  OECD Tax Report to G-20 Finance Ministers and Central Bank Governors

In respect of international arrangements between countries, there are a growing number of Tax Information Exchange Agreements (TIEAs) and Mutual Legal Assistance Treaties (MLATs) between countries regarded as tax havens and other countries who, like the U.S, are intent on extracting every last penny they can from as many people as they can halfway justify.

4.4.  TIEAs (Tax Information Exchange Agreements) and MLATs (Mutual Legal Assistance Treaties)

TIEAs make the sharing of tax information compulsory among the signatories, and MLATs require them to cooperate with each other in the enforcement of their respective domestic laws and criminal investigations, which of course include cases involving tax law.

→  Treasury Department: Tax Information Exchange Agreements (TIEAs)

→  Mutual Legal Assistance Treaties

4.5. Breaches of Tax Haven Security

Sometimes information gets leaked or compromised through the tax havens themselves. Even if you haven’t been doing anything illegal, having financial information compromised is deeply concerning. Of course, computer hacking activity compromises private financial data for credit card companies and other financial institutions on a disturbingly frequent basis.

→  The Top 10 Financial Service Data Breaches

Events in Liechtenstein and Panama in the last fifteen years are illustrative of the hazards of private foreign accounts and business arrangements. In 2008, a bank technician in Liechtenstein sold information that led Germany to conduct a series of tax investigations that revealed a great number of German citizens were evading German tax by availing themselves of Liechtenstein as a tax haven. The data leak also revealed tax evasion strategies used by British, French, and American citizens, as well as other countries.

→  Not So Fine in Liechtenstein

→  Liechtenstein Tax Scandal Spreads Across Europe

In April of 2016, a source known only as “John Doe” leaked 11.5 million documents from the Panamanian law firm, Mossack Fonseca & Co., to Süddeutsche Zeitung. This financial data subsequently came to be known as the “Panama Papers.” The data leak revealed massive tax fraud being conducted by individuals and corporations using shell companies formed by the Panama-based law firm. Investigations by tax authorities in Germany, the U.S., and multiple other countries, led to scores of arrests. The fallout implicated no less than 12 national leaders and a variety of celebrities, and unveiled a vast international web of global financial secrecy. For example, in 2018, on the basis of evidence in the Panama Papers, Nawaz Sharif, the former Prime Minister of Pakistan was fined $10 million U.S. and sentenced to 10 years in prison on corruption charges linked to offshore companies.

→ About the Panama Papers

→ The Panama Papers 4 Years On: Anonymous Companies and Global Wealth

→ Fonseca Law Firm at the Center of the Panama Papers Scandal Sues Netflix over “The Laundromat”

Regardless of the security precautions you take, it is never certain that your financial data and dealings will not be compromised. Irksome as it may be at times, the best policy is to dot your i’s and cross your t’s with respect to your home country’s tax laws in seeking to reduce your taxes to the greatest extent possible. Stay within the law. Offshore strategies can have a place in your tax reduction repertoire, but they should only be pursued under the guidance of reputable tax lawyers and with an abundance of caution. Ultimately, your best option, if you have the ability, may just be to move and get citizenship in another jurisdiction where your wealth and that of your family is better protected.

5. Countries Without Income Taxes

5.1.  Is Life Without Income Tax Possible?

The idea of living a life free of income taxes is exhilarating, but the reality of achieving it is easily perceived as difficult and inconvenient to the point of being daunting.

For example, the first thing you might think to try is taking advantage of the so-called 183-Day Rule and regularly moving from country to country on a schedule designed to keep you from ever being classified as a resident anywhere. If you’re anything but single, footloose, and fancy-free, however, trying to live that way is extremely inconvenient and very tedious. You need better options.

A better approach is to earn money in one country while living in another country that doesn’t tax foreign income. Depending on your home country, this may have to involve renouncing your citizenship, immigrating to a chosen country where foreign income isn’t taxed, and making sure that your source of income is neither being generated in that new country or in another country that taxes the income that foreigner’s make within their borders.

The last option, of course, is simply to move your citizenship to a country where income is not taxed, and there are many of these. Of course, such countries make the money they need to function in other ways, so it’s important to take this into account in any relocation decision you make. Let’s briefly consider how these countries function, then take a look at a substantial list of countries without income taxes.

5.2.  How Countries Without Income Taxes Function

Nations that do not have an income tax have to fund their operations in other ways. There are 23 countries in the world that do not have income taxes. Six of them in Western and Southeast Asia—Bahrain, Brunei, Kuwait, Oman, Qatar, and United Arab Emirates—are rich in crude oil reserves and derive much of the income they need to function from this resource. Others, like the Bahamas, tax the life out of you through different means, such as value-added taxes, real property taxes, licensing fees, import duties, stamp duties, and casino taxes, to name a few. It’s very important to know what you’re getting into if you’re considering moving to a new country to avoid being income-taxed to death, because you might still get taxed to death by other means, or worse, subjected to slave labor. You don’t want to leap from the frying pan into the fire.

5.3.  The List

→ The World Bank: The GDP of all the Countries in the World in U.S. Dollars

      5.3.1.   Bahamas

Bahamas – Image Credit: Wikimedia Commons

The Bahamas are located in the West Indies and, in 2019 U.S. dollars, had a gross domestic product (GDP) of $1,357,880,000. Unsurprisingly, tourism creates half of the Bahama’s GDP and the tourism industry accounts for half of its labor force. Its financial sector is substantial too and accounts for about 15% of the Bahamanian GDP. The Bahamas is the only country in the Western hemisphere that is not part of the World Trade Organization (WTO). If you want to immigrate there as a foreign investor and become a citizen, according to the Immigration Act of The Bahamas, you will need to make a residential property purchase of at half a million dollars (U.S.), demonstrate sufficient financial means to support yourself and any dependents, and then reside in the Bahamas for at least ten years.

→  Bahamas Immigrant Investor Program

     5.3.2.   Bahrain

Bahrain – Image Credit: Wikimedia Commons

Bahrain is located in the Middle East and in 2019 had a GDP in U.S. dollars of $38,574,070,000. Oil and natural gas comprise about 85% of the country’s revenues, but it also has a substantial retail and hospitality sector. The country was formerly a British protectorate, but is independent now and occasionally has to deal with political unrest, as do many countries in the Middle East. To get a residence permit in Bahrain, a lot of paperwork and money is involved. An investment of well over a quarter-million U.S. dollars in Bahrain’s economy or purchase of property worth over $130,000 U.S. is required, as well as evidence of a monthly income of about $1,500 and a fixed deposit of about $40,000. Alternatively, if you receive a work visa from a local employer you are eligible for residency as a foreign worker. The employer will take care of the paperwork. There are also dependent’s residency permits available for the foreign spouses and children of workers obtainable through the agency of the employer.

→ Self-Sponsorship Residence Permit Request in Bahrain

→ Bahrain Work Visas and Permits

Family Work Residency Permits in Bahrain

      5.3.3.   Bermuda

Bermuda – Image Credit: Wikimedia Commons

Bermuda is located in the North Atlantic and had a 2019 GDP in U.S. dollars of $7,484,110,000. It is the oldest of several British Overseas Territories lacking an income tax and it has a long history of tourism dating back to the Victorian era. Despite its active tourism industry, 85% of its GDP is generated by its insurance and financial services industries. A Permanent Residency Certificate can be acquired by living in Bermuda for ten years and then paying a $50,000 U.S. fee, or you can marry a local and get your foot in the door for $3,150. You can also gain entrance to the country through any number of classifications of work permits, such as the Global Entrepreneur Work Permit, the Global Work Permit, and the New Business Work Permit, though the Global Work Permit has a limited duration.

Getting a Permanent Residency Certificate in Bermuda

Different Types of Work Permits in Bermuda

      5.3.4.   British Virgin Islands

Virgin Gorda, British Virgin Islands – Image Credit: Wikimedia Commons

In 2017, the estimated GDP of the British Virgin Islands was $1,027,000,000 U.S., so its economy is rather small. Tourism constitutes about 45% of the country’s revenue. The American dollar has been its official currency since 1959 because its economy is tied most closely to the more populous U.S. Virgin Islands. Obtaining permanent residency in BVI is inexpensive, but a long term process. In order officially to become a permanent resident, you must reside there for at least twenty years, then you must submit a residence form in person to the Government of the Virgin Islands Immigration Department.

Government of the British Virgin Islands Immigration Department

      5.3.5.   Brunei

Brunei – Image Credit: Wikimedia Commons

Brunei is located in Southeast Asia in the vicinity of Indonesia and Malaysia and had a GDP in 2019 in U.S. dollars of about $13,469,420,000. The royal family of Brunei, the House of Bolkiah, has been in power for the last six centuries. Much of Brunei’s economic vitality derives from oil and natural gas, which accounts for about 65% of its GDP. Because of its wealth, the country accords its citizens free medical services and free education through the university level.

Foreigners wanting to live and work in Brunei require an official work authorization. This standardly means acquiring an Employment Pass (EP), acquisition of which is subject to approval by the Ministry of Energy, the Labor Department, and the Immigration Department, and most often is valid for two years. A Special Authorization Work Pass is also available for work assignments or employment up to six months in length.

Acquiring permanent residency in Brunei is an extremely difficult and lengthy process. Anyone married to a Brunei citizen must have been married and reside in Brunei for a minimum of 10 years before he or she becomes eligible to submit an application for permanent residency. Anyone born in the country whose parents do not hold Brunei citizenship must also wait a minimum period of 10 years before being eligible to apply for permanent residency. Without either of these criteria being met, someone seeking permanent residency will need to have worked and resided in Brunei for a minimum period of 15 years to be eligible to apply for permanent residency. Highly skilled professionals, especially those who have invested in Brunei or run a business there, stand a much better chance of obtaining permanent residency status.

Acquiring citizenship in Brunei, however, is only possible through marriage or adoption and is an ordeal that includes the requirement of passing detailed tests on the Malaysian language, customs, and culture after residing in the country for at least ten years. Dual citizenship is not allowed.

Brunei: The CIA World Factbook

Brunei Immigration Services

Visa Options in Brunei

      5.3.6.   Cayman Islands

Grand Cayman, Cayman Islands – Image Credit: Wikimedia Commons

The Cayman Islands are located in the Caribbean and, in 2018, had a GDP in U.S. dollars of $5,517,360,000. Another one of the British Overseas Territories, the Caymans derive about 70% of their GDP from tourism, though they are most famous for their status as an offshore financial center. Immigration to the Caymans is not difficult in comparison with many places, requiring only eight years of residency and a roughly $1200 U.S. fee, with a subsequent income-based annual fee that rises to a maximum of about $15,000 if you have an income of $150,000 or more. We will discuss the Caymans in much more detail in section 7.7 and all of section 8.

Immigration to the Cayman Islands

Permanent Residency in the Cayman Islands

Fee Schedules for Visas and Residency Permits in the Cayman Islands

      5.3.7.   Kuwait

Kuwait – Image Credit: Wikimedia Commons

Kuwait, which is located in the Middle East, has an economy that is heavily dependent on oil, which accounts for 92% of its $134,628,540,000 U.S. GDP. Even though its public sector employs 74% of its citizens, it still does not need to levy an income tax. On the whole, Kuwait is not a hospitable place for foreigners to seek work. The CIA reports that foreigners seeking employment often become victims of forced labor because of sponsorship laws that make it difficult to avoid abusive work environments. Furthermore, the Kuwaiti government has, since 2013, been actively trying to reduce the number of foreign nationals to minimize the competition for upper-level management jobs with Kuwaiti citizens. Beyond this, if you are over 50 years of age, you are barred from working in a publicly-funded job. On the whole, Kuwait seems not to be the best choice available to would-be expats.

Kuwait: The CIA World Factbook

A Guide to Moving to Kuwait

5.3.8.   Maldives

Maldives – Image Credit: Wikimedia Commons

The Maldives is an island nation dealing with substantial debt despite expanding tourism and fishing industries. It is located on the Arabian Sea side of the Indian Ocean and had a 2019 GDP in U.S. dollars of $5,642,180,000. While residence in the Maldives is possible, a work permit must first be acquired through a local resident or company via a sponsorship program before one can become eligible for a residency permit. Caution is warranted because the CIA reports that both outsiders and local residents can find themselves victims of slave labor.

Maldives: The CIA World Factbook

Maldives Ministry of Foreign Affairs

      5.3.9.   Monaco

Monaco City – Image Credit: Wikimedia Commons

The country of Monaco is located in Western Europe on the Mediterranean Sea and had a GDP in U.S. dollars in 2019 of $7,188,240,000. If you wish to obtain a residence permit in Monaco it is very costly. Anyone seeking permanent residence must own or rent a residence in Monaco and have an account at a local bank with an initial deposit between $600,000 and $1,200,000. Furthermore, any company functioning in Monaco is subject to a 33% corporate tax unless at least three-quarters of its revenue is generated within Monaco itself.

Monaco: The CIA World Factbook

Residence Permits in Monaco

      5.3.10. Nauru

Nauru – Image Credit: Wikimedia Commons

Nauru is located in the Central Pacific Ocean and had a 2019 GDP in U.S. dollars of $118,220,000. It was once quite wealthy due to its phosphate deposits. These have been depleted and, while efforts are underway to extract secondary phosphates to keep the economy going, these efforts have an uncertain future. The local government extracts money from fishing licenses and by functioning as a dumping ground for the processing of refugees who come to Australia. Since the island nation has very limited space for development, it has no real foreign investment policy and offers no incentives for investors. It does, however, have a financial services center that allows international companies to register in Nauru to gain tax advantages. Further laws and regulations are under development to promote this activity.

Nauru: The CIA World Factbook

Visa Applications for Nauru

Corporate Tax Incentives But No Personal Residency Permits in Nauru

      5.3.11. Norfolk Island

Norfolk Island – Image Credit: Wikimedia Commons

Norfolk Island is an external territory of Australia in the Pacific Ocean that was resettled by descendants of the mutineers from the HMS Bounty. It is difficult to estimate the GDP of the island because the government does not collect the kinds of financial reports that would enable an accurate calculation. It is clear that the economy is currently in a major downturn because tourism is the main driver of its economic growth and the pandemic has shut down travel. Beyond this, and more positively, its agricultural industry is self-sustaining.

Immigrating to Norfolk Island is simplest for Australians or New Zealanders, who have access to an exclusive streamlined process for doing so. Other foreigners looking for entrance into the country or to establish a business presence there are required to submit a seemingly endless stream of forms and documents, some of which need to be renewed on a regular basis, and many of which have processing fees.

Norfolk Island: The CIA World Factbook

Mutiny on the Bounty

Live and Invest in Norfolk Island

      5.3.12. Oman

Oman – Image Credit: Wikimedia Commons

Oman is another oil-rich country in the Middle East. Its GDP in 2019 in U.S. dollars was $76,331,520,000. Oil and gas generates about 75% of the country’s revenue, though leadership is trying to diversify the economy by bolstering the mining, manufacturing, fishery, shipping, and tourism industries. More foreign nationals are entering the country, but to do so you must be between the ages of 21 and 60 and have a confirmed job offer from a company based in Oman that will sponsor your visa and request labor clearance from the Ministry of Manpower.

You are not a citizen of Oman unless your father is a citizen of the country. Naturalization requires twenty years unless there is marriage to an Omani citizen. A woman who marries an Omani can naturalize if she was married with government permission, bore her husband a child, has lived in Oman for at least 10 years, is fluent in Arabic, and has a good reputation. A man married to an Omani woman may naturalize after 15 years if the marriage was recognized by the government and his Omani wife bore him a child. Dual citizenship is not allowed, so any foreign citizenship must be renounced.

Oman: The CIA World Factbook

A Comprehensive Guide to Moving to Oman

5.3.13. Pitcairn Island

Pitcairn Island – Image Credit: Wikimedia Commons

Like Norfolk Island, Pitcairn Island was also settled by mutineers from the HMS Bounty. As a British Overseas Territory, it is the last vestige of the British Empire in the South Pacific. It is about 18 square miles in size and it’s economy revolves around fishing, farming, handicrafts, and postage stamps. The population of the island is currently about 50 people and, if you want to live there, it’s relatively simple to do so: fill out a settlement application form, pay a small fee, and interview with the Deputy Governor of the Island. If you get the thumbs up, you’re in. The 2020 GDP of the island in U.S. dollars was about $151,750.

Pitcairn Island: The CIA World Factbook

Mutiny on the Bounty

How to Apply to Settle on Pitcairn Island

      5.3.14. Qatar

Qatar – Image Credit: Wikimedia Commons

Qatar is located on the Arabian Peninsula and about as attractive and hospitable for foreigners to settle in as Kuwait, which is to say, it’s probably not a wise choice. Foreigners can easily end up in forced labor.

The economy of Qatar is based on oil and natural gas and in 2019 it had a GDP in U.S. dollars of $175,837,550,000. Anyone wanting to risk moving to the country will have to provide documentation of police clearance in their home country and have secured a position at a Qatari company that will arrange for work and residence permits to be processed. Before final approval is given, the visa must be reviewed by the Ministry of Interior. Once in, anyone wishing to leave the country needs the permission of their sponsor and sometimes even an additional guarantor who will agree to repay any outstanding debts. If you wish to become a citizen of Qatar, among other things, you must have lived there for at least 25 years and never have left the country for a period longer than two consecutive months in duration.

Qatar: The CIA World Factbook

What to Know Before Relocating to Qatar

A Comprehensive Guide to Moving to Qatar

Eight Countries Where It’s Hardest to Become a Citizen

      5.3.15. Saint Barthélemy

Saint Barthélemy – Image Credit: Wikimedia Commons

Saint Barthélemy, which is located in the West Indies, became a French overseas collectivity in 2007 after switching hands between France and Sweden a few times between 1648 and 1877. It was under the jurisdiction of the French overseas region of Guadeloupe for many years, but voted to secede from Guadeloupe in 2003 to become a separate overseas collective. The French parliament recognized this status in 2007. It further became an EU (European Union) overseas territory in 2012, which has expedited the local government’s ability to deal with the immigration processes for foreign workers, especially non-French European citizens.

The exact GDP of Saint Barthélemy is an unknown quantity, but the economy of the island revolves around tourism and luxury businesses, with tourism accounting for most of the local employment. The cost of living on the island is quite high and more than compensates for its lack of income tax.

Saint Barthélemy: The CIA World Factbook

History of St. Barth

UN Conference on Trade and Development Profile: Saint Barthélemy

How to Move to St. Barth

      5.3.16. Saint Kitts and Nevis

Saint Kitts and Nevis – Image Credit: Wikimedia Commons

Saint Kitts and Nevis are also located in the West Indies. It is the smallest sovereign state in the Western hemisphere, both in area and population, though it remains part of the British Commonwealth of nations. Its GDP in U.S. dollars in 2019 was $1,053,000,000. Up until 1970, the economic mainstay of the country was its sugar industry, but this was shut down after operating at a loss for several decades. Despite the best efforts of the local government to revive the agricultural economy, these islands still have one of the highest debt to GDP ratios in the world.

The economy of the islands now mostly relies on tourism. In order to stimulate economic activity and as a partial solution to its debt pr0blems, Saint Kitts and Nevis offer economic citizenship to foreigners, who, through a process of financial investment in the islands, can secure residence in Saint Kitts and Nevis along with citizenship and a local passport.

In regard to its tax haven status, the government of Saint Kitts and Nevis succumbed to political pressure and signed an intergovernmental agreement with the United States in 2014, which went into effect in 2016, that complies with the conditions in the FATCA legislation passed by Congress (see section IV.B above). Under this agreement, Saint Kitts and Nevis must report to the IRS on assets over $50,000 held locally by U.S. taxpayers as well as on the workings of certain other legal entities for the purpose of identifying U.S. taxpayers having ownership interest. Shell companies are included in this category. If Saint Kitts and Nevis do not comply, they are subject to a 30% withholding tax on payments that originate in the USA from associated financial institutions, as well as the potential loss of any corresponding banking relationships. We will say more about the potential of Saint Kitts and Nevis as a tax haven in section 7.11.

Saint Kitts and Nevis: The CIA World Factbook

Doing Business in Saint Kitts and Nevis

Saint Kitts and Nevis Sign Tax Reporting Agreement with the U.S.

Saint Kitts Citizenship by Investment Program

Saint Kitts and Nevis Possibly a Foreign Investor’s Best 2nd Passport

      5.3.17. Somalia

Mogadishu, Somalia – Image Credit: Wikimedia Commons

Somalia may not have income tax, but it’s also politically unstable. Since Siad Barre’s oppressive authoritarian regime collapsed in 1991, the country has been characterized by factional fighting and the lack of any semblance of effective governance at the national level. Because of its instability, economic data is difficult to ascertain, but it is estimated that Somalia’s GDP in 2020 in U.S. dollars was around $5,218,000,000. Its economy most revolves around livestock, money transfer companies, and telecommunications.

The functi0ning federal government of the country, in an effort to curtail reliance on other nations, passed legislation in 2015 that restricts the employment of foreign workers. Visas and residence permits are now required for all foreign nationals. Somali citizenship is obtainable for any person who has established residency in the Somali Republic for at least seven years, has demonstrated good civil and moral conduct, and is willing to renounce any status as citizen or subject of a foreign country.

Somalia: The CIA World Factbook

Somalia Restricts Employment of Foreign Workers

Obtaining Somali Citizenship

      5.3.18. Turks and Caicos Islands

Grace Bay, Turks and Caicos Islands – Image Credit: Wikimedia Commons

The Turks and Caicos Islands are another British Overseas Territory in the West Indies. Its 2019 GDP in U.S. dollars was $1,197,410,000. The island economy mostly revolves around its service sector, which accounts for 90% of the country’s revenue. The primary industries are tourism, financial services, and fishing. To become eligible for residency in the Turks and Caicos, you have to be a person of independent means who is self-supportive, locally rent or own a house, and be capable of investing $500,000 in the local economy. Alternatively, you are eligible for residency if you marry a local resident. If you are eligible on any of these grounds, immigration is relatively simple: all you need to do is submit an application form to the Director of Immigration and then pay a modest fee.

Turks and Caicos Islands: The CIA World Factbook

Living and Working in the Turks and Caicos Islands

Immigration to the Turks and Caicos Islands

      5.3.19. United Arab Emirates

Dowtown Dubai, United Arab Emirates – Image Credit: Wikimedia Commons

The United Arab Emirates is located on the Arabian Peninsula and had a 2019 GDP in U.S. dollars of $42,114,227,000,000. While its economy used to derive almost exclusively from its oil and natural gas wealth, it has now diversified so that these only account for about 30% of the GDP, with other industries making up 20%, and the service sector making up the other 50% of the economy. The UAE enjoys a high standard of living and the government has recently focused on expanding the country’s infrastructure and creating new jobs. The UAE actively seeks foreign nationals and is strategic about creating jobs for them. Anyone who wishes to live and work in the UAE must be sponsored by a local resident or business through the Kafala sponsorship program. However, the visas granted under this program are temporary and have to be renewed and loss of a sponsored job requires a foreign national to leave the country.

Two recent developments offer additional paths to UAE residency. In 2019, the UAE introduced a new investor visa for entrepreneurs and professionals that grants 10-year residency for investment in a business. This innovation encourages foreign investment by allowing full foreign ownership of UAE-based companies, even outside of the UAE’s Free Trade Zone areas. The second development is very new, having been introduced in January 2021. A citizenship by investment program is being launched for a special classes of investors and professionals that will permit foreign residents to establish dual citizenship if specific criteria are met. The details have not yet been finalized by the UAE government, but any person of means interested in acquiring a UAE passport should keep watch for the government’s roll out of the program.

United Arab Emirates: The CIA World Factbook

Immigration Concerns in the United Arab Emirates

Living and Working in the United Arab Emirates

How to Immigrate to Dubai

UAE Citizenship by Investment

      5.3.20. Vanuatu

Champagne Beach, Vanuatu – Image Credit: Wikimedia Commons

Vanuatu is an island in the South Pacific with a 2019 GDP in U.S. dollars of $934,240,000. Unlike many other island nations who have struggled to make agricultural industries work, over a quarter of Vanuatu’s economy derives from their agricultural sector, which employs about two-thirds of the population. The rest of its GDP comes from tourism, fishing, and offshore financial services. The island government has also been working to bolster livestock farming as another local industry.

Obtaining citizenship in Vanuatu is fairly straightforward if you have the means, though its a bit unusual. By this means, you can obtain a passport in about two months. After an initial clearance process requirint a $10,000 fee is completed, you have to make a $135,000 donation through the Vanuatu Development Support Program to a single person, or $185,00o to a family of four.

Vanuatu: The CIA World Factbook

Living Conditions in Vanuatu

Expat Guide to Vanuatu

Vanuatu Development Support Program (DSP)

Vanuatu Citizenship and Passport

      5.3.21. Vatican City State

Vatican City – Image Credit: Wikimedia Commons

Vatican City State is located in Rome, Italy, but is its own jurisdiction consisting of a 121-acre walled area. It is ruled by the Bishop of Rome (the Pope), doesn’t export tangible goods, and is primarily supported by its investments, real estate income, and donations. Vatican City (the Holy See) proper gets income from museum admission fees and the sale of tourist mementos like stamps, publications, medals, coins, and other trinkets. It doesn’t engage in international trade and it imports almost all its agricultural products and foods, as well as all its manufactured goods, from Italy, which also supplies all its water, gas, and electricity. The CIA World Factbook reports that in 2013 it took in revenues in U.S. dollars of about $315,000,000 and had expenditures of around $348,000,000. In light of growing deficits, the Secretariat of the Economy was created in 2014 to oversee the financial and administrative operations of the Holy See.

Moving in with the Pope and becoming a citizen of Vatican City is not really an option unless you’re a Cardinal appointed to the Holy See or to Rome, a Vatican diplomat, an authorized resident, a person with specific papal authorization, or the spouse and/or children of a resident. Once your appointment is over, however, you are no longer entitled to residency. Even the Pope, if he resigns his office, has to move out.

Vatican City: The CIA World Factbook

An Overview of the Vatican City State

U.S. Relations with the Holy See

Living in the Vatican

      5.3.22. Wallis and Futuna

Wallis and Futuna – Image Credit: Wikimedia Commons

Wallis and Futuna, like Vanuatu, is located in the South Pacific and is one of a handful of island nations that has a viable agricultural industry in addition to livestock and fishing. The last available estimate of its GDP dates back to 2004, when in U.S. dollars it was about $60,000,000.

Wallis and Futuna is a French Overseas Collective. The public sector is its largest employer, providing work (though not necessarily normal pay!) for about 70% of the population. The financing of the public sector comes from France, as does the money for its healthcare and education services. Since the island is a French collective, the conditions governing residency and citizenship there are the same as those for France itself.

Wallis and Futuna: The CIA World Factbook

The Economy of Wallis and Futuna

Visas for Wallis and Futuna

Settling in Wallis and Futuna

      5.2.23. Western Sahara

Dakhla, Western Sahara – Image Credit: Wikimedia Commons

Western Sahara is a non-self-governing territory in North Africa. Since Spain’s withdrawal from the territory in 1976, Morocco has been trying to lay claim to it. In the effort to integrate it into the Moroccan Kingdom, Morocco is offering incentives to its citizens to move there. The main industries in the area are phosphate mining, fishing, nomadic livestock raising, and tourism. Because of its unresolved regional status, its natural resources are often at risk of exploitation. Financial data is sketchy and dated, but in 2007 its GDP was estimated in U.S. dollars to be around $906,500,000.

Given its ambiguous status, there obviously is no citizenship to be offered by the territory and, apart from the absence of income tax, there are international concerns about human rights violations, so there is scant reason to consider Western Sahara as a viable candidate for permanent relocation. There are better ways to minimize your payment of income tax.

Western Sahara: The World Factbook

A Travel Guide to Dahkla, Western Sahara

U.S. State Department Reports on Human Rights: Western Sahara

6. Offshore Banking and Investment: A Primer

The complexity of the tax system in developed countries, the United States in particular, has led many high net worth individuals, their families, and the companies owned by them, to make use of offshore financial centers and instruments to significantly reduce the income they must report for tax purposes, especially their capital gains tax liabilities. While offshore bank accounts must be declared in the home country of the person who holds the account, some foreign countries do not levy capital gains taxes, so the possibility of growing the account without overly burdensome tax consequences can be attractive. Furthermore, if there is political instability or a high probability of inflation or devaluation of the currency in a person’s home country, holding investments in foreign currencies in an offshore account can serve as a hedge and be a very reasonable thing to do.

This strategy isn’t just something for the rich to consider. Some foreign banks will let a foreign customer open an account with as little as $300. Others, of course, will not do business with foreign customers at all because of compliance requirements imposed by the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO), and by the U.S. through FATCA. Compliance issues and their implications were introduced in section IV above, and will be revisited in different contexts throughout the remainder of our discussion.

6.1.  The Legalities of Offshore Banking

Having an offshore bank account is perfectly legal and may make sense from the standpoint of running a business, minimizing capital gains taxes, and diversifying currencies and assets because of political or economic instability in a person’s home country. With the prospect of inflation and higher taxes looming in the United States because of out-of-control government spending and general fiscal insanity, American citizens and foreign nationals may wish to consider and include the benefits of foreign bank accounts and foreign investments as part of their financial planning.

The important thing to note, if you are an American citizen or foreign national, is that holding money abroad does not exempt you from U.S. taxes. If you hold over $10,000 in the aggregate in foreign bank accounts, you are required to declare it on an FBAR form (Foreign Bank Account Report) when you file your income taxes. As noted earlier, while there is a foreign-earned income tax exclusion (see section 3.4) for foreign income up to $100,000 for those whose tax home is in a foreign country and who have been out of the U.S. for at least 330 days in a period of 12 consecutive months, the rest is taxable. Keep in mind too that multiple Tax Information Exchange Agreements (TIEAs) that the American government has coerced with other nations require banks around the world to report to the IRS on the account balances and financial activities of American citizens and foreign nationals or face fines and financial withholdings.

→  IRS: The Foreign Earned Income Tax Exclusion

→  FATCA (Foreign Account Tax Compliance Act)

6.2.  Foreign Financial Accounts: The Tax Implications

Offshore banking is legal. Even so, the IRS does not like it and they do their best to discourage it. They want their pound of flesh and they are afraid that U.S. persons with foreign accounts may have made their money inaccessible. This fear has made the IRS hyper-aggressive: failure to file an FBAR form declaring foreign assets cumulatively exceeding $10,000 is subject to a $10,000 fine for each non-willful violation and penalties over $100,000 or confiscation of half the value of the foreign account for willful violations. Willful violations can also incur criminal penalties and prison sentences of up to 10 years. In short, the IRS is intent on scaring you into compliance: give us the money we demand or, if we catch you, we’ll take even more of your money and lock you up. While it is hard not to regard these threats and the need to comply with them as a kind of blackmail, extortion, and plunder, such is the price of American citizenship, or permanent residency for foreign nationals.

With this in mind, let’s take a closer look at the tax implications of being an American expat and of the FBAR form itself, also known as the FinCEN (Financial Crimes Enforcement Network) Form 114, and also of the FATCA legislation.

The primary concern for American expats is the possibility of double taxation. As mentioned, unlike almost any other country in the world, the U.S. taxes its citizens and foreign nationals no matter where they live. Even if they live abroad and conduct all their business on foreign soil with foreign capital and foreign trading partners, the U.S. taxes them as if they were living on U.S. soil and making use of American infrastructure to conduct their business. This means that an expat living in a country that has an income tax will have to pay taxes both to that country and to the United States. If an American deposits his foreign pay check into his foreign bank account, the IRS can grant itself access to that account to collect American taxes. There is provision for partial credit for foreign taxes paid on foreign income, but this is often insufficient to cover all the money the IRS wants. This is why it is imperative that American expats living abroad, if they have a choice, should choose a country that does not itself have income taxes.

Since the IRS wants your money, they make it fairly easy to tell them how much you have. Any American citizen or foreign national with foreign bank accounts totaling in value more than $10,000 at any point during the calendar year is required to report these accounts. There is an exception in certain situations for individuals who merely have signature authority over, but no financial interest in, a foreign financial account if that person is an officer or employee of the entity maintaining that account.

It is important to note that FBAR forms require reporting not just foreign bank accounts, but more explicitly all brokerage, securities, savings, demand, checking, deposit, time deposit, retirement, and other accounts maintained with any foreign financial institution, as well as commodity futures and options accounts, any insurance policies with cash vlaue, any annuity policies with cash value, and any shares in mutual funds or other pooled funds. The intended message is that there is no escape and resistance is futile.

To expedite compliance, the IRS modified the Offshore Voluntary Disclosure Program (OVDP) in 2014 to offer assistance to taxpayers that have undisclosed foreign financial assets. These concessions included the elimination of penalties for non-willful violations as long as all the required additional information is provided. Between 2014 and 2016, the OVDP provisions have brought another 45,000 taxpayers into the IRS fold and generated an extra $6.5 billion in taxes and penalties.

Apart from the OVDP, other penalty relief measures have also been instituted. Taxpayers who failed to file required FBARs and are not under IRS civil examination or criminal investigation can e-file the delinquent FBAR forms along with a statement explaining why the filing is late. Penalties will not be assessed in such case as long as the reports are complete and the requisite taxes are paid, provided the IRS has not previously contacted the taxpayer to audit their accounts or to request delinquent tax returns for the tax years that the delinquent FBARs were filed.

→ FBAR Compliance

The 2010 Foreign Account Tax Compliance Act (FATCA), which was phased in and didn’t take effect until 2014, was many years in the making and, with the addition of multiple coerced Tax Information Exchange Agreements (TIEAs) designed to force compliance on Americans abroad, on American foreign investors, and on foreign banks. It requires non-U.S. banks to report accounts held by American citizens or foreign nationals that contain more than $50,000 or be subject to 30% withholding penalties and possible exclusion from American markets.

By the middle of 2015, the IRS had secured the compliance of more than 100,000 foreign financial entities who agreed to share their financial information. Even Russia and China agreed to FATCA. The only major economy to fight the United States on this matter was Canada, though it was private citizens, not the Canadian government, which did so. They filed suit to block FATCA and make it illegal for the Canadian government to sign an international governmental agreement to turn over private bank account information to a foreign country. Unfortunately, this lawsuit was rejected in 2019 and Canadian financial firms must now comply with FATCA, providing complete financial data on their American clients.

What FATCA gives the IRS, then, is the names, addresses, identification numbers, account numbers, and balances of all American holders of foreign financial accounts. To comply with FATCA legislation, in addition to the FBAR form, American taxpayers must also submit the largely redundant IRS Form 8938.

It is estimated that there are at least 6 million American expats living abroad. There are many more domestic citizens who hold foreign accounts. Despite these figures, each year, less than one million citizens file FBARs declaring their foreign assets. This discrepancy means that a millions of American taxpayers are not in compliance with IRS regulations. One sympathizes with these taxpayers, but they’re playing with fire.

FATCA revisited

Canadian Court Rejects Challenge to FATCA

6.3.  How to Open and Access Offshore Bank Accounts

An offshore financial account is any account that is held by an American taxpayer outside the United States. By this standard, both Canada and Mexico are “offshore.” Some places are well-known for offshore accounts–Bermuda, the Cayman Islands, Switzerland, and so on–but other less-known locales, such as Mauritius and Belize, also conduct a brisk business in offshore financial accounts.

While the IRS casts a long shadow over foreign accounts, making them appear shady in their own right, the fact remains that there are many legitimate reasons for having an offshore account that don’t involve tax evasion. For instance, having an offshore account may be necessary or useful if you run a business in a foreign country, have foreign investments or property, spend considerable time in a foreign nation each year, or want the legal benefits that accompany financial dealings in nations with less egregious tax laws.

To open an offshore account, you will have to provide proof of identity. An offshore bank will need you to provide verification of personal information, including obvious things like your name, address, country of citizenship, and occupation. To supply the requisite documentation, you will need a copy of your passport, driver’s license, or some other official government document confirming your identity.

It is worth noting at this point that if you are an American who has secured a second tax residency in another country and has possession of a second passport through a citizenship-by-investment program or something similar, or if you are a foreign national with an address in your home country, you should be able to establish an offshore account with identification documents and addresses from your second country of residence. This simple solution makes the account you are opening immune to FATCA or TIEA compliance on the part of any agreement the tax haven has established with the IRS. If you’re thinking of doing something like this, however, we strongly recommend you get reliable professional advice on its legal ramifications and make sure you are within the boundaries of reasonable interpretations of the relevant laws.

Because of taxation issues, foreign banks also will commonly want to verify your address through the provision of a utility bill or something similar with your name and address on it. To ensure the authenticity of the copies of the documents you provide, you will probably be required either to have them notarized, or more likely, stamped with an apostille seal for international certifications.

The Hague: The ABCs of Apostilles

U.S. Department of State Apostille Requirements

To prevent the international money laundering and fraud that are sometimes associated with offshore banking, various other verification processes may also be required. In particular, an offshore bank may ask for verification documents, usually the last few months of statements, from your current bank to provide them with assurance that you have acceptable minimum balances and an ongoing relationship in good status with a financial institution.

Foreign financial institutions where you are opening an account may have additional questions about the kinds of transactions you expect to conduct through their services and verification of the source of the funds to be deposited with them. For instance, wage statements from your employer in your home country may be required, or the provenance of your investment income may need to be documented, or you may need to provide sales contracts as verification of business or real estate transactions, or a letter from your insurance company if the funds originate with an insurance settlement. If the money being deposited comes from an inheritance, you likely will be asked for legal documentation from the executor of the estate in question. All of this is quite intrusive, but has come about through government pressure on banks with foreign customers in order to prevent illegal international activities.

When you open a foreign bank account, you will be offered options for the currency in which you wish to hold your funds. Choose a stable international currency not expected to fluctuate wildly or depreciate on the world market. Americans might especially want to keep this in mind and take advantage of a stable foreign currency as a store of value. The wanton printing of trillions by the U.S. government, which has flooded the world with U.S. dollars, the prospect of rampant inflation at home, and a growing trade deficit, have created a situation in which a foreign currency and foreign investment hedge is a wise course of action. Just be sure to choose the currency of a country that is politically and economically stable and has not been pursuing monetary policies similar to the U.S. as of late.

What Would It Take for the U.S. Dollar to Collapse?

Goldman Sachs Warns the Dollar is in Peril

If You Think the Dollar Has Lost Value Now, Just Wait

The Dollar’s Crash is Only Just Beginning

The only drawbacks in holding a foreign account in a foreign currency are the possibility of acquiring foreign tax liabilities from interest on your deposits and the inevitability of paying currency exchange rates on deposits and withdrawals. Depending on the amounts involved and the fee structures and exchange rates offered by the foreign bank, these kinds of expenses could become a significant liability.

In the last few years another possibility has arisen: having access to funds internationally through cryptocurrencies that aren’t created by any national government and aren’t, as of yet, subject to standard government controls, and storing your cryptocurrency in a private electronic wallet rather than depositing money (or even the cryptocurrency itself) with a bank. There are, of course, some risks associated with trying to take your finances off the grid in this way. We will discuss the idea more extensively in the next subsection. For now, we need to finish our overview of the mechanics of offshore banking.

Once established, offshore bank accounts are usually funded through wire transfers. Unfortunately, when this is done internationally, virtually all banks charge transfer fees for both sending and receiving funds. If you will need to transfer money frequently, you should look for banks (on both ends) that have reasonable fees for this service.

Alternatively, you may wish to use an independent wire transfer service that performs this service in a secure and more cost effective manner. One service I would recommend for international transfers is the Australian company OFX. It offers competitive rates for delivery of funds to more than 190 countries, and it does not charge transfer fees.

OFX: Save on International Money Transfers

When it comes to withdrawing money from an offshore account, offshore banks generally try to make it convenient by issuing debit cards that, for a fee on a per use basis, give you access to your funds worldwide. Since charges add up for frequent use, withdrawing larger amounts less frequently is a possible strategy. Some offshore banks will also provide checks, but this compromises the anonymity of an offshore account and runs into the problem that foreign checks are frequently not accepted as a means of payment. The best solution may be electronic transfers between offshore accounts and domestic accounts, with the use of a domestic debit card.

Setting up an offshore account is not a difficult thing to do if you’re willing to be patient with the paperwork, identification document requirements, and funding source verification processes. The best choice of currency to hold and the most efficient and cost-effective means for transactions will be made clear as you consider the alternatives available to you. And of course, you will want to consult with a tax professional regarding the relevant tax regulations both offshore and at home regarding international wire transfers.

6.4.   Are There Advantages to Cryptocurrencies?

Bitcoin – Image Credit: Wikimedia Commons

A cryptocurrency is an electronic form of payment that can be exchanged online to purchase goods and services. As things still stand at the moment, most of the time you will need to exchange the cryptocurrency for real currency to be able to access the good or service, though some companies are now accepting certain cryptocurrencies directly as means of payment. Perhaps the most famous instance of this is Elon Musk’s recent pronouncement that Tesla vehicles could now be purchased with Bitcoin.

Tesla Buys $1.5 Billion in Bitcoin and Starts Accepting It as Payment

The History and Future of Cryptocurrency

Cryptocurrency: What You Need to Know

The Creation of Money (see section 8 on cryptocurrencies)

Cryptocurrencies use a decentralized technology called blockchain that manages and records transactions and is spread across many computers. The appeal of this technology is its privacy and its security. The whole point of cryptocurrency is to create a peer-to-peer medium of exchange that is entirely digital, is protected by highly secure cryptographic methods, is subject (via blockchain technology) to a complete and unalterable record of transactions, and which does not have to be redeemed in any national currency in order to be used for financial transactions.

What Is Blockchain Technology?

What this means, of course, is that cryptocurrencies hold the possibility for being a means of storing wealth and conducting financial transactions outside the control and oversight of any government. They have the potential to return some much-needed power to the individual by making financial resources and transactions invisible to government tracking and appropriation through taxation.

Of course, things aren’t quite this simple. There are drawbacks to cryptocurrencies. The first is that they are volatile. There are presently over 6,700 different cryptocurrencies that are publicly traded. As of mid-February 2021, their total value was estimated to be around $1.6 trillion, with Bitcoin, being the most popular, having a total value of around $967 billion. All of them are tradable and, in order to make a profit doing so, someone has to pay more for it than you did. As a consequence of 24-7 trading in cryptocurrencies, their value often fluctuates wildly, so much so that some well-established voices in the investment community, Warren Buffett among them, have counseled investors to stay away from them.

Why Are Cryptocurrencies So Volatile?

The second drawback is that governments are aware there is a financial resource presently beyond their reach and they are looking for ways to get their hands on it. In 2014, the IRS, trying to decide what to do with Bitcoin, declared that it and other cryptocurrencies should be treated as a capital asset. For income tax purposes, such assets are not treated as currency held in an account that is subject to FBAR requirements. On the other hand, since the IRS put cryptocurrency in the category of property, it is arguable, in accordance with FATCA, that it may have to be reported on IRS Form 8938.

Cryptocurrencies are Raising the Stakes for Governments

Foreign Cryptocurrency Accounts for Investors and Entrepreneurs

FATCA, Cryptocurrency, and IRS form 8938

Unfortunately, the FBAR status of cryptocurrency held in foreign accounts looks like it is about to change. While current regulations do not define virtual currencies held in foreign accounts as reportable on the FBAR, FinCEN intends to amend the Bank Secrecy Act (BSA) regarding FBAR to include accounts holding virtual currencies under 31 CFR 1010.350. The increasing seriousness with which the IRS is taking cryptocurrencies is indicated, as many of us who have done our 2020 taxes noted, by a question about cryptocurrencies on the 1040 Form.

U.S. Treasury Signals Intention to Make Cryptocurrency Reportable on FBAR

31 CFR § 1010.350 – Reports of Foreign Financial Accounts

FinCEN: FBAR Filing Requirements for Virtual Currency

IRS Form 1040 for 2020 Includes Question about Cryptocurrencies

The third drawback is that cryptocurrency scams are on the rise. Not only must you ensure that you’re buying your cryptocurrencies from a legitimate source, you need to be vigilant about the apps you use to manage it. For instance, in February of this year, one iPhone user wanted to check his bitcoin balance on the Trezor hardware device he used to store it, so he searched the Apple Store for a Trezor app, found one with the characteristic logo, downloaded it and entered his credentials. The app was a fake designed to fool bitcoin users and he was scammed out of 17.1 bitcoins that were worth about $600,000 at the time of the theft. As of the end of March 2021, the value of the stolen bitcoin had risen to $1 million. Apple has removed the app, but the company is denying responsibility for failing to catch that it was a fake, so for the moment, bitcoin owners, even those who were scammed out their life savings, are simply out of luck.

Fake Cryptocurrency App Costs User His Life Savings

In light of these developments, and with the requisite caveats about apps, if a foreign cryptocurrency account is not essential to your business needs and may soon be subject to FATCA reporting, the best way to handle your private cryptocurrency funds may be to keep them in an encrypted hardware wallet and store them in a secure location like a safe deposit box when they are not being used. If you need to conduct a transaction, you can plug the wallet into a secure device and take care of business. The electronic transfer costs for even large amounts of cryptocurrency are small and, if you’re traveling, it’s easy to take any amount of money discreetly with you using this technology. Most importantly, cryptocurrency funds stored this way are an invisible asset. Your privacy is secure. Just don’t get scammed.

Best Cryptocurrency Hardware Wallets

6.5. Offshore Brokerage Accounts

An offshore brokerage account, which is an account at a foreign brokerage established for the purpose of handling your investments and trading securities, has the same sort of conditions governing it as offshore banking (see section 6.3 above). If you have an established second tax residency and passport in a tax haven, you can open a brokerage account with this documentation. Alternatively, you may wish to establish a shell company as a foreign business located in the tax haven and have the company open the account, perhaps even utilizing nominee directors for this purpose. These strategies are discussed, repectively, in section 6.3 above and section 6.6 below. Whatever you decide to do, make sure you get professional advice and dot all your legal i‘s and cross all your legal t’s.

6.6.  Should You Create an Offshore Shell Corporation?

The primary purpose of a shell company is to manage funds on behalf of another entity, often another company, but sometimes an individual. A shell company has financial assets but no significant business activity. It doesn’t create products, have employees, or generate revenue; it simply stores money and engages in financial transactions on behalf of another entity. Shell companies are used as legal and corporate tools for the purpose of providing confidentiality, storing and moving funds, and reducing taxes. All of this can be done legally and, for the most part, is done legally. But shell companies can also be used for illegal purposes—see the discussion of the Panama Papers in section 4.5 above—such as money laundering or tax evasion, which is why shell companies have a dubious reputation in certain quarters.

A shell company can be set up anonymously and work effectively to conceal the identities of its owners so that financial transactions can be conducted without the participants revealing who they are. This is all legal and can be useful for a variety of reasons: (1) the shell company can be used as a holding company for funds when an established company or an individual is preparing to start a new company; (2) it can be the vehicle for a “hostile takeover” when a company takes over a competitor without the approval of the target company’s management; (3) when established offshore, it can be a useful way to invest in foreign markets; (4) it can be a means of protecting assets from lawsuits; (5) it can hide the money of wealthy individuals for the purpose of safety to protect them from being targeted by criminals; and (6) handled carefully, it can be used as a legal strategy for tax reduction.

Shell companies are often created in tax havens where few or no taxes are imposed upon businesses and banking information is well-protected, though not as well-protected as it once due to the efforts of the IRS, FATCA legislation, TIEAs, and entities like the G-20 and the OECD. Even so, a tax-haven-based shell company can open bank accounts and move funds, have access to foreign markets, engage in financial transactions, manage an investment portfolio, buy real estate, and own copyrights and collect royalties, all while benefitting from the lower taxes it owes as a foreign company in a tax haven.

Every shell corporation must register as a company in the country in which it is created. In the U.S., shell companies register with the Securities and Exchange Commission (SEC). Registered agent services in the tax haven locale will set up the shell company by filing the paperwork and sending the fees to the requisite company register on behalf of the business. Shell companies do not have to be set up in person, they can be created online or over the phone, with incorporation fees ranging from a few hundred to a few thousand dollars.

Setting up a shell company this way generally requires very little personal information—just the identities of the registered agent and the owner—and the latter can be rendered even more secret if the company hires nominee directors, perhaps native to the tax haven itself, to file the paperwork under their own names. An additional layer of security can be added when the shell company being created registers as a subsidiary of another shell company. When the subsidiary shell company is in a different tax haven than the shell company that owns it, the real owner of the subsidiary has an extra layer of anonymity and protection. In particular, the subsidiary is in a gray area and might avoid FATCA legislation and TIEAs because its ownership is foreign-based. If the recorded assets of the shell company owning the subsidiary are kept under $50,000, it too may avoid FATCA/TIEA reporting requirements, something that could be ensured through the utilization of a nominee directorship. If an individual forming a shell company is financially able to do so, it may also be useful to establish tax residency in the chosen tax haven through a citizenship-by-investment program, though it is worthwhile to keep in mind that the OECD has recently been working to clamp down on citizenship-by-investment programs being used to avoid the reporting of income and assets in the tax refugees’ home country.

OECD/G-20 Clamp Down on Common Reporting Standard Avoidance through Citizenship-by-Investment

OECD: Preventing Abuse of Residence-by-Investment Schemes to Circumvent the CRS

Needless to say, we are not committing to any recommendations here. Such matters are complicated and the legality of the corporate structures and their proper implementation for tax purposes need the guidance of well-qualified tax lawyers and accountants at home and abroad. Please exercise due diligence before making any decisions.

Shell companies can be created pretty much anywhere, but certain locations are more popular than others. Switzerland has been a standard location for such entities, with estimates that as much as sixty-percent of the money in Swiss bank accounts belongs to shell companies. Other popular locations for shell companies are the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Jersey (Island), and Luxembourg. Within the United States, Delaware, Nevada, and Wyoming are the most popular states in which to create shell companies because they have easy-going incorporation requirements and strict privacy laws. In fact, using shell companies based in such states, foreigners gain easy access to the U.S. real estate market. Much of the real estate in major American cities is owned by such shell corporations.

6.7.   Summary: The Pros and Cons of Offshore Investments

Let’s consider the benefits of investing offshore. Offshore investments, even securing a second tax residency or citizenship in a tax haven, holds the prospect of many advantages. There is no shortage of offshore strategies that are legal and that offer a broader range of investments, tax benefits, privacy, and asset protection.

One of the most common ways an offshore investor makes arrangements to handle their offshore financial activities is to create a shell company in a tax haven for their accounts and assets that shields them from the higher tax burden in their home country. As a foreign-based company, a tax-advantaged status is enjoyed when investments are made in U.S. markets, so channeling investments through a foreign corporation can have distinct advantages. Furthermore, through trusts, foundations, or shell companies, individual wealth can be transferred to protect family wealth from lawsuits, criminal interests, and egregious taxes.

In establishing an offshore trust, for instance, if the trustor remains a U.S. resident, his trustor status enables him to make contributions to the trust to reduce his taxable income. Of course, the trustor of an offshore asset-protection fund will still be taxed on the trust’s income, even if it is not distributed. But the tax paid because of the growth of an offshore trust fund is offset by the reduction in taxes achieved by transferring domestic income to the trust.

Confidentiality is intended to be the watchword of tax havens. Most of them have instituted laws establishing strict banking and corporate confidentiality regarding the identities of investors. Autonomous nations are not required to respect the laws of other nations—though they can be coerced to do so—and are thus not bound by the laws of their investors’ home countries. For instance, some countries stringently regulate international investment opportunities that limit access to international markets, whereas offshore investment accounts have unlimited access to the world’s markets and exchanges where securities are traded. Unless coerced to do so, tax havens are under no obligation to provide tax information to the home countries of their investors. As noted, though, this has been changing through the efforts of the OECD and the WTO, and has changed considerably for Americans and American foreign nationals because of FATCA legislation and TIEA reporting requirements between the IRS and foreign tax havens the U.S. government has negotiated using coercive tactics.

This brings us to the cons of offshore investment. One of the primary drawbacks is the increased government scrutiny that holding offshore accounts catalyzes. Regulatory scrutiny is not just the nemesis of every illegal actor—money launderers and drug traffickers, for instance—but also the bain of every legitimate investor. Secondly, there is the cost of setting up offshore accounts and creating any companies needed to take advantage of the benefits of offshore investment and asset protection.

Let’s first consider the various regulatory regimes seeking to erode the ability to preserve private family wealth for future generations and for private philanthropic use. Internationally, the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) have worked to impose regulations requiring banks in as many nations as possible to report information on their foreign customers. Each country has responded to these regulations in different ways and in different degrees, some complying broadly and others not at all.

More insidious for American investors, however, has been the U.S. Foreign Account Tax Compliance Act (FATCA) passed in 2010 and enacted in 2014, and various Tax Information Exchange Agreements (TIEAs) enacted in its wake. These not only require U.S. citizens, no matter whether they live at home or abroad, to file annual reports on their foreign financial holdings, but have leveraged agreements with a large number of foreign nations that require them to report on the financial holdings and activities of Americans abroad if they wish to avoid having their own national finances interrupted and withheld by the United States. The result has been a further drain of private wealth into the government coffers as the ability of U.S. taxpayers to reduce taxes by shifting their tax liability to some foreign entity has become increasingly restricted and vastly more complicated.

The final drawback to consider is the cost of establishing offshore accounts. This will vary depending on your goals and the jurisdictions you have in mind. Foreign accounts will have minimum deposits and balance requirements as well as transaction fees, and setting up shell companies will involve service and registration fees as well as ongoing licensing fees. Finally, due diligence in assuring the legality of your arrangements and their proper setup will incur the fees of investment advisors, accountants, and attorneys both at home and abroad, and this may also involve travel expenses. Individual investors will need to count the costs and decide whether they are suitably offset by the gains.

7. Offshore Tax Havens in the Caribbean

Map of Caribbean – Image Credit: Wikimedia Commons

7.1.  The Nature of Caribbean Tax Havens

We earlier considered twenty-three countries that do not have income taxes (see section 5 above). We turn our attention now to Caribbean tax havens in this section, before later considering European tax havens (section 9) and Asian tax havens (section 11).

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.

OECD: A Complete List of Tax Information Exchange Agreements (TIEAs)

Comparison of Caribbean Citizenship-by-Investment Programs

Let’s briefly consider ten Caribbean tax havens before giving extra attention to the Cayman Islands.

7.2.  Anguilla

Anguilla – Image Credit: Wikimedia Commons

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.

Anguilla: The CIA World Factbook

International Tax Highlights: Anguilla 2021 (Deloitte)

Anguilla’s Offshore Banking Act of 2005

Anguilla’s TIEA with the United States

Anguilla’s TIEA with Canada

Anguilla’s Residency by Investment Programs

7.3.  Bahamas

Bahamas – Image Credit: Wikimedia Commons

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).

Bahamas: The CIA World Factbook

International Tax Highlights: Bahamas 2021 (Deloitte)

Bahamas Tax Information Exchange Agreements

TIEA between the Bahamas and Canada

TIEA between the Bahamas and the United States

Bahamas Economic Residency Certificate Will Not Work to Circumvent the CRS

7.4.  Barbados

Barbados – Image Credit: Wikimedia Commons

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.

Barbados: CIA World Factbook

International Tax Highlights: Barbados 2021 (Deloitte)

Barbados Commits to Tax Information Exchange

Exempt “Captive” Insurance Companies in Barbados

Under OECD Pressure, Barbados Repeals Exempt Captive Insurance Act

Barbados Residency for High Net Worth Individuals

How to Move to Barbados

7.5.   Belize

Laughing Bird Caye, Belize – Image Credit: Wikimedia Commons

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.

Belize: The CIA World Factbook

Why is Belize Considered a Tax Haven?

The Offshore Banking Act of Belize

Belize International Financial Services Commission: Regulatory Framework

Getting Residency and Citizenship in Belize

7.6.   British Virgin Islands

Scrub Island Resort, BVI – Image Credit: Wikimedia Commons

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.

British Virgin Islands: The CIA World Factbook

International Tax Highlights: British Virgin Islands (BVI) 2021 (Deloitte)

Background Information for Offshore Banking in BVI

Offshore Banks in BVI

How to Set Up and Offshore Company in BVI

Guidelines for Opening a Bank Account for an Offshore Company in the BVI

7.7.  Cayman Islands

George Town, Cayman Islands – Image Credit: Wikimedia Commons

We will deal with the Cayman Islands more extensively below, 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.

Cayman Islands: CIA World Factbook

Cayman Islands: CIA World FactbookInternational Tax Highlights: Cayman Islands 2021 (Deloitte)

Cayman Islands Legal and Regulatory Environment

Cayman Islands Corporate Financial Reporting Requirements and Schedule

7.8.  Costa Rica

Arenal Volcano, Costa Rica – Image Credit: Wikimedia Commons

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.

Costa Rica: CIA World Factbook

International Tax Highlights: Costa Rica 2021 (Deloitte)

Costa Rica’s TIEA with Canada

Costa Rica’s TIEA with the United States

How to Obtain Costa Rican Residency

How to Obtain Costa Rican Citizenship

7.9.    Dominica

Dominica – Image Credit: Wikimedia Commons

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.

Dominica: The CIA World Factbook

International Tax Highlights: Dominica 2020 (Deloitte)

TIEA between the United States and Dominica

TIEA between Canada and Dominica

Applying for Residency in Dominica

Permanent Residency Requirements in Dominica

Dominica’s Entrepreneur Visa with a 2-Year Path to Citizenship

Dominica’s 4-6 Month Citizenship-by-Investment Program

7.10.    Panama

Panama City – Image Credit: Wikimedia Commons

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).

Panama: The CIA World Factbook

International Tax Highlights: Panama 2021 (Deloitte)

Why Panama is Considered a Tax Haven

The Panama Papers

TIEA between Canada and Panama

TIEA between the United States and Panama

How to Obtain a Visa and Permanent Residency in Panama

How to Get Panamanian Permanent Residency, Passport, and Citizenship in 2021

Panama versus Puerto Rico: Which Is Right for Your Business?

7.11.  Saint Kitts and Nevis

Saint Kitts and Nevis – Image Credit: Wikimedia Commons

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.

St. Kitts and Nevis: CIA World Factbook

International Tax Highlights: St. Kitts and Nevis 2021 (Deloitte)

TIEA between St. Kitts and Nevis and Canada

TIEA between the United States and St. Kitts and Nevis

Work Permits in Saint Kitts and Nevis

Citizenship in Saint Kitts and Nevis

Citizenship by Investment in Saint Kitts and Nevis

8. What’s So Special About the Cayman Islands?

Image Credit: Wikimedia Commons

8.1.  Tax Laws in the Cayman Islands

When the words “tax haven” are uttered, the Cayman Islands are one of the first locations that come to mind. They are one of the most well-known tax havens on the planet. They have no income taxes, no property taxes, no capital gains taxes, no payroll taxes, no withholding taxes, and they also have no corporate taxes, which has made them not only a tax refuge for wealthy individuals and a favored base of operations for hedge funds, but also a prime location for multinational corporations to establish shell companies as subsidiary entities through which to channel their profits to shield corporate income from taxation. Instead of taxes, offshore corporations pay licensing fees to the government of the Caymans based on the maximum amount of share capital a company is permitted to raise (its authorized share capital), an arrangement that most often is massively less expensive than paying the corporate tax rate in the United States or many other foreign nations.

Beyond this, the Cayman Islands are attractive as a place to live because of the quality of life there. Not only are the islands beautiful and temperate throughout the year, but with two international airports, travel to and from the Caymans is convenient, and they have outstanding local services, excellent transportation and communication on the islands, world-class shopping and dining, first-class private hospitals, and excellent schools and educational opportunities for families. Beyond this, their banking and financial services industries, and the infrastructure built around them, are as good as you will find anywhere in the world.

Of course, all of this comes at a price, and it’s not a small price either. The cost of living in the Cayman Islands is quite high and (as we will discuss momentarily) so is the cost of obtaining residency there. The government of the Caymans gets revenue from fees related to tourism, work permits, financial transactions, and import duties. The import duties on goods imported into the islands are very steep, ranging from 22% to 27%. A handful of items are duty free—baby formula, for instance—while premium items like luxury cars are subject to a duty tax as high as 42%. When most of the goods you purchase are marked up to this degree, the cost soon adds up. For this reason, unless you are quite wealthy and the extra expense is unimportant, the Caymans may function better for you as an offshore banking center without considering the possibility of residency.

International Tax Highlights: Cayman Islands 2021 (Deloitte)

Cayman Islands Legal and Regulatory Environment

Cayman Islands Corporate Financial Reporting Requirements and Schedule

Cayman Islands Department for International Tax Cooperation

Cayman Islands International Tax Reporting Standards Update – April 15, 2021

Cayman Islands List of Reportable Jurisdictions 2021

Cayman Islands Customs and Tariff Laws

8.2.  How to Get Cayman Islands Residency

Obtaining residency status in the Cayman Islands is a very straightforward procedure. What it is not, however, is inexpensive. Citizenship-by-investment in other Caribbean tax havens—like St. Kitts and Nevis, or Dominica—is just as straightforward and much more economical. But these other tax havens lack the amenities and culture that characterize the Caymans. If money is no object for you, the Caymans may be a reasonable choice, otherwise, no.

Routes to Permanent Residency and Citizenship in the Cayman Islands

      8.2.1.   Temporary Permits for Persons of Independent Means

The standard way to obtain a Cayman Islands residency is to apply for a temporary (25 year) residence permit as a person of independent means. While coming in with a work permit procured by a sponsoring company that enables you to live in the Caymans legally for the 8 years required to be able to apply for residency is the least expensive route and in theory possible, it’s harder than dropping a ton of cash to have the red carpet rolled out for you (although see the discussion of the Global Corporate Citizen Program below).

Getting a Work Permit in the Cayman Islands

So what are the ton-of-cash options? Aside from being able to demonstrate that you have an annual income, derived from outside the Cayman Islands, of at least $120,000 per year in Cayman Island dollars ($1 CI = $1.20 U.S.), you’re going to have to open and maintain a bank account with at least $400,000 CI dollars in it and invest an additional $1,000,000 CI in the Caymans, at least $500,000 CI of which must be in real estate. If you don’t mind living on Little Cayman or Cayman Brac rather than Grand Cayman, you can get by with proving you have a $75,000 CI annual income from outside the islands and by investing $500,000 CI in the Caymans, at least half of which must be in real estate.

Beyond this, if you meet the criteria to apply, the application process is simple: fill out the application form and pay the $500 CI application , then, if you’re accepted, pay $100,000 CI for the permit to be issued and $1,000 CI to renew it every year after that. A fee of $1,000 CI must also be paid for each of your dependents.

  8.2.2.   Certificates of Direct Investment

If you want to be able to earn money within the jurisdiction of the Caymans while being a resident there, you have the option of pursuing a Certificate of Direct Investment. This certificate is available to anyone who is willing to put $1,000,000 CI into developing a business in the Caymans that creates jobs, and who is also willing to run that business and can demonstrate prior competence in managing businesses of that nature. The business in question must also (without special exception) have at least 30% Caymanian employees. Like the residency permit for persons of independent means, the Certificate of Direct Investment entitles you to reside in the Caymans for 25 years and can include your spouse and dependents.

      8.2.3.   Residency Certificates through Substantial Business Presence

Applying for residency through a substantial business presence is appropriate for those who either invest in or are employed in a senior management position in an approved category of business. The application is open to those who already reside in the Caymans or those who wish to do so. There are two ways to be eligible. One way is that a person must intend to be legally resident in the islands at least 90 days each calendar year and own, or propose to own, a minimum of 10% shares in the business in question. The other way is to be able to prove that you are, or will be, employed in a senior management position in an approved category of business within the islands (in which case you must also pay an annual work permit fee of at least $20,925 CI).

Part of the evaluation of the application by the Chief Immigration Officer will be a determination of whether physical presence for the business has been established in the islands by the purchase or lease of commercial real estate. The evaluation will also consider whether the business employs or will employ four full-time employees who legally reside in the Caymans at least 9 months each calendar year.

The eligible categories of business are as follows: (1) actuarial services; (2) brokerage services; (3) captive insurance or reinsurance management services; (4) companies exempt under section 164 of the 2011 revision of the Companies Law; (5) family businesses; (6) financial trading (including forex, securities, and derivatives); (7) fund administration; (8) hedge fund incubation; (9) insurance claims management; (10) investment and fund management services; (11) investment banking; and (12) reinsurance underwriting.

The holder of a Residency Certificate through Substantial Business Presence is entitled to live and work in the Cayman Islands in the business of which he or she is an owner or senior management employee. The holder is also entitled to be accompanied by his or her spouse and children. Where children are concerned, the right to live in the islands ceases upon completion of tertiary education or reaching 24 years of age, whichever comes first, unless the Chief Immigration Officer determines that there are special circumstances.

The fee to apply for a Residency Certificate through Substantial Business Presence is $1,000 CI. If the application is approved, there is in an issue fee of $5,000 CI plus $1,000 for each dependent included under the Certificate. The holder must then pay an annual fee equivalent to that of a work permit holder in the same occupation (at least $20,925 CI, as already mentioned).

8.2.4. The Global Citizen Concierge Program (GCCP) and the CEC Global Corporate Citizen Program

If you wanted to try things out to see whether you like living in the Caymans, the Global Citizen Concierge Program, which allows persons who are employed outside the Caymans and who have the financial means to work remotely to relocate and live in the Caymans for up to two years, is something you could consider. To be eligible, you need an annual income of at least $100,000 CI if applying individually, $150,000 CI if applying with a spouse, and $180,000 if applying with a family. The full range of application criteria are detailed in the link below.

Application: Cayman Islands Global Citzen Concierge Program

It is important to realize, however, that time spent in the Caymans under the Global Citizen Concierge Program does not count toward permanent residency in the islands. If you want your time in the Caymans to have the possibility of counting toward permanent residency and citizenship, then you should consider the Global Corporate Citizen Program.

The Global Corporate CItizen Program is an initiative arranged through Cayman Enterprise City (CEC) that allows the owner of a global business to operate from within the Cayman Islands. The program permits complete foreign ownership under a business license called a Zone Trade Certificate that allows foreign businesses to be located in the Caymans and benefit from the neutral corporate and personal tax platform that the islands offer. With a 5-year Zone Employment Certificate, which is a work/residency visa, the business owner will be considered a resident of the islands. At the end of five years, these visas are renewable for another 4 years. After being in the Caymans for a total of 8 years, the business onwer is eligible to apply for citizenship.

Cayman Islands: Special Economic Zones

Special Economic Zone Work Permit Grant/Renewal

GCCP and the Global Corporate Citizen Program (CEC)

8.2.5. Citizenship

The Cayman Islands is a self-governing British Overseas Territory (BOT). As such, it has no citizenship unique to itself but instead a kind of citizenship common to all these territories, namely, British Overseas Territory Citizenship (BOTC). Being Caymanian is a status that is distinct from having BOTC; one can be the latter without being the former and vice-versa. People who have resided in the Cayman Islands for eight years can apply for permanent residency. If permanent residency is granted, then it is possible to apply for naturalization as a British Overseas Territory Citizen, to acquire Caymanian and British passports, and eventually apply for the right to be a Caymanian.

Cayman Resident

Immigration to the Cayman Islands

Routes to Residency in the Cayman Islands

Instructions to Apply for Permanent Residency in the Cayman Islands

Fee Schedules for Visas and Residency Permits in the Cayman Islands

9.       European Tax Havens

Map of Europe – Image Credit: Wikimedia Commons

9.1.  The Nature of European Tax Havens

The broader European continent, extended into the Caucasus with countries like Georgia, hosts a variety of tax havens that provide a refuge from income tax, capital gains tax, and corporate taxes. These regions have attracted a variety of tax refugees ranging from large companies to private investors seeking to mitigate the oppressive tax regimes in their home nations.

9.2.  Andorra

Andorra – Image Credit: Wikimedia Commons

The Principality of Andorra is sequestered in the Pyrénées  between Spain and France. It did not have an income tax prior to 2015, but succumbed to pressure from the European Union (of which it is not a member, though the Euro is its official currency). It nonetheless remains a low-tax region sandwiched between two countries with very high tax rates. Its tax policies put it in a better position to attract those of more moderate means than countries like Monaco, which provide a tax refuge for the very wealthy. Andorra is ranked as one of the safest places in Europe and has one of the best health care systems in Southern Europe. Its cost-of-living is on a par with Spain and considerably lower than that of Britain, France, or Germany.

Andorra has no wealth tax, no inheritance tax, no gift tax, and only charges capital gains tax on the sale of Andorran real estate, purchase of which will be necessary if you wish to establish tax residency in the principality. It’s income tax rates vary from 0% t0 10% and take effect once income exceeds €40,000. There is a generous standard exemption of €24,000. Corporate tax rates vary from 2% to 10%.

There are two ways to qualify for tax residency in Andorra. One is to make an investment and the other is to start a company. Both require a person to reside in Andorra a minimum of 90 days each year and to purchase property, maintain a bond, and acquire Andorran health insurance. If you wish to start a company, you will need to have your identification papers, business references, and resumé in order and, for a single applicant, post a €50,000 bond. If you would rather be a passive resident than run a business, you can do so by investing €400,000 in Andorra, which can include the purchase of real estate. Active and passive residency permits are issued for 2 years for the first three renewable cycles, then 10 years for the fourth cycle onward.

Citizenship in Andorra is the only way to establish a permanent residency that does not require renewal. To apply for citizenship, you must either have been a resident (active or passive) for 20 years, or have completed your education in Andorra’s school system and lived there for 10 years. Of course, you also must not have a criminal record anywhere. Beyond this, you will have to renounce your citizenship in your birth country and any other country in which you happen to hold citizenship, because Andorra does not permit dual citizenship. Unless you are completely committed to being an Andorran citizen, and only an Andorran citizen, it would seem best just to renew your residency on the required schedule.

Andorra: The CIA World Factbook

International Tax Highglights: Andorra 2021 (Deloitte)

Andorra’s Tax Information Exchange Agreements

Tax Residency in Andorra

Setting Up a Business in Andorra

Permanent Residency and Citizenship in Andorra

9.3.  Bulgaria

Vrachesh, Bulgaria – Image Credit: Wikimedia Commons

Bulgaria has the lowest personal and corporate tax rates within the European Union (Andorra isn’t a member), both of which are a flat rate of 10%. While you will also pay a 10% capital gains tax on profits from the sale of property, there is no capital gains tax on your profits if you have investments or trade the stock market in the EU.

You can become a tax resident of Bulgaria in one of two ways: (1) live there at least 183 days each year; or (2) demonstrate to the tax office that Bulgaria is your vital center of interest by presenting evidence in relation to the location of your employment or business, your monetary social contributions, residence permits, property ownership, and family relationships. The favored way for foreigners to establish proof of vital interest is through the purchase of real estate.

Foreign investors who wish to start a company in Bulgaria can choose among a variety of business entities: sole proprietor LLCs, LLCs, joint stock companies, limited partnerships, and general partnerships. Aside from the registration process and share capitalization for joint stock companies, there are no special requirements for foreigners establishing a company in Bulgaria. The country has low corporate tax rates, low operational costs, and (if the company has employees) lower labor costs than in other EU countries. If the investor just wants to open a private LLC, on the other hand, there is a quick registration process that takes less than two weeks and a symbolic minumum required capitalization of 2 BGN ($1.25 US).

If you want to establish permanent residency in Bulgaria, the fastest path is through investment and it only involves a single visit to Bulgaria. If an investor purchases government bonds worth €512,000 with the intent to maintain the investment for at least 5 years, permanent residency is granted in 6 months. It can be upgraded to Bulgarian citizenship after 5 years or, if €1,024,000 is invested, Bulgarian citizenship can be granted in one year. Of course, permanent residency and citizenship can be achieved without investment by moving to Bulgaria on a temporary visa that is renewed annually for a period of five years, and living in the country for at least half of those five years (30 months).

A person doing either of these things not only gets Bulgarian tax residency, but also becomes a resident of the EU with access to free education and medical care throughout the European Union, though this is coming to an end for the investment route to citizenship. The European Commission, in accordance with article 4(3) of the Treaty on the European Union, opposes citizenship by investment programs because they give non-EU residents access to EU benefits without proven links to any of the member countries, something they regard as contrary to the principles of trust-based cooperation.

Bulgaria: The CIA World Factbook

International Tax Highlights: Bulgaria 2021 (Deloitte)

Exchange of Tax and Financial Information in Bulgaria

Establishing Tax Residency in Bulgaria

Opening a Company in Bulgaria

Permanent Residency and Citizenship in Bulgaria

Consolidated Version of the Treaty of the European Union

9.4.  Czechia (Czech Republic)

Charles Bridge in Prague, Czech Republic – Image Credit: Wikimedia Commons

Czechia (the Czech Republic) has simplified both personal and corporate taxes and is worth considering as a place to establish a foreign-owned business. Citizens of the EU may find it especially attractive as a place to establish residency because the 15% flat tax rate allows for deductions that, especially for business owners, can reduce the effective rate to 6-9% for self-employed entrepreneurs.

A sole proprietor LLC can be established by a foreigner in the country for €1; other corporate entities require more capital, especially joint stock companies, which need at least €75.000. Financial statements for businesses must be filed with the tax authority every year, but an external audit is only required when at least two of the following three criteria are met: (1) the balance sheet of the company shows assets over €1.5 million; (2) there is an annual revenue turnover that exceeds €3 million; or (3) the company has over 50 employees.

Permanent residency in Czechia is easily acquired by EU citizens who may relocate there freely and report their presence to the foreign police within 30 days. After residing in the country for 5 years, they are entitled to apply for permanent residency. For non-EU citizens, the process is a bit more involved. A work visa will have to be obtained that requires an employement permit from a Czech employment office, although academics, artists, students, athletes, and service industry workers are exempted from this requirement. If you then live in the country for eight years, except for short-term vacations, you are eligible to apply for permanent residency. Applying for permanent residency as a non-EU citizen will require you to pass a Czech language exam. If you’ve held a permanent residency permit for 5 years, or have lived in the country uninterrupted (except for short vacations) for 10 years, you may then apply for Czech citizenship.

Wealthy investors have another path to residency and citizenship in Czechia as of August 2017. A long term residence permit for an investor and his or her family, which is good for two years and renewable indefinitely, is obtainable without compulsory residence requirements for an investment in a business in the Czech Republic in the amount of at least €2.8 million when that business creates at least 20 jobs in the country for EU citizens. Granting of residency carries with it the right to work. Citizenship may be applied for after 10 years.

Czech Republic: The CIA World Factbook

International Tax Highlights: Czech Republic 2021 (Deloitte)

Tax Information Exchange Agreements with the Czech Republic

Tax Residency in the Czech Republic

Benefits of Setting Up a Foreign-Owned Business Entity in the Czech Republic

Permanent Residency in the Czech Republic

Acquiring Czech Citizenship

Czech Residency/Citizenship by Investment

9.5.  Denmark

Copenhagen, Denmark – Image Credit: Wikimedia Commons

Denmark’s top marginal effective income tax rate is 60.4%. If taxation is your concern, then you don’t want to live there, especially if you are wealthy. But this doesn’t mean that there aren’t considerable advantages available to those who establish a holding company in Denmark.

In 2009, the Danish government passed the Danish Tax Reform Act that allowed foreign investors to use Denmark as a holding company jurisdiction. A Denmark Holding Company can be completely foreign-owned. A Danish Private Holding Company is called an “Anpartselskab,” which is abbreviated ApS. Such companies help foreign private investors to hold a globally diverse portfolio of corporate shares for investment and trading, essentially tax free, under a corporate identity outside the tax jurisdiction of their home nation. In short, Denmark allows the registration of tax-free holding companies that can receive income from multiple sources and pass them on to other corporations in different countries. They provide an excellent investment platform for tax-free investments in securities and their derivatives because foreign investors are not taxed on income from investment companies as long as certain conditions are met.

Here, then, are the advantages to having a Danish Holding Company structured around an investment portfolio: (1) Foreigners can own all of the shares of the company; (2) No corporate tax is imposed on foreign shares, nor is there any tax on capital gains, interest, or dividends for foreigners–though U.S. taxpayers are expected to report all global income to the IRS; (3) The business activities of the companies in which the holding company owns shares are not restricted in any way; (4) A Danish Holding Company can be registered in one business day by filing a few documents with the Commerce and Companies Agency of the Danish Government, which will then assign a registration (CVR) number to the company; (5) Shelf companies (not shell companies, though a shelf company may be a shell company) can be purchased for even faster registration; (6) The minimum share capital for an ApS is very low–approximately €10,700–though the ApS is not allowed to own shares in itself; (7) Only one shareholder is required and this same person can be the sole director of the holding company; (8) The Danish government does not require any specific accounting system to be used to track the financial activities of the holding company, though accounts must be audited annually as part of records accessible to the public; (9) Annual general meetings of shareholders are required, but can be held anywhere in the world; (10) The director(s) and manager(s) of a private holding company are not required to be from Denmark and can be located anywhere in the world; and (11) Nominee directors are permitted.

What’s not to like about that?

Denmark: The CIA World Factbook

International Tax Highlights: Denmark 2021 (Deloitte)

Exchange of Financial Account Information in Denmark

Advantages of Establishing a Danish Holding Company

There Are NO Tax Advantages to Danish Residency or Citizenship

9.6.  Republic of Georgia

Tbilisi, Republic of Georgia – Image Credit: Wikimedia Commons

The Republic of Georgia is located in the Caucasus between Asia and Europe on the eastern edge of the Black Sea. As the only European country with a mostly territorial tax system, that is, a tax system that excludes foreign-earned income from its tax base, properly structured foreign-sourced income is not taxed for anyone with Georgian tax residency. For anyone who lives in a country that doesn’t tax foreign income, especially if you aren’t living in your home country, it is a fairly straightforward matter to pay no tax on profits if you have a tax residency in Georgia. If you are a person of means, it’s also possible to become a tax resident of Georgia without ever living there. On the other hand, the cost of living in Georgia is low, it’s a very safe country, and there aren’t a lot of financial regulations that make life difficult, so it can be a good choice for a home base. Of course, if you are a U.S. person (citizen or foreign national), you’re out of luck across the board, because the U.S. taxes your income no matter where it’s earned and no matter where you live, and Georgia has committed to complete tax transparency with foreign nations by 2023.

The tax system in the Republic of Georgia works favorably for individuals and for corporations. In particular, income tax is 1% for individuals with an annual income up to 500,000 Georgian Lari (GEL), which is about $145,000 U.S., with 0% personal income tax on income from outside of Georgia or from the resale of cryptocurrencies. Corporate income tax of 15% is only payable after dividends have been paid to shareholders and the money is in the company’s bank account; if the money is reinvested, no tax is due. Georgian legal entities are not taxed on profits made from foreign subsidiaries unless those subsidiaries are registered in tax havens. There are also income tax exemptions for information technology companies providing services outside of Georgia and “free industrial zones” offering tax exemptions within Georgia. The banking services in Georgia are also world-class.

Residency in Georgia can be obtained in four ways: (1) temporary residency through real estate investment; (2) permanent residency by investment; (3) special tax residency for high net worth individuals (HNWI); and (4) visiting and staying in the country for more than 183 days, filing taxes in Georgia, then applying for a tax certificate there (thus gaining tax residency).

If you buy real estate in Georgia worth at least $100,000, for additional fees, you can get a residency permit for yourself and the members of your family. This temporary residency card is good for one year, but it is renewable. In the case of permanent residency, if you invest at least $300,000 in Georgian real estate, you are entitled to a 5-year investor’s visa as long as you keep the real estate for this period or replace it with real estate of similar value. After 5 years, you are entitled to permanent residency, and if you stay for 10 years, you can apply for citizenship, though this is a more complicated process.

If you are a HNWI and can prove you have at least GEL25,000 ($7,250 U.S.) of annual income from Georgia, then you qualify for special tax residency as a wealthy person if you can either prove that you have at least GEL3,000,000 ($870,000 U.S.) in assets worldwide, or you earn at least GEL200,000 ($58,000 U.S.) each year. As you can see, Georgian standards for HNWIs are not out of reach for many middle-class Americans. The difficulty is that, if you meet the criteria, you must spend at least 3 weeks in Georgia per year for a tax certificate that’s only good for one year. If you want to maintain your tax status, you have to do this every year.

Forming a sole proprietorship in Georgia is the route that many individual investors take. It’s relatively easy to do through services that are available for this purpose, and it gives you a corporate identity in Georgia that is only taxed at 1% of turnover up to GEL500,000 ($145,000 U.S) and 3% on amounts exceeding that for income within Georgia. Income from outside Georgia is tax free.

Republic of Georgia: The CIA World Factbook

International Tax Highlights: Republic of Georgia 2021 (Deloitte)

Georgia Commits to International Standards of Financial Information Exchange by 2023

Tax Residency in the Republic of Georgia

Nine Reasons to Get Residency in the Republic of Georgia

Getting Georgian Citizenship

9.7.   Jersey (Channel Islands)

Jersey, Channel Islands – Image Credit: Wikimedia Commons

One of the Channel Islands, Jersey, which is a self-governing dependency of Britain, has had a reputation as a tax haven for many years. While it’s tax haven status has been tarnished by signing more than thirty TIEAs under pressure from the OECD, it nonetheless still offers advantages, especially to businesses that establish tax residency in its jurisdiction.

In respect of individual taxes, Jersey’s income tax rates are hardly worth the effort. Jersey extracts 20% from high-net-worth individuals (HNWIs) establishing residence there. As of 2021, prospective HNWI residents must contribute at least £145,000 ($201,000 U.S.) annually to the island and meet a minimum income requirement each year of £725,000 ($1,000,000 U.S.). If income exceeds the minimum, an additional 1% tax is imposed. In addition to all this, if you live on the island, a 5% tax on goods and services was introduced in 2011, a stamp duty of 10.5% is charged on the sale of land and immovable property within the jurisdiction, and individual parishes collect property taxes. These latter taxes also affect businesses, of course. The only remaining benefits to Jersey tax residency for individuals are that there’s no capital gains tax, and no tax is levied on capital transfers to and from the island.

Where corporate taxes are concerned, in 2008, Jersey eliminated all taxes for corporations doing business on the island with the exception of financial service firms, which are taxed at 10% of profits, and utilities, rentals, and development projects, which get taxed at a 20% rate. For this reason, Jersey is still a good place to establish a foreign business, though Jersey is beginning to focus on dormant shell companies used as places to park wealth without engaging in substantial business activity, and beginning to require that these firms actually do some business.

There are two kinds of foreign companies in Jersey. The first kind are those companies whose ownership is foreign but which are managed and controlled in Jersey with local directors and board meetings. Such companies are treated as resident in Jersey and subject to local taxes on their income according to their business type. The second kind of company is one that is foreign-owned and managed, but which runs its business through a permanent tax residency in Jersey. These latter companies only pay the taxes on income from their Jersey branch according to their business classification.

Jersey: The CIA World Factbook

International Tax Highlights: Jersey 2021 (Deloitte)

The Island of Jersey’s Tax Information Exchange Agreements

Income Tax Laws in Jersey (Revised 2019)

How to Establish Tax Residency in Jersey

Jersey Residence and Citizenship by Investment

Moving to Jersey: Money and Tax

Taxes on Foreign Companies in Jersey

Jersey No Longer a Safe Haven for Dormant Shell Companies

9.8.  Liechtenstein

Liechtenstein – Image Credit: Wikimedia Commons

In a history that spans over three centuries, land-locked Liechtenstein’s prosperity is a relatively modern affair. Teetering on the brink of bankruptcy after World War I, it entered into a customs and monetary agreement with Switzerland in 1924 that was the beginning of its path into a modern industrial and service-industry economy. One of its key selling points was low taxes. In 1955, it described itself as a country where citizens could dwell almost tax free (the highest bracket paid 1.4% at the time) and foreign corporations could enjoy only minimal taxation. Though it endured some tough financial times in the 1960s when the ruling family was forced to sell off its art collection of Old Master paintings to the highest bidders, by the 1970s its free-enterprise economy was booming, with a lively industrial sector and vibrant financial sector. As of its 300th anniversary in 2019, Liechtenstein was the world’s richest country per capita, having one of the lowest corporate tax rates on the European continent at 12.5%, and very flexible and inexpensive incorporation laws that have led to the establishment of a many holding companies in its jurisdiction.

More recently, especially after the tax scandal in 2008 (see the discussion in section 4.5, above), international pressure has been brought to bear on the principality because of the lack of transparency of its banking and taxation systems. Until 2009, for instance, it made a lovely distinction between tax evasion and tax fraud, and refused to supply foreign nations with any data except in clear cases of tax fraud. While things have tightened up as a consequence of the scandal and Liechtenstein has relented in respect of some OECD-driven legislation, it still remains a very useful tax haven.

The top tax rate in Liechtenstein is 8% for individuals making over 200,000 CHF ($219,000 U.S.). However, there are local communities within Liechtenstein that levy a surtax on the national tax that raise the effective tax rates across the different national brackets from 2.5% at the low end through 22.4% at the high end. There is also a value-added tax of 7.7% on many goods and services, a real estate capital gains tax of 3-4%, a wealth tax of 4% on the fair-market value of assets and a tax on charitable donations that would otherwise reduce the wealth tax paid. On the bright side, there are no inheritance, estate, or gift taxes in Liechtenstein, and capital gains from the sale of shares in domestic or foreign corporations is tax exempt. On the whole, then, there are better places than Liechtenstein for individuals seeking a tax break to establish a tax residency. Beyond this, there is stiff competition for the 89 residencies that are offered on a yearly basis, and if you want an investor visa, it will cost you at least $110,000 U.S. and it carries with it the requirement that you create new jobs for the residents of Liechtenstein. Your temporary residency can be converted into a permanent residency after 5 years, and you are eligible to apply for citizenship after living in the country for 30 years.

The most useful thing to do on the corporate side is to set up a holding company in Liechtenstein that acts as an umbrella company for another company. There are four types of holding companies: operational, management, finance, and organization. Only the first (operational) is allowed to carry out commercial activities in Liechtenstein and it is the preferred kind of holding company for large corporations seeking to gain tax advantages by establishing a base in Liechtenstein. The sole function of management holding companies is to hold the shares or assets of its subsidiaries and control their cash flow. Financial and organizational holding companies are not that common. A financial holding company merely sits on its assets(!) without running foreign operations from its base in Liechtenstein, and an organizational holding company exists for the sole purpose of startups and acquisitions of other companies. Any of these holding companies can take the form of a foundation, a trust, or an establishment, the last being the only one that is allowed to pursue commercial activity and requiring a minimum share capitalization of 30,000 CHF ($33,000 U.S.). All types of holding companies enjoy tax benefits that include no tax on capital gains or dividends, and special tax deductions related to intellectual property ownership. If any taxes are due at all in the jurisdiction of residency, the corporate flat tax rate is 12.5%. While the procedure for establishing a Liechtenstein holding company is fairly quick and efficient, if you are in a hurry, a variety of shelf companies, usually LLCs, that are already incorporated and ready for purchase are available.

Liechtenstein: The CIA World Factbook

International Tax Highlights: Liechtenstein 2021 (Deloitte)

The 2008 Liechtenstein Tax Scandal

Liechtenstein’s Implementation of Tax Information Exchange Agreements

Taxes on Personal Income in Liechtenstein

Getting Residency and Citizenship in Liechtenstein

Setting Up an Offshore Company in Liechtenstein

Holding Companies in Liechtenstein

Buying a Shelf (not Shell) Company in Liechtenstein

9.9.  Luxembourg

Luxembourg – Image Credit: Wikimedia Commons

The Grand Duchy of Luxembourg is a land-locked country in Western Europe bordered by Belgium, France, and Germany. It has a reputation as a very tax-friendly environment, especially for large companies. German banks, in particular, have taken advantage of the fact that the dividends of many companies are not taxed in the jurisdiction, and both private and institutional investors benefit from the fact that not even long-term capital gains are taxed as long as the shareholder owns less than 10% of the company. Luxembourg also does a brisk business in shell companies/holding companies that minimize the taxes of the entities controlling the shells.

While the published top tax rate for companies operating in Luxembourg adds to 24.94%, with a 17% basic corporate tax rate, to which is added a 6.75% municipal business tax, and a 1.19% contribution to an employment fund, in 2014, private tax agreements with Luxembourg discovered by investigative journalists showed that hundreds of multinational corporations pay an effective tax rate of less than 1%.

For instance, the “Luxembourg Leaks” documents revealed that FedEx had established two affiliates in Luxembourg for the purpose of transferring earnings from Mexico, France and Brazil to the company’s affiliates in Hong Kong, and that Luxembourg had signed a private agreement to tax the income at a rate of 0.25%, leaving 99.75% of funds to be transferred free of any taxation. Over 340 companies around the world—including Amazon, Apple, AIG, FedEx, Fidelity, Heinz, IKEA, Office Depot, Pepsi, and Staples—have set up subsidiaries in Luxembourg with special arrangements that provide them with substantial tax relief.

With such arrangements in place, it is perhaps unsurprising that even though Luxembourg has a population less than one-five hundredth that of the United States, it attracts an equivalent amount of foreign direct investment, that is, around $4 trillion, or about $6.6 million per person.

While companies resident in Luxembourg are (ostensibly) taxable on their worldwide income, non-resident companies are only taxable on their local income in the jurisdiction. If no income is earned in Luxembourg—as is the case with many shell/holding companies—then no tax is owed.

For individuals, establishing residency in Luxembourg holds little by way of tax advantages, but establishing a sole proprietor holding company, as in other jurisdictions like Denmark and Liechtenstein, can provide considerable benefit and can be part of a good tax reduction strategy.

Luxembourg: The CIA World Factbook

International Tax Highlights: Luxembourg 2021 (Deloitte)

Financial Account Information Exchange in Luxembourg

Taxation in Luxembourg

Corporate Income Tax in Luxembourg

Global Companies’ Secret Tax Deals in Luxembourg

The “Luxembourg Leaks” Database

Setting Up an Offshore Company in Luxembourg

The Rise of Phantom Investments and the Case of Luxembourg

Luxembourg Defends Itself Against Charge of Being a Tax Haven (As If That Were a Bad Thing!)

9.10.  Malta

Fort St. Michael, Malta – Image Credit: Wikimedia Commons

The Republic of Malta is a Southern European island country in the Mediterranean Sea, directly south of Sicily. The tax regime in Malta provides tax information on specific request and does not involve an automatic sharing of financial accounts; all information about accounts held in Malta is, however, available in principle. Getting Maltese tax residency is not overly attractive and the only benefit of Maltese citizenship—which can be obtained by investment—is that Malta is a full member of the EU and the privileges of EU citizenship accompany it. Unfortunately, this latter benefit seems soon to disappear because the European Commission has initiated legal proceedings against Malta for giving non-EU residents access to EU citizenship through its citizenship-by-investment program. If the prospect of an easy pathway to EU citizenship disappears, the only thing Maltese residency for foreign nationals offers is a flat tax rate of 15% on most sources of income for those with one or another kind of Maltese residency status. For Maltese citizens, however, income arising in Malta is taxed at a top rate of 35%. Ouch.

Forming an offshore company in Malta can still be advantageous, however, and can be accomplished in as little as two days. Companies located in Malta are subject to a corporate tax rate of 35%, but if the company is owned by foreign shareholders, they are eligible for a refund of 30%, making the effective corporate tax rate 5% for foreign-owned businesses. Holding companies have various advantages, including not being required to have an office registered in Malta, no corporate tax on dividends and capital gains realized by non-resident entities, no stamp duties, no entry and exit fees, and no exchange controls . All companies, however, must have the details of their capital, shareholders, directors, and registered offices (if required) available as a matter of public record, and all companies must prepare financial statements each year that are audited by a resident auditor, even if the company has not engaged in any business activity. A company’s annual return is filed with the Registry of Companies (along with a fee ranging from €100 to €900, depending on share capitalization). A tax return must also be submitted to the Maltese tax authority.

Malta: The CIA World Factbook

International Tax Highlights: Malta 2021 (Deloitte)

Maltese Tax Information Exchange Agreements

Advantages of Tax Residency in Malta

Offshore Companies in Malta

Maltese Holding Companies

Maltese Citizenship by Investment

European Commission Initiates Legal Proceedings against Malta for Breach of Trust in its Citizenship by Investment Program

9.11.    Montenegro

Kotor Bay, Montenegro – Image Credit: Wikimedia Commons

Montenegro is located in Southeastern Europe between the Adriatic Sea and Serbia. Its name, “Black Mountain” (Montenegro), comes from the highland region in the Serbian province of Zeta. Throughout its history it has been a part of larger political entities, including Yugoslavia and then Serbia, but it voted for its independence in 2006 and has been transitioning to a capitalist economy and pursuing Western European political ties ever since. In 2008, it applied to join the European Union and is currently concluding its EU accession process, anticipating its completion in 2025. It joined NATO in 2017. In 2019, it also signed on to the Convention on Mutual Administrative Assistance in Tax Matters and adopted the Common Reporting Standards (CRS) of the OECD.

As far as EU countries go, it has one of the more attractive tax regimes. It has the freest economy in the Balkans, a top personal income tax rate of 11%, a 9% corporate tax rate, and a 9% capital gains tax. While Montenegro had a citizenship by investment program, it is phasing it out at the end of the year, mostly because it wants membership in the EU and the EU is opposed to such programs (see the discussion of this issue with respect to Bulgaria and Malta, above). In its place, Montenegro is working on the details of a new program that will attract highly qualified specialists to the country and, currently at least, offer an EU-sensitive path to citizenship. Stay tuned.

In the meantime, all companies formed in Montenegro, regardless of local or foreign ownership, are subject to the same taxes, which means that corporate entities are taxed at a 9% flat rate. Montenegro is not a holding company regime and there are no real tax advantages to setting up a holding company in the Montenegrin jurisdiction. The primary advantage to establishing a corporate residency in Montenegro is that it has one of the lowest flat tax rates in Europe.

Montenegro: The CIA World Factbook

International Tax Highlights: Montenegro 2021 (Deloitte)

Montenegro Joins OECD International Tax Reporting Agreements

Convention on Mutual Administrative Assistance in Tax Matters (OECD)

Advantages of Tax Residency in Montenegro (slightly dated information)

Setting Up an Offshore Company in Montenegro

Montenegro’s Citizenship by Investment Program Valid Only Until the End of 2021

9.12.   Switzerland

Switzerland – Image Credit: Wikimedia Commons

We will explore more of the financial reputation and mystique of Switzerland in the next section, but let’s have a brief overview of some salient points. Located in central Europe, Switzerland has been fiercely independent of its neighbors throughout its history. It is not a member of the European Union, though it has adopted at least 120 bilateral agreements with EU states as well as various provisions of EU law that enable it to participate in the EU’s single market. Since Britain’s exit from the EU, however, anti-EU sentiment has been growing in Switzerland, especially in relation to the free movement of foreign workers, who move into the country and take Swiss jobs.

The Swiss passion for independence has also, historically, made Switzerland an excellent place for private bank accounts and the discreet conduct of financial business. Because of a banking scandal in 1932, the Swiss passed a law in 1934 that made it a criminal offense to release information about clients or the identity of account holders. The strongest privacy comes from numbered accounts that are identified by their number rather than the account holder’s name, which is known only to select staff members at the bank.

Unfortunately, bullied by the IRS and under the threat of stiff sanctions by the U.S., Swiss banks have agreed to share information about accounts held by U.S. persons under U.S. FATCA legislation, which requires all U.S. persons to declare every foreign account they hold. Nonetheless, it’s still possible to shield assets from criminals and creditors without breaking the law. Assets can be held in entities such as trusts and LLCs in non-U.S. jurisdictions like Switzerland that require specific allegations to be made and judgments rendered in that foreign jurisdiction before information can be disclosed. Residents of nations plagued by groundless seizure of property or by otherwise unfair systems of asset appropriation can thus still benefit from the creditor protection of a Swiss bank account.

If you want to set up an offshore company in Switzerland, the Swiss require that the registered office for the company be in Swiss jurisdiction and that management decisions be made in Switzerland. For non-residents, this requires hiring a Swiss firm that specializes in establishing such companies. Such firms offer citizens of Switzerland as directors and associates and secretaries, all of which is required by Swiss legislation. It can also be arranged that the foreign citizen(s) owning the business do not appear in the company’s records if this service is requested. Under these conditions, the real shareholders cannot be disclosed by the associates of the firm unless credible specific allegations of real criminal activity—drug trafficking, arms trafficking, sex trafficking, etc.—are made. The firm performing this service signs a statement of confidence with the shareholder(s) guaranteeing that it will only undertake operations ordered by the real shareholder(s). The contract also includes the email address from which the actual shareholder’s instructions are received and all communications take place using encrypted accounts.

There are four types of Swiss offshore companies: Aktiengesellschaft (AG), private limited liability companies (GmbHs), trusts, and foundations. AGs offer the advantages of a corporate structure with the flexibility of a partnership with tax benefits for all the partners. GmbHs are essentially LLCs protecting their shareholders. AGs and GmbHs can be holding companies. Trusts transfer assets and their management to an administrator as the legal owner who has a fiduciary obligation to the trust’s beneficiaries. Finally, foundations are like trusts that have the advantages of functioning like a company and provide a versatile tool for exercising the rights of the shareholders and managing real estate ownership, inheritances, and estate planning. The activities of Swiss offshore companies are restricted in that they are prohibited by law from the business pursuit of banking, insurance, reinsurance, fund management, collective investment, or any other activity that might suggest an association with the banking or financial industries.

A Swiss holding company is an AG or a GmbH the primary purpose of which is to hold and manage participation in other companies. Swiss tax law requires that a holding company not conduct any other business activity in Switzerland. Three other conditions govern holding company status in Switzerland: (1) investments held and revenues earned from participation in other companies must comprise two-thirds of the entire assets and income earned by the company; (2) there either must be at least one participating company that exceeds 10% of the total number of participating shares or the entire value of the shares must exceed one million CHF ($1,100,000 U.S.) for the company to qualify as a holding company; and (3) the minimum holding period of an investment must be more than one year.

Where taxes are concerned, the standard value-added tax (VAT) rate for corporate profits in Switzerland is 8%, and this varies depending on cantonal taxation. There are also reduced VAT rates for hotels (3.8%) and basic food products (2.5%). The accounting documents for all companies must be kept and filed with appropriate authorities and certain kinds of businesses have audit requirements as well.

On the whole, while the security of Swiss bank accounts is a wonderful thing, there are other European jurisdictions that provide more tax advantages for the establishment of offshore holding companies.

Obtaining a Swiss residency permit is required if you want to work or pursue business activities in Switzerland, and can be advantageous as well if you have a large annual income and do not need to work in Switzerland, because it is possible to pay lower income taxes through their lump-sum taxation system. Lump-sum taxation is a simplified assessment procedure for foreign nationals living in Switzerland but not gainfully employed there. The tax is calculated from the total annual cost of living for the taxpayer and his or her dependents in Switzerland and abroad. Swiss citizenship is obtainable after ten years of legal residency in the country, but this process can be accelerated by investment in the Swiss economy through business establishment or a lump-sum tax payment—either way, it is not an inexpensive proposition.

Switzerland: The CIA World Factbook

International Tax Highlights: Switzerland 2021 (Deloitte)

Bilateral Agreements between Switzerland and the European Union

The EU’s Next Big Problem is Switzerland

Setting Up an Offshore Company in Switzerland

Swiss Holding Companies

The IRS Has Bullied Swiss Banks into Submission

Financial Account Tax Information Exchange Between Switzerland and Foreign Nations

Tax Advantages of Swiss Residency

Lump-Sum Taxation in Switzerland

Swiss Citizenship by Investment

10.        What’s So Special About Switzerland?

Swiss National Bank, Bern, Switzerland – Image Credit: Wikimedia Commons

10.1.  The Swiss Banking Law of 1934

The Swiss bank account. It’s the stuff of Robert Ludlum espionage novels, full of international intrigue and exoticism and the mystique of characters like Jason Bourne. But how did it all get started?

Rewind the clock to the time between the First and Second World War. Europe was dealing with political unrest and Switzerland was concerned about losing its sovereignty. In 1931, Germany tried to bribe employees of the Swiss banking system to get information about the portfolios of German clients, and much of Europe was concerned that the Germans were hiding large amounts of money in Switzerland to mitigate the reparation payments imposed by the Treaty of Versailles. In the 1932 “Paris Affair,” French authorities arrested two employees of Switzerland’s Basler Handelsbank (BHB) who were meeting with potential clients in Paris. They found a list of over one thousand clients in their briefcases. As a result, France pressured Switzerland to reveal a complete list of its French clients and threatened espionage and bribery to obtain it if the Swiss were not compliant. The threat to compromise another country’s sovereignty in this way led to the center-left government of France being forced to resign in 1932, and contributed to the codification of secrecy in Article 47 of the Swiss Banking Act of 1934.

The catalyst for the Swiss Banking Act as a whole, however, was the financial crises in the early 1930s created by the collapse of German banks, which led to a run on Swiss banks, especially the Schweizerische Volksbank (SVB) due to its exposure to German markets. Three quarters of its assets were blocked in Germany, and in order to survive the continual withdrawal of client savings from 1931 to 1933, the Swiss government and central bank injected 100 million CHF (10 billion CHF in modern currency) into the SVB. In order to justify such a massive intervention to save the SVB, the Swiss government instituted supervision of all banks to prevent similar future crises. The Swiss Banking Act was therefore written for regulatory purposes, but included Article 47 on banking secrecy, prompted by the assault on Swiss sovereignty in the Paris Affair. The substance of the debate in Swiss parliament was over bank licensing, supervision, governing bodies, and accounting practices and disclosure. Article 47 was not even discussed during the debate, and the Swiss Federal Banking Act was approved in parliament on November 8, 1934, by a vote of 119 to 1.

Article 47 strengthened Swiss banking secrecy by making it a federal crime to disclose the information or activity of clients banking domestically to foreign entities, third parties, or even Swiss authorities, without either obtaining the consent of the client or having a judgment of criminal complaint accepted by a Swiss court. When such secrecy protections were then combined with the political stability of Switzerland, the stability of the Swiss franc as a currency under low rates of inflation, and its ease of convertibility into other currencies, the rise of Switzerland as an international banking center was inevitable.

Sections 10.2-10.5, 11, and 12 are under construction—check back in couple of days.

10.2.  Legendary Swiss Secrecy: Number One on the Financial Secrecy Index

10.3.  The Mystique of the Swiss Bank Account

10.4.  Financial Security

10.5.   Is the Bloom Off the Rose?

11.    Asian Tax Havens

     11.1.  Hong Kong

     11.2.  Malaysia

     11.3.  Philippines

     11.4.  Singapore

     11.5.  Thailand

12.       Getting Advice

12.1. Going Offshore to Limit Tax Liability: Key Takeaways

Second passport in a tax haven
Shell/holding company LLC
Swiss bank account
Whole-Life Insurance as a Private Bank
Consider Relocation
The Citizenship Question and the Next Generation

12.2.  What Resources are Available?
      12.2.1. Atrium & Associates, Ltd. (https://www.atrium-associates.com/countries-prices/)
       12.2.2.   BBCIncorp (https://bbcincorp.com/company-formation?)
       12.2.3.   Escape Artist (https://www.escapeartist.com/)
       12.2.4.   Flag Theory (https://flagtheory.com/offshore-company/)
       12.2.5.   ICO Services (https://www.icoservices.com/offshore-company-formation.html)
       12.2.6.   Offshore Citizen (https://offshorecitizen.net/offshore-company/)
       12.2.7.   Offshore Companies International (https://offshoreincorporate.com/how-to-set-up-an-offshore-company-3/)
       12.2.8.   Offshore Company (https://www.offshorecompany.com/)
       12.2.9.   Offshore Protection (https://www.offshore-protection.com/)
       12.2.10. Rural Sourcing (https://www.ruralsourcing.com/)
       12.2.11. SFM (https://www.sfm.com/)
      12.2.12. Tax Business Advisors (https://www.tba-associates.com/incorporating-offshore/)
       12.2.13. Worldwide Incorporation Services      (https://www.wis-international.com/offshore_companies.html)
12.3.  Caveat Emptor: Avoiding Bad Actors
12.4.   Getting the Job Done

13.      Final Reflections: On the Morality of Taxation

In a letter to Jean-Baptiste Leroy on November 13, 1789, Benjamin Franklin famously remarked that “in this world nothing can be said to be certain, except death and taxes.” Sometimes it seems like death is the more avoidable of the two. Most of us, if we are thinking clearly, recognize that while taxes seem necessary for some purposes—roads for public use and other aspects of societal infrastructure, provision for national defense, and other such things—the majority of uses to which the government puts our tax money would best be left to private concerns or not done at all. If we’re paying attention, we cannot but notice that government lacks transparency, is unaccountable for many of its decisions, is easily swayed and corrupted by the money of lobbyists, and is grossly inefficient in its use of resources. We also notice that legislators generally leave public office much richer than they entered it. In short, there’s a lot of graft, and the government often wastes money on the wrong things, and on projects that take too long or cost too much, if they’re ever accomplished at all.

Benjamin Franklin – Photo Credit: Wikimedia Commons

Objecting to the government doing something is not, therefore, a reliable indicator of thinking that thing shouldn’t be done. It’s often a negative assessment of the appropriateness and capability of the government doing it. As Frédéric Bastiat, the great French statesman of the early nineteenth century, remarked, thinking that the government shouldn’t be in the business of growing grain is not equivalent to thinking that people shouldn’t eat.

Frédéric Bastiat – Photo Credit: Wikimedia Commons

The purpose of government, Bastiat said, is to protect our natural rights to life, liberty, and private property. Justice has limits, he said, but philanthropy is endless, and when the government takes the latter as its task, it grows endlessly in accordance with a flawed vision that assumes people are impotent to help themselves and each other without the government appropriating and reallocating resources. Under such leadership, Bastiat noted, legislators “impose these plans on us by law—by force—and compel us to pay for them with our taxes.” When this happens, “the law has placed collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder.”

Bastiat on Taxation as Plunder

The War on Private Philanthropy

The Wealth Tax Made Clear

In modern parlance, Thomas Sowell has stated it well: “I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money.”

Thomas Sowell – Photo Courtesy of TSowell.com

More about Thomas Sowell

Encountering Thomas Sowell

Taxation for all manner of governmental utopianism and tomfoolery is legalized theft, pure and simple. Perhaps more accurately, it is a legal form of extortion: give us the fruits of your labor for our cloud cuckoo land projects or we’ll lock you up. Yet here we are. And, as we saw in section 1 above, tax increases are coming.

So here’s the key question: why let the government take more of your money than you are legally compelled to relinquish? You’re not crazy, right? We know that we can put our money to better use than the government. We’d much prefer to preserve our capital for the benefit of our families and for accountable charities we know are critically important than be left holding the bill for all manner of government waste, inefficiency, and mind-deadening stupidity. It is your moral responsibility as a steward of the wealth you have been given to keep as much of it as legally possible out of the unreliable and irresponsible hands of government.

This much said, it’s also our moral responsibility to obey the law and to “render unto Caesar what belongs to Caesar,” insofar as Caesar’s demands don’t contravene a Higher Law. Having chosen to remain where we are, given that we are free to leave, we are bound by the laws of our locale. Our goal has thus been to provide a conceptual map for a certain category of escape route, indicating the areas that are safe and others that contain minefields, and leave it to the readers to take responsibility for their own decisions. Caveat lector. For the record, we advocate staying on the right side of the tax laws in your home country at all times, so be careful about what you choose to do, and if you’re not an expert in these matters, by all means consult professionals before you take action.

Happy tax planning, and may your hard-earned family wealth be forever safe from the insatiable government siphon!