Tax haven

Tax haven or fiscal paradise are terms used to refer to a jurisdiction which enables its foreign residents or companies to reduce their tax liabilities from their homelands.

Types

• universal tax haven is a country's offer to entrepreneurs and investors with a wide range of financial and tax benefits. Such havens include colonial territories and also mini countries. In order to attract both entrepreneurs and investors they offer attractive political, economic, fiscal and judicial arrangements.
• special tax haven allows for special types of activities. A result of such an orientation a situation may be created in which high taxes exist concurrently with the low fiscal rate for particular economic branches or tax payers.

Benefits

• profit transfer is a term used to describe profits achieved from selling goods and services at cost. As a result, profits are higher in the country where corporation tax is lower.
• rotary company is a company which can be bought or set up in one of the tax havens. Registration procedure is simple: the company's owner does not have to reveal his personal data and therefore can use fictional names. Such companies, often called rotary, are used for providing services, purchase transactions or particular joint stock companies sales.
• offshore company allows for income to accumulate in a low tax jurisdiction. and is used mainly by corporations and rich people from the world of art.
• treaty shopping helps tax payers avoid barriers imposed on them by a double tax agreement, which aim is to prevent people from seeking tax benefits in third countries.

Examples

Andorra, Cayman Islands, Bermuda, Dominicana, Gibraltar, Grenada, Hong Kong, Jersey, Liechtenstein, Monaco, Montserrat, Nauru, Saint Vincent and the Grenadines, United States Virgin Island, Vanuatu. (Full list of the tax havens is given by the regulation of a minister of finance from 16 may, 2005 (Dz.U. Nr 94 poz.791) on a Corporation Income Tax or a Legal Person Income Tax)

Tax haven — recommended articles

Finance company — Trade exchange — Export merchant — Cartel — Parallel economy — Home market — Informal economy — Free trade zone — Monopoly

References

• Shackelford, D. A. (2001). Taxes and Business Strategy: A Planning Approach. Journal of the American Taxation Association, 23(2), 80-80.

Author: Łukasz Groblicki