Traditional tax haven companies for offshore businesses for international business
While Healy Consultants can assist our Clients to register companies in so called “tax haven” jurisdictions, we do not see such entities as long term solutions for our Clients’ business needs. Please find below more information we recommend our Clients to read carefully before proceeding with the registration of a tax haven entity.
What is a tax haven jurisdiction?
- Countries seen as tax havens cumulate the following characteristics: i) they allow foreigners to register business entities not subject to local corporate income tax ii) the details regarding the owners and directors of such entities are not available to the public and iii) the authorities of such countries avoid signing tax information exchange agreements (TIEAs) with other countries and usually do not have (or do not implement) regulation against money laundering and financing of terrorism which are at par with international standards;
- Until a couple of years ago, the list prepared by the Financial Action Task Force (FATF) was the closest thing to an internationally accepted blacklist of tax havens. However, almost all countries have been removed from such list;
- Consequently, each tax authority and virtually all financial institutions maintain their own list of tax havens, based on their own criteria. Such lists, such as France’s list of uncooperative jurisdictions, are sometimes publicly disclosed. In many other cases, they are not released. You may also refer to this map of tax haven jurisdictions to know which countries Healy Consultants classify under such denomination.
Main disadvantages of using a tax haven company
Healy Consultants expects all its Clients to be aware of corporate and personal tax obligations in their country of residency. We implement stringent due diligence procedures and will never assist our Clients to register a company anywhere in the world, if we have a reasonable suspicion that such entity will be used for illegal purposes, such as evading tax or laundering money.
Even when we are confident that our Clients are bone fide businessmen, conscious of their obligations and willing to abide by them, we still seldom suggest our Clients to register an entity in a tax haven jurisdiction, because:
- It will be challenging to open a corporate bank account for such entities – virtually all banks will classify tax haven companies as high risk Clients and will request additional due diligence documents from them, without any guarantee of agreeing to the opening of an account;
- They will attract additional scrutiny – Both customers and suppliers, are becoming increasingly reluctant to doing business with tax haven business entities. Government also view them unfavourably and may subject our Clients to a tax audit;
- They are not good conduit vehicles anymore – for the reasons listed above, third party investors will not be keen on investing in a project through a tax haven company. They are hence only to be used as a holding company for international shares held by a single owner, or for offshore asset protection.
- Healy Consultants believes that within the next ten years, most current “tax havens” jurisdictions will have adopted public registrars including the names of shareholders and directors;
- Increased cooperation between Governments is also resulting in a larger number of jurisdictions implementing OECD standards of transparency and exchange of financial related information. Starting in 2017, many offshore jurisdictions will begin participating in automatic exchanges of information with other participating countries;
- See this page for further details on important regulations which have impacted international exchanges of fiscal information.