Offshore Banking As A Tantalizing Tax Haven

By: Peter Waterhaze

Offshore banking, commonly known as underground economy is notorious for organized crime, tax evaders, and money laundering. These banks are frequently used as a tax haven. Many people who do not wish to pay their taxes and find places to hide their income without having to pay tax on it, invest in such offshore banks. Tax haven is when people invest in foreign banks where they have to pay a considerably less amount of tax compared to their own country. Many times the tax is not even charged.

Many countries which do not have a strong economic growth let foreign traders and business men invest in their banks and trade to increase their economy, trade and industry. Most wealthy traders and businessmen take advantage of this facility. However, different countries have different governing rules and regulations, which exempt foreigners from paying tax. There are a variety of laws, for different account holders, such as traders, businessmen and personal account holders. Thus you should always research on all the laws before investing in foreign economy and business.

The majority of countries will impose taxes on those earning income within the country and their global income. some people will move to countries with favorable tax havens and save money doing so. Others will set up businesses in those countries or set up legal entities like offshore companies, offshore foundations and offshore trusts. They then transfer assets to these new companies or trusts. This means they do not have to declare their income to the country they reside in.

The USA taxes residents on global income as well as domestic, this will prevent residents of the USA from evading the taxes by using these methods. This makes some residents give up their US citizenship to allow them to evade taxes by using the above methods. However US laws will allow a citizen to exclude up to $80,000 of their salary and household expenses if they are living overseas. Some of this type of income can be deducted from taxes. US citizens can also set up offshore foundations and trusts, which can be used as a tax break.

There are many advantages for countries to set up tax havens. It is not compulsory for countries to charge as much tax as other industrialized countries. Many countries offer tax exemptions and tax incentives to companies and traders to set up their business in their country, so that they recruit local people which will solve the problem of unemployment. This helps to enhance the country's economy. New businesses increase the standard of living and help the locals to learn new skills. Thus these countries are no more in competition with large developed countries.

Most countries are against the system of Tax havens. They are of the opinion that this system encourages the residents and locals not to pay taxes in their own country. Due to tax havens people will be tempted into money laundering. However, money laundering is not an obvious result of tax havens as it reduces the money only in the black markets. Laws are very tough on money laundering.

It is a popular myth that all tax havens are tax-free, as some do levy taxes on incomes and property. There are however differences in tax laws in various countries. It is prudent to enquire about these laws when you are thinking of operating out of a tax haven. In fact, this is the right way to zero in on a tax haven that will be most suited to your needs.

Article Source: http://www.retirementlivingarticledirectory.com

Peter Waterhaze is the webmaster for F offshore, the #1 source on the internet for information about offshore. For questions or comments about this article why not visit: www.fyioffshore.com/articles
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