Money

How Tax Havens Help Expats Legitimately Retain Wealth

Back in 2008 we were subjected to something of a smear in the Guardian Newspaper at the hands of journalist George Monbiot, (he’s the one who claims to be an ‘environmentalist’ yet he promotes the nuclear industry).  He accused us of “help[ing] people to avoid their obligations to society.”

Clearly he didn’t spend much time on his research for the article, which was all about Britain’s tax havens allegedly fuelling crime and corruption.  Had he spent just five minutes browsing Degtev he would have understood that we’re actually in the business of helping expats and would-be expats with everything from moving abroad to finding work overseas.  We are not into the immoral promotion of illegal activities.

Tax havens become of interest to expats when they move abroad because they can potentially assist them in legitimately retaining more of their wealth, as we will detail in this article.  But they are far from the terrible scourge on the world that divert funds away from developing countries, as Monbiot alleges.  What’s more, while they [will probably always] exist, why should they not be made legal and legitimate use of by those who can benefit from them?

Extensive expert research has shown that: “Tax havens are small countries, they are affluent countries, and they have high-quality governance institutions…[and] better-governed countries [are] more likely than others to become tax havens.”  (Source: Dharmapala, Dhammika and Hines Jr., James R., Which Countries Become Tax Havens?)

This information further dispels the myth that Monbiot peddles in his article that tax havens are just dirty little secrets which: “permit multinational companies, dodgy businessmen and corrupt leaders to snatch money from the poor.”

The likes of the OECD and the EU have worked tirelessly to prevent illegal tax evasion, stories about the likes of which Monbiot bases his article on.  And their work has been very successful in cleaning up the entire offshore industry to date.

This is most recently evidenced by the fact that the Isle of Man and Guernsey now automatically exchange tax information with the EU for example, and Ireland (a lesser known tax haven) is the latest country to sign up to the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

So, gone are the days when badly governed rogue states established themselves as havens for the enablement of illegal tax evasion activity.  I.e., gone are the days George Monbiot refers to in his out-dated article (it was out-dated at the time of writing!)  Instead today tax havens exist to attract foreign investment for example, and those who completely misunderstand their purpose should not vilify them.

In our previous report ‘in support of tax havens’ we identify the many ways these offshore jurisdictions can be beneficial – particularly to expats who want to retain more of their wealth.

For example: –

“Tax havens not only facilitate the efficient allocation of capital, but they actively encourage citizens to save and invest.  Additionally, the existence of an offshore tax haven offering tax competitiveness is fantastic in terms of encouraging better tax policy throughout the rest of the world.

“Therefore, tax competition actually serves a beneficial role on many levels.  In our opinion it forces greater economic responsibility on governments.  Where there is a restriction on the tax capital a government has to work with, the more efficiently they are likely to use the capital available – and the less likely they are to enter into un-winnable wars and waste it on paying off fat politicians…”

In the afore-quoted paper by Dharmapala, Dhammika and Hines Jr., James R., it is identified that: “Tax havens attract foreign investment not only because income earned locally is taxed at favorable rates, but also because tax haven activities facilitate the avoidance of taxes that might otherwise have to be paid to other countries.

“Taken together, the evidence implies that countries contemplating adopting very low tax rates can reasonably expect to receive significantly greater foreign investment and tax base as a consequence.  Hence the budgetary cost to a country that unilaterally reduces its tax rate need not be very great.

“…Countries eager to attract foreign capital face considerable international pressure to minimize their taxation of income earned by foreign investors…

“The “tax havens” are locations with very low tax rates and other tax attributes designed to appeal to foreign investors.  Tax haven countries receive extensive foreign investment, and, largely as a result, have enjoyed very rapid economic growth over the past 25 years.”

The key terms repeated throughout are “foreign investors” and “foreign investment.”  I.e., the potential tax advantages available to those who save, invest, bank or do business in offshore havens are only available to non-resident, foreign investors – i.e., expats like you!

Once you leave your current nation of tax residence behind, i.e., once you become non-resident for tax purposes in the UK for example, you can explore the offshore financial opportunities open to people like you for the better management of your wealth.

As today’s offshore tax havens tend to be better governed and have “high-quality governance institutions,” so their investor protection schemes have improved, and so have the offerings available to expatriate savers and investors.

You may find you can legitimately save or at least defer tax by utilizing offshore structures, you may discover more attractive savings and investment solutions such as QROPS and portfolio bonds when you go offshore.  And with the assistance of an independent financial adviser, you may realize that you can legally benefit from the legitimately competitive tax practices of offshore tax havens.

Well-governed and regulated tax havens where the investor protection in place is superior attract significant amounts of expat investment annually.  Whilst benefiting from lower tax is a key benefit available to many, there are many more reasons to consider saving, investing, banking or doing business offshore.

In our report ‘Offshore Investment and Saving Facts and Fables’ we remove many of the misconceptions people have about tax havens.  And if you really want to dig deeper to discover how you may be able to benefit by going offshore, read ‘what are the benefits of going offshore for expats’ where we show you how you can not only potentially retain more of your wealth, but you can better diversify it for potentially greater overall returns and protection.

Finally, it remains important to reiterate a few key facts: –

Tax havens are not illegal, and as the great clean up of their activities continues apace, they are less likely to be considered immoral by the likes of the OECD!

Generally speaking, only the better governed nations survive and thrive as tax havens.

Expats can retain more of their wealth if they find legitimate ways to minimize their taxation burden through the utilization of offshore solutions: but there are many more reasons to consider going offshore than just for the pure purpose of potentially saving tax.

Always seek personal advice before taking any action that may affect your wealth status; ensure this advice is given by a qualified, regulated and well-respected independent adviser.  Remember that you must understand your reporting requirements when it comes to taxation.

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