No one enjoys being taxed as taxes affect income.
However, taxes are unavoidable as many countries rely on revenue from taxes imposed on individuals and corporations.
Certain jurisdictions offer tax reliefs, tax incentives, tax benefits, and reduced tax rates to attract and retain foreign and local investment.
These jurisdictions are popularly referred to as tax havens.
Tax havens typically offer zero, single-digit, or low double-digit tax rates on corporate and individual income taxes.
Tax havens may also exempt companies and individuals from paying certain taxes.
If you’re looking for ways to reduce your taxable profit, read on to find out the top tax havens for businesses and individuals.
Are tax havens legal?
You can reduce your tax burden by relocating to a country with favorable tax rates or setting up a subsidiary company in such jurisdictions.
It is completely legal to invest in any country globally, including tax havens as long as you comply with the legal requirements for investing in that territory.
Tax havens often impose tax requirements on businesses and individuals.
You may still need to comply with any reporting requirements in your country of residence or in other countries where your company operates physically.
Therefore, it is advisable to engage professionals to ensure that you comply fully with all legal and tax requirements.
Who can benefit from tax havens?
Individuals and corporations can benefit from tax havens.
Fortune 500 companies such as Nike, Goldman Sachs, and Apple use tax havens to reduce their tax liability significantly.
High net-worth individuals such as celebrities, athletes, and business tycoons also set up offshore assets in tax havens.
However, tax havens are not exclusively for the wealthy or multinational companies.
Anyone can benefit from tax havens.
Many small businesses and individuals have realized the opportunities in tax havens and use tax havens to reduce their overall tax burdens
If you or your business can benefit from the tax cut that tax havens provide, here are the top tax havens in the world that are worth considering.
1. Hong Kong
Strategically located at the heart of Asia, Hong Kong is home to many trading companies.
Hong Kong provides easy access to China, the manufacturing Hub of the world, making it easy for companies to import goods from China to Hong Kong.
Hong Kong is an important financial center with one of the best banking systems in the world.
You can operate a multi-currency bank account in Hong Kong and this has encouraged international trading activities in Hong Kong.
About 50,000 companies are incorporated in Hong Kong annually because of the ease of incorporating companies in Hong Kong.
You can incorporate a Hong Kong company or relocate your company to Hong Kong digitally without moving a muscle.
Hong Kong is also foreign investment-friendly.
A Hong Kong company can be wholly owned by foreigners.
Also, the company’s directors do not need to be residents of Hong Kong.
While there are many benefits of doing business in Hong Kong, Hong Kong stands out as a tax haven because of its low corporate tax rate of 16.5%.
Corporate tax is also restricted to income derived from Hong Kong.
Hong Kong offshore companies pay zero income tax.
Individuals also have a lot to gain from the Hong Kong tax regime.
Income tax on individuals can be as low as 2% and is capped at 17%.
Taxes are not imposed on sales, interests, or dividends in Hong Kong.
Hong Kong is also a duty-free destination for trading companies.
Hong Kong imposes no import duties on most goods imported into the region.
There are few dutiable goods in Hong Kong such as hydrocarbon oil, tobacco, and alcohol.
Thus, if you’re trading general goods in Hong Kong, you can maximize profit.
While there are countries with lower to zero tax rates, Hong Kong is still a great tax haven for companies and individuals because of its prominence for financial secrecy.
With no ties to the OECD, Hong Kong companies have no obligations to disclose any details of their Hong Kong investments.
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2. Cayman Islands
The Cayman Islands is a British Overseas Territory with more companies than citizens.
Thousands of large corporations and small companies have set up subsidiaries on the Island due to its zero corporate tax rate and zero direct tax rates
The Island is popularly referred to as tax-neutral jurisdiction.
However, there are high duty rates imposed on goods and services.
Import duties range from 22 to 27% for most goods and a higher rate of up to 47% for luxury goods.
The high import taxes have made the island an expensive place to live.
The cost of operating a business on the Island is also on the high side.
Thus, while investors may benefit from the zero tax burden, trading companies may find it difficult to maximize profit.
Also, Cayman Islands has elected to implement the Country-By-Country (CBC) reporting regulations as a fallout of its participation in the Multilateral Convention for Mutual Administration in Tax Matters.
As a result, companies resident in Cayman will be required to disclose tax details to other participating countries.
3. The Bahamas
The Bahamas is the holiday destination of choice.
It has some of the best views in the world and attracts thousands of tourists annually.
Its proximity to the United States also encourages investment in the Bahamas.
The Bahamas boasts of no corporate or personal income taxes and withholding taxes.
The Bahamas is also a vibrant financial center, hosting some of the biggest banks in the world like Goldman Sachs and JPMorgan Chase.
However, the country imposes import duties, value-added taxes, and license fees and may not be suitable for import-driven businesses.
Malta’s proximity to Italy, the largest commercial hub for luxury goods in Europe, makes it a great location for European companies to set up offshore subsidiaries.
Though not a tax-free jurisdiction, the country encourages foreign investment with a low tax rate for foreign companies and several beneficial tax advantages for foreign and local companies.
Malta also promotes non-domiciled residency schemes for high net worth individuals which caps their income tax rate at 15%.
Malta may not be the ideal tax haven for small businesses and average income earners but it’s definitely considered a tax haven for large corporations and high net worth individuals.
However, due to its proximity to Europe, Malta is caught up with reporting obligations.
The Maltese tax code is also complex and one would need to engage an expert to fully enjoy tax benefits.
5. British Virgin Islands
The British Virgin Islands hosts over 400,000 companies which are over 1000% of its estimated population.
As a British Overseas Territory, the company attracts investments from British companies.
Taxes are not payable on offshore corporations, capital gains tax, and profits derived outside the Island.
Thus, it’s an ideal location for setting up a holding company.
There’s also no exchange control between offshore companies and offshore banking customers.
Investors in offshore companies can easily receive dividends and profit through their offshore bank accounts.
The Island is considered a tax haven because of its zero tax rate on interest, dividends, or corporate income.
However, businesses are liable to pay payroll taxes of 10% or 14% on income exceeding $10,000.
Singapore is considered one of the tax-friendly jurisdictions in the world.
It boasts of a favorable corporate tax regime.
Many fortune 500 companies have set up subsidiaries in Singapore due to its tax-friendly economy.
Foreign capital can be held tax-free in Singapore and dividends are also not taxed in Singapore, making it easy for multinational companies and foreign investors to invest and repatriate profit.
Singapore also provides tax incentives for SMEs in some economic sectors that are deemed beneficial to the country’s economy.
There are also other tax benefits such as tax exemptions for startups capped at 75% exemption on the first $100,000.
Luxembourg is strategically positioned between France, Germany, and Belgium.
Although a small country, Luxembourg attracts lots of investment from foreigners and multinationals, including fortune 500 companies.
Luxembourg established itself as a tax haven as early as the 1960s.
There are beneficial arrangements for companies to seek tax relief in Luxembourg.
Multinationals also establish special purpose vehicle companies in Luxembourg to invest in EU companies because of the favorable tax regime.
Luxembourg’s location also makes it ideal for companies seeking to explore the European market.
The cost of living and business operations is unfortunately on the high side and may affect your bottom line in the long run.
Mauritius is a tax haven for most corporations seeking to extend their reach to Africa.
It is a small island with many offshore companies.
The income tax rate for individuals and companies is capped at 15%.
Individuals are not liable to pay any capital gains tax in Mauritius. Dividends are taxed at a minimal rate of 3%.
Companies are however required to pay capital gains tax and other duties and levies.
Mauritius is a tiny island that is somewhat isolated.
It takes a lot of time to move goods across the borders.
Thus, it may not be suitable for trading companies relying on imports or exports for profit.
What is the best tax haven?
Companies and individuals utilize tax havens to maximize profit.
While several jurisdictions may be considered tax havens as a result of their investment-friendly tax rates and policies, factors such as the cost of business operations, proximity to resources, ease of foreign investment, and import and expect duty rates may affect income expectation in the long run.
The best tax haven must enable investors to maximize profit.
Therefore, it is advisable to consult professionals on the peculiarities of your investment plans before you pick a tax haven.
If you’ve decided that Hong Kong is the best tax haven for you, you can register your business with Air Corporate today, and get a fully approved and operational business in 48 hours.