The 10 Biggest Tax Havens in the World

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[h=1]The 10 Biggest Tax Havens in the World[/h]





In 2009, the governments of the 20 wealthiest countries in the world vowed that they will tighten the regulations that enabled rampant tax evasions in their own nation and territories. The major problem that these countries faced was the high level of secrecy when it comes to withholding the financial assets of clients from the authorities. However, two years later, despite the increase in such regulations, people were still left with a great number of countries to choose from that will allow them to evade their taxes through the use of offshore accounts. This was according to a report made by the Tax Justice Network.
The report, which the Tax Justice Network referred to as the Financial Secrecy Index, assessed 73 different jurisdictions around the world that allowed billions of foreign currency to be stored in offshore accounts. The money that was deposited into these accounts were also left untaxed. The report found that governments worldwide lose approximately $250 billion in revenue every year because of these offshore accounts.
This list is comprised of the 10 biggest tax havens in the world – countries that allow the highest level of client financial secrecy, tax evasion, and offshore accounts.
[h=2]10. Bahrain[/h]
Bahrain, situated near the Persian Gulf’s western shores, is a small island-country. The archipelago’s largest island is Bahrain Island. While there are plenty of financial institutions offering offshore banking services and bank accounts in the island, its client financial secrecy is the lowest of all the other nations included in this list. Bahrain gets tenth place because it has the lowest level of Financial Secrecy Index value based from the Tax Justice Network’s report, which is at 660.3. It also has a Secrecy Score of 78.
[h=2]9. Germany[/h]

Germany makes it easy for people to open offshore bank accounts. However, this has also resulted in the increasing number of individuals opening such accounts so they can evade their taxes. The good news is that the country is trying to control this problem through the implementation of stricter and much more stringent policies. In the report, Germany got a score of 669.8 for its Financial Secrecy Index value, and a Secrecy Score of 57.
[h=2]8. Japan[/h]

Many of the offshore banks in Japan do not subject the deposits made by their clients to interest rate standards and regulations. Fortunately, with the offshore banking center that has been established in Tokyo, the country’s law enforcement authorities would at least be able to monitor and control any developments in these financial institutions.
[h=2]7. Jersey[/h]

Jersey is a British Crown Dependency that houses a great number of banks offering offshore accounts to foreign clients. Offshore banking and investments has been a part of the bailiwick’s underground economy. In the Tax Justice Network report, Jersey got a Financial Secrecy Index value of 750.1 and a Secrecy Score of 78.
[h=2]6. Singapore[/h]
Singapore, an island city-state in Southeast Asia, is considered by many as one of their best choices for opening offshore bank accounts. Almost anyone can open such a bank account without experiencing any hassle. This is one of the major reasons why Singapore was graded with a Financial Secrecy Index value of 1,118 and a Secrecy Score of 71 by the Tax Justice Network.
[h=2]5. U.S.A.[/h]
The states of Nevada and Wyoming are two of the major contributing factors to the country’s increasing problems in terms of tax evasion. In Nevada, there are no capital gains, gift tax, personal income tax, and inheritance tax. In Wyoming, there are no corporate taxes, inventory taxes, unitary taxes, gift taxes, estate taxes, personal income taxes, franchise taxes, and inheritance taxes.
[h=2]4. Hong Kong[/h]


In the People’s Republic of China, there are two Special Administrative Regions, with Hong Kong being one of them. It is located at the south coast of China and is surrounded by the South China Sea and the Pearl River Delta. Seven million people live in the region. Aside from being a popular tourist hot spot, Hong Kong is also a haven for people who do not want to pay their taxes and deposit large amounts of money in offshore accounts. Here, clients do not have to pay for sales taxes, capital gains, and payroll taxes. They also do not have to worry about personal tax being deducted from their money.
[h=2]3. Luxembourg[/h]

One of the members of the European Union, the United Nations, Benelux, OECD, and Nato, Luxembourg is a country that reflects political consensus as it is in favor of economic, military, and political integration. The country’s capital city, which is also the largest, is the city of Luxembourg. In the Tax Justice Network report, the country got a Financial Secrecy Index value of 1,621.2 and a Secrecy Score of 68, which renders it at third place on our list.
[h=2]2. The Cayman Islands[/h]

The Cayman Islands, a British Overseas Territory situated in the western part of the Caribbean Sea, is comprised of three different islands. There is the Grand Cayman, the Cayman Brac, and the Little Cayman. These islands are located northwest of Jamaica and to the south of Cuba. In the Cayman Islands, people who are looking to evade their taxes get the full package. They do not have to pay for personal income taxes, capital gains, corporate taxes, and payroll taxes. The country does not even withhold tax on foreign clients.
[h=2]1. Switzerland[/h]
Switzerland takes the number one spot in this list of the 10 biggest tax havens in the world for several reasons. One of these is because the country implements an extremely high level of secrecy when it comes to the financial assets of its clients. While it is true that there are other jurisdictions that allow for even greater secrecy such as the Bahamas and Bermuda, Switzerland beats them because the country operates on a much larger scale. It is also because of the fact that the bank accounts managed in the country are also operated on a massive scale. The offshore accounts here have partial or full tax exemptions, depending on the private bank.

The 10 Biggest Tax Havens in the World - TheRichest
 
[SIZE=+2]Cayman Islands[/SIZE]​
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The Cayman Islands Government Information Services recently advertised that the total number of banks registered in the Caymans topped out at 533, with approximately US$415 billion in deposits. Forty-six of the largest 50 banks in the world are represented in the Caymans, as well as all of the “Big Six” accounting firms.

To give you a comparison of how really gigantic the Cayman Banks as a group are, the banking deposits in all of California’s Commercial banks stand at right around $220 billion. The banking deposits in the Bahamas reached @ $300 billion. According to the Offshore Financial Review (London), the $415 billion on deposit in the Cayman banks towers over the combines assets of all European offshore centers.

In addition, Cayman banks are said to have more dollars on deposits in the Caymans have dropped slightly since the end of 1991 when deposits reached $430 billion. Yet the total number of banks registered in Cayman has actually grown.

The Cayman Islands are now the fifth largest financial center in the world, trailing New York, Tokyo and London.

[h=1]Taxes[/h]
There are no personal income taxes, no corporate income taxes, no capital gains taxes, no withholding taxes, no estate, gift or inheritance taxes, no sales taxes, no employment taxes, no death duties, and no probate fees in the Cayman Islands. Guarantees against future taxes are available to exempted companies and trusts. Exempted companies can receive a guarantee from the government for a period not exceeding 30 years. Exempted trusts can receive a guarantee for 100 years. The Caymans have no tax treaties with any nation.

Caymanians have historically had distaste for taxation, and this has provided a natural setting for the system of laws and regulations, dating back to the 1960’s, which have created and encouraged the growth of the Islands as an offshore financial center. Tax lawyers refer to the Caymans as a no-tax or zero tax haven. Taxes or all types simply do not exist in this country.

Like the other no-tax havens of the Bahamas, Bermuda, Anguilla, Vanuatu and Nauru (in the South Pacific), the Caymans have traditionally enjoyed a complete absence of direct taxation. The only form of direct taxation the Cayman Islands ever had was a $10 a year tax on adult males, but that was abolished in 1985.

People, History, Accessibility, Currency

“The Cayman Islands… those that know us.., love us.” So the song goes in the Cayman Island Tourist Bureau’s television ads that appear on TV’s across the America. Truer words were perhaps never spoken. The Cayman Islands are an English speaking British Crown colony especially suitable for U.S. businessmen and Canadian businessmen owing to their close proximity to the U.S. and North America. There are more than 500 bank and trust companies, and over 300 insurance companies registered in this world famous tax haven. The Caymans receive over 500,000 tourists every year, most of them from the U.S.A.

The Cayman Islands are three small islands (Grand Cayman, Cayman Brac and Little Cayman) about 480 miles south of Miami, and just north of Jamaica in the Caribbean Sea. The population is now about 28,000, made up of about 20% Caucasian, 25% black and 55% mixed race. It is racially integrated, socially and otherwise, and color is not considered a real issue to these fun loving islanders. The capital and principal city is George Town, located on the largest of the three islands, i.e., Grand Cayman.

You don’t have to travel for 24 hours or spend upwards of $1,500 to get to your tax haven in George Town, as you would if you had chosen Hong Kong, Vanuatu, Campione or Switzerland as an offshore base. The Caymans have daily flights from Miami year round, and weekly connections to 12 other cities in North America and Jamaica. There are several flights each week from Houston, Texas too. Travel time to Miami is just two hours, at a cost of about $200. You can catch a Concorde from Miami to London at Miami’s International Airport if you’re coming from Europe and you’re in a hurry!

Columbus first sighted Little Cayman and Cayman Brac during his fourth and last rip to the West Indies in May, 1503. In 1655 Jamaica was captured from Spain by the British, and in 1670 was ceded along with the Caymans to the British Crown. The first Cayman settlers were buccaneers, shipwrecked sailors and debtors.

Today, the Governor is appointed by the British government, and there is no likelihood of independence being predicted for the Caymans for many years yet. The Cayman dollar floats against the pound sterling, and is roughly equivalent to US$1.20. There are no exchange controls in Cayman limiting what currency you can use.

[h=1]Ordinary and Exempt Companies[/h]
There are principally two types of companies you can register in the Caymans; the exempted and the ordinary company. Foreign investors almost always choose the exempted company because its register of shareholders is not open to public inspection, and it may be kept inside or outside the Cayman Islands. The register of shareholders for ordinary companies are open to public inspection.

Exempted companies do not have to file annual returns with the Registrar, although an annual declaration must be filed. Typically, alternate directors or an assistant secretary are provided by the lawyer, trust company, bank or accountants that formed the company, so to meet this requirement, since the real beneficial owners and directors would not reside in the Cayman Islands.

No annual meeting of shareholders I necessary for an exempted company, and certain sections of the Companies Law do not apply.

Any proposed company, the objects of which are to be carried out mainly outside the Cayman Islands, may apply to be registered as an exempted company. A declaration signed by a director to the effect that the operation of the proposed exempted company will be conducted mainly outside the Islands must be submitted to the Registrar along with its memorandum and bylaws (a.k.a. the Articles of Association).

Every exempted company must maintain an office in the islands and the directors must hold at least one meeting in the Islands each calendar year, although it is common practice to appoint local alternate directors specifically for the purpose of fulfilling this requirement.

Shares without nominal or par value may be issued, as may bearer shares, provided they are fully paid, but any invitation to the public in the Islands to subscribe for shares or debentures is prohibited.

  1. The company name must be approved by the Registrar of Companies.
  2. The company must have a registered office and agent in the Caymans.
  3. Bank reference letters and a minimum US$500 initial deposit to open bank account with Cayman bank.
  4. At least one director required.
  5. Company secretary required before company can commence business.
  6. Names of shareholders of non-resident and local companies must be disclosed. Bearer shares may be issued for exempted companies in which case no disclosure of shareholders is called for.
  7. Exempted companies must hold a directors meeting in Cayman once a year.
  8. No annual audits required.

An exempted company may be granted a guarantee by the Governor in Executive Council against future taxation for up to 30 years.

[h=1]Costs to Incorporate[/h]
Total start-up costs to form an exempted company range between $2,300 and $3,000. Annual maintenance costs and government fees thereafter run about $2,000. Price Waterhouse might charge US$900 per annum to provide you with a registered office.

The costs of incorporation includes the government fee and is for a company formed with a standard memorandum and articles of association. In situations where nonstandard companies are required or advice is required regarding the structuring, fees will be higher.

The maximum authorized capital for the minimum start-up government fee is US$900,000. For authorized capital in excess of US$900,000 the start-up fees can reach a maximum of US$2,300. The maximum annual government fee for an exempted company is US$1,700.

Cayman companies can be used for a variety of purposes, including offshore captive insurance and reinsurance companies, bond issuing companies raising finance in the international markets, treasury and cash management companies with tax-free accumulation of funds possible. Other uses include investment holding and property management companies and invoicing and trading companies.

[h=1]Exempt Companies[/h]
In addition to a 30-year guarantee against future taxes by the Governor in Council, there are other advantages to forming an exempted company.


  1. The company name need not include the words “Limited” or “Ltd.”
  2. It is not required to maintain a register of shareholders, thus names (owners) are not a matter of public record.
  3. No annual meeting of shareholders is necessary.
  4. No annual return has to be filed with the Registrar, although an annual declaration must be made stating that the company continues to comply with the requirements of an exempt company.
  5. Shares without par value (i.e., no-par value) or nominal value may be issued, as can bearer shares.

According to Price Waterhouse (Grand Cayman) 68 page information guide – Doing business in the Cayman Islands – the costs for registering an exempted company in the Caymans has remained fixed at US$1,025, but the annual fee the government now charges has fallen from US$700 to US$500. By comparison, the government start-up and annual renewal fees in the BVI is US$299m and in the Bahamas just US$100.

[h=1]Directors and Shareholders[/h]
The day-to-day business of the company is carried on by the directors. Directors may be of any nationality and do not have to be Cayman residents. There are no restrictions as to how many directors a company must have. Directors are appointed by the casting of a majority vote by shareholders in a general meeting. Alternate or nominee directors can sub for the real directors. Use of nominee shareholders and directors is customary in the Caymans. Directors generally are responsible for the appointment of the President, the executive officers, the treasurer and the managing directors of a Cayman company.

You can examine a copy of the Cayman Companies Law by writing the Registrar of Companies in George Town at:

Registrar of Companies
Government Administration Building
George Town, Grand Cayman,
British West Indies
Telephone (809) 949-4844
Telex 4260

[h=1]A Register of Companies[/h]
In your Cayman office it is required by Companies Law (25-(3) that a register of companies be kept in which the following particulars shall be annexed to the Memorandum of Association or Articles of Association (if any) in so far as they are not included therein:

  1. The name of the Company;
  2. The part of the islands in which the registered office is proposed to be situated;
  3. The amount of capital and the number of shares into which the company is divided and the fixed amount thereof;
  4. The names, addresses and occupations and subscribers to the Memorandum, and the number of shares taken by each subscriber (not required for Exempted Companies);
  5. The date of execution of the Memorandum of Association;
  6. The date of filing of the Memorandum;
  7. The number assigned to the company;
  8. In the case of a limited company, by guarantee or when no limit is placed on the liability of its members, the same is limited by guarantee or is unlimited.

“From the date of incorporation mentioned in the certificate of incorporation, the subscribers of the memorandum of association, together with such other persons as may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum of association, capable forthwith of exercising all functions of an incorporated body, and have perpetual succession and a common seal with power to hold lands, but with such liability on the part of members to contribute to the assets of the company in the event of it being wound-up as in hereinafter provided in the Cayman Companies Law.”

“Every copy of the Memorandum or Articles filed and registered in accordance with the above law, or any extract there from certified under the hand and seal of the Registrar of Companies as a true copy shall be received in evidence in any court of the Islands without further proof.”

Copies of the Memorandum must be provided to Members

It is the law in the Caymans that you provide a copy of the memorandum having the articles annexed thereto to every member, at his request, on payment of one dollar for each copy as may be fixed by the rule of the company (rules are provided in the articles or by-laws), and in the absence of any such rule, such copy shall be given gratuitously; and if any company makes default in forwarding a copy of the memorandum or articles (if any) to a member in pursuance of Section 28, the company so making default shall for each offense incur a penalty of two dollars.

[h=1]Company Name Restrictions[/h]
In the Caymans (and in most other tax havens) a company cannot be registered in a name, which is identical with that of another company in existence and already registered. No company may use the words (Chamber of Commerce”, unless it is a company registered under license granted by the Governor. In addition, no company name may contain the words “Royal”, “Imperial”, or “Empire”, as that would be calculated to mean that the patronage of Her Majesty or a member of the Royal Family or Her Majesty’s government was being provided. You are also prevented from using the words “municipal” or “chartered” in your company name.

Articles of Association (by-laws)

The Articles of Association (referred to as “Articles”) contains the rules and regulations for your company. They are the equivalent to what U.S. lawyers call the by-laws. Every company should have a set of articles, but if you don’t want your own, you can adopt the set provided by the Cayman Government called Table A. You are permitted to modify Table A, or write up an entire set from Table A, and they will be acceptable by the Registrar. In the Caymans, if you don’t provide articles when you file your memorandum, the government will assume you to have adopted their own Table A.

[h=1]Books, Records and Annual Returns[/h]
Cayman law requires a company keep proper records of account with respect to receipts and payments, purchases and sales, and assets and liabilities. Proper books have been described as necessary to give a fair view of the state of the company’s affairs, and to explain its transactions. An annual return is required by law, but it is not necessary that it be audited.

Nominee Shareholders
The Caymans and other tax havens allow for the use of nominee shareholders when forming a company. Nominee shareholders help preserve your confidentiality. They are a tradition in places like the Caymans, the Bahamas, and Bermuda. The IRS will not recognize a nominee as the real owner of the shares, but as nominee shareholders make it doubly difficult for the IRS or any investigating agency to assemble information on a company or its owners, they are in widespread use anyway. Nominees help safeguard one of your “Constitutional Rights” – your right to privacy. Nominee shareholders should be used in combination with good tax planning and not exclusively as a means to evade disclosure to the home country tax authorities.

Nominees usually sign a declaration of trust in favor of the real beneficial owners of the company. Because it is the names of the nominees (generally lawyers or trust agents) that are printed or typed on the Memorandum and recorded in the Registrar of Companies, thus becoming a matter of public record, the true owner’s identity is kept secret. Nominee shareholders cost about $500. Businessmen seeking further anonymity in their affairs can also issue bearer shares.

[h=1]Exempted and Ordinary Trusts[/h]
Cayman trusts are governed by the trust Law (Revised), 1976. A trust can be created by a resident of any country, and the settlor does not have to be physically present in the Islands. While the trustee should be located in the Caymans, it is not necessary to keep trust assets there. A stamp tax of US$50 is payable on a trust deed, but there is no requirement for public recording or registration.

No statutory restrictions exist in Cayman regarding accumulation of income, but the common law rule against perpetuities applies, except in the case of exempted trusts. The common law rule against perpetuities is that the duration may not exceed a period of 21 years after the death of the last named beneficiary living at the time the trust was created.

Cayman trusts are governed by the Trust Law (Revised) of 1976. The trustee of an offshore trust should be resident in the tax haven, but it is not necessary that trust assets be kept in Cayman. Foreign trustees are usually trust companies, banks, attorneys, but any person or company can be a trustee. A foreign trust in Cayman or elsewhere should always have as many foreign trustees as U.S. trustees, otherwise the IRS will probably not recognize the trust as “foreign”.

An ordinary trust can be formed in Cayman upon payment of a stamp tax of CI$40. There is no requirement for public recording or registration of an ordinary trust. An ordinary trust usually assigns a bank or trust company to act as trustees, and it is customary to use local entities for this function. Neither the settlor(grantor) or the beneficiaries have to be physically present within Cayman, and the trust’s assets may be kept outside the islands.

Upon special application by the trustees, the Registrar of Trusts may register a trust as an exempted trust, where the beneficiaries do not include and are not likely to include any persons resident in the Caymans. A registration fee of US$500 is payable to the Cayman Registrar for an exempted trust. An exempted trust must pay an annual fee of US$120 in March of each year, and the trustees must file with the Registrar such accounts, minutes and information as the Registrar may require.

Documents files with the Registrar are open to inspection by the trustees or any other person authorized by the trust and by the Registrar, but are not open to public inspection.

A trustee of an exempted trust may apply to the Governor in Exempted trust may apply to the Governor in Executive Council for an undertaking that no future tax will apply to any property or income of the trust.

An exempted trust may provide for perpetuity of up to 100 years, and during its subsistence the beneficiaries have no interest, vested or future; all rights of the beneficiaries are vested in the Registrar of Trusts, who is an official of the Cayman government.

A foreign trust amply drafted can (1) invest in U.S. stocks; (2) receive U.S. bank interest from U.S. commercial banks and S&Ls within or without the U.S.A.; (3) accumulate its income free of Federal Income tax. Certain foreign “grantor” trusts can have U.S. beneficiaries who can receive “foreign source incomes” from the trust and not be taxable on such income distributions.

[h=1]Investment Holding Companies[/h]
A Cayman company set-up, so it is not categorized as a Controlled Foreign Corporation (CFC), can trade U.S. stocks, options, commodity contracts, currencies, futures, Treasury and corporate bonds, free of all U.S. capital gains taxes. Exemptions are provided within the Internal Revenue Code. There are three exceptions:

  1. The foreigner is engaged in a U.S. trade or business inside the U.S.A. or has an office within the U.S.
  2. The gains are attributed to stock in a U.S.Real Property Holding Corporation orU.S.Real Property Interest as defined under IRC §897(c).
  3. Gains are ascribed to stocks that are not publicly traded on an established securities exchange.

[h=1]Eurodollar Bonds & Other Interest Bearing Instruments[/h]
Eurodollar bonds are one of the safest offshore investments. More than 750 billion of Eurodollars are now outstanding. Eurodollars are now outstanding. Eurodollars are issued from either Delaware or the Netherlands Antilles by the international finance subsidiaries of giant multi-national corporations including Exxon, Mobil, RJR Nabisco, and Ford. Eurodollars are unconditionally guaranteed as to both principle and interest by the parent company. They are free from the U.S. withholding taxes.

Eurodollar bonds are often convertible into shares of common stock of the U.S. parent. This is an added incentive as the stock can then be sold tax-fee.

[h=1]Banking in the Cayman Islands[/h]
You can form a bank in the Cayman Islands instead of a “mere” holding company, but a license must be obtained from the Cayman government. Banks are licensed under the Bank & Trust Companies Regulation Law 1978. There are two main classes of Bank licenses, Class A and Class B. Class A license holders are granted the right to operate inside or outside the Caymans. Class A licenses cost CI$30,000, and this fee is payable every January thereafter.

Class B licenses cost between CI$9,000 for an unrestricted, and CI$6,000 for a restricted license. Legal fees on formation of a bank vary from about CI$3,000 to CI$8,000.

Licenses are granted for banking business, trust business, or banking and trust services. The Governor may revoke a license if in his opinion the licensee is carrying on its business in a manner detrimental to public interest or to the interest of its depositors, or is contravening the law.

[h=1]Banking & Financial Center Unrivaled[/h]
As of January 1, 1987 bank and trust companies licensed in the Cayman Islands passed the 500 mark, representing over 50 countries, and including 60 with their own local operations. The benefits of doing business in the Islands are reflected in the total of over 18,000 companies registered in the Government registrar, including more than 350 offshore insurance companies. Forty-three of the world’s top 50 banks maintain subsidiaries or branches in Cayman. Many of the remaining 470 banks are said to be privately owned, established for a restricted clientele.

Banks are closely regulated by the closely regulated by the Government’s Inspector of Banks, and audited by such well-known international accounting firms as Price Waterhouse, Thorne Riddell and Peat Marwick. In the past 20 years there have been just three bank failures, none of which were of inter-banking significance. Downtown George Town has a myriad of gleaming new bank building a testament of her opulent and booming economy.

[h=1]Cayman Banks[/h]
The first eight banks below provide a full range of services, the others have staffed offices.

Barclays Bank PLC
P.O. Box 68, Cardinall Avenue
Tel.: 97300. Telex: 4219 BARCLAY. Fax: 97179

Bank of Nova Scotia
P.O. Box 689, Scotia bank Building
Tel.: 97666. Telex: 4330 SCOBANK. Fax; 97097

Canadian Imperial Bank of Canada Bank & Trust Company (Cayman), Ltd.
P.O. Box 695, Edward Street
Tel.: 92366. Telex: 4222 CENBANK. Fax: 97904

Cayman National Bank & Trust Company
P.O. Box 1097, West Wind Building
Tel.: 94655. Telex: 4313 CNBANK. Fax: 98203

First Cayman Bank, Ltd.
P.O. Box 1113, West Bay Road
Tel.: 95266. Telex: 4347 CAYBANK

Royal Bank of Canada
P.O. Box 345, Cardinall Avenue
Tel.: 94600. Telex: 4244 ROYBANK. Fax: 97396

Washington International Bank & Trust Co.
P.O. Box 609, Downtown
Tel.: 98144. Telex: 4214 WINBANK. Fax: 97761

First Home Bank Ltd.
P.O. Box 914, First Home Tower
Tel.: 95774. Telex: 4265 FSTHOME. Fax: 97192

AALL Trust & Banking Corporation, Ltd.
P.O. Box 1166, Aall Building
Tel.: 95588. Telex: 4303 AALLCO. Fax: 98265

Altijir Bank
P.O. Box 691, Sigma Building
Tel.: 95626. Telex: 4352 ALTAJIR

Banco do Brasil, S.A.
P.O. Box 1360, Scotia bank Building
Tel.: 95907. Telex: 4354 BBCAYMN

Banco do Estado de Sao Paulo, S.A.
P.O. Box 1811, Scotia bank Building
Tel: 95002. Telex: 4296 BANESGC

Banco Portuguese do Atlantico
P.O. Box 1040, Scotia bank Building
Tel.: 99322. Fax. 97743

Bankers Trust (Cayman) International, Ltd.
P.O. Box 1967, Elizabethan Square
Tel.: 98322. Telex: 4434 BTCAY. Fax 97866

Bank of America National Trust & Savings Association
P.O. Box 1078, Anchorage Center
Tel.: 94088. Telex: 4306 BNKAMER

Bank of N.T. Butterfield & Son (Cayman), Ltd.
P.O. Box 705, Butterfield House
Tel.: 97055. Telex: 4263 BFIELD

Bermuda Trust (Cayman), Ltd.
P.O. Box 1321, Scotia bank Building
Tel.: 94400. Telex: 4228 TARPON

B.E.G. Bank Cayman Islands
P.O. Box 1786, Transnational House
Tel: 74133. Telex: 4453 BEGCI

BFC Bank (Cayman) Ltd.
P.O. Box 454, Elizabethan Square
Tel.: 98748.

Cayman Capital Trust Company
P.O. Box 1779, Transnational House
Tel.: 74888. Telex: 4450 CCTRUST

CITIBANK N.A.
P.O. Box 70, Jack & Jill Building
Tel: 94281

Givens Hall Bank & Trust Ltd.
P.O. Box 2097, Citco Building
Tel.: 98141

Ansbacher Limited
P.O. Box 887, Ansbacher house
Tel.: 97653. Telex: 4305 ANSBAC

IBJ Schroder Bank & Trust Co.
P.O. Box 1040, West Wind Building
Tel: 92849. Telex: 4226 BAERCAY

Julius Baer Bank & Trust Company
P.O. Box 1100, Butterfield House
Tel.: 97121. Telex: 4226 BAERCAY

Leumi Cayman Finance & Trust
P.O. Box 1818, Yankee Notion Corner
Tel: 95100. Telex: 4266 LEUMICF

Middle East Bank International, Ltd.
P.O. Box 950, Jack & Jill Building
Tel: 96322. Telex: 4426 MEFIL

[h=1]Accounting Firms[/h]
Arthur Young & Company
P.O. Box 460, Grand Cayman, B.W.I.
Tel.: 92151. Telex: 4231 AYCI

Coopers & Lybrand
P.O. Box 219, Grand Cayman, B.W.I.
Tel.: 97000. Telex: 4220 COLYBRA

Deloitte Haskins & Sells
P.O. Box 1787, Grand Cayman, B.W.I.
Tel.: 97500. Telex: 4333 RHBCO

Price Waterhouse
P.O. Box 258, Grand Cayman, B.W.I.
Tel: 97944. Telex: 4329 PWCOCO

Rawlinson, Hunter, Butterfield
P.O. Box 1787, Grand Cayman, B.W.I.
Tel.: 97500. Telex: 4333 RHBCO

[h=1]Stockbrokers[/h]
Richardson Greenshields of Canada, Ltd.
P.O. Box 1095, Grand Cayman, B.W.I.
Tel: 94066

Cayman Securities
P.O. Box 275, Grand Cayman, B.W.I.
Tel.: 94110

[h=1]Licensed Management Trustee Companies[/h]
Paget-Brown, Ltd
P.O. Box 1111
Grand Cayman, B.W.I.
Tel.: 94908

[h=1]Bank Secrecy in the Caymans[/h]
Switzerland, Panama, the Bahamas and Caymans have well-established bank secrecy laws designed to prevent unauthorized disclosure of a client’s financial affairs to outside authorities. Nevertheless, occasional cracks in Cayman bank secrecy have occurred. In 1976, when the IRS initiated their Operations Tradewinds and Project Havens to penetrate Cayman and Bahamian bank secrecy, one Cayman bank director was requested by the IRS to cooperate. But the IRS ran into a hedgerow. Here’s what happened.

In January of 1976 Anthony Field, then managing director of a Cayman Bank, was served with a subpoena right at the Miami International Airport directing him to appear before a federal grand jury. The grand jury was investigating possible criminal violations of U.S. tax laws.

Mr. Field refused to answer questions on the grounds that he would be in violation of the secrecy provisions of the Cayman Bank & Trust Companies Law of 1966. Charged with contempt of court the case went to the Supreme Court, but by this time Mr. Field, who had never broken his silence, was back in the Caymans. To try to force Mr. Field to testify the IRS would have to serve him with a new subpoena, should he ever step foot in the USA again. Needless to say, there was never another subpoena served Mr. Field.

In response to the Field case, the Caymans enacted a new secrecy law designed to strengthen the old law. Hon, Thomas C. Jefferson, Financial Secretary of the Cayman Islands, said in July of 1986, while speaking about the new “Mutual Legal Assistance Treaty” with the U.S. designed to combat illegal money laundering…

“Our government has always aimed for a clean operation of our financial center. This is not only good sense for the long term, but reflects the upstanding character of the Caymanian, whose Christian principles have led to the banning of casinos and all other forms of gambling.”
“At the same time, we have recognized the essential need of secrecy for the business transacted here, hence the “Confidential Relationships (Preservation) Law”, enacted in 1979 and reinforced by heavier penalties in 1979. We remain convinced that the legitimate investor has a right to confidentiality when he does business in our islands…”

“And it is important to note here that we in the Caymans do not recognize tax avoidance as a crime and the treaty (with the USA) specifically excludes tax offenses unless they involve the unlawful proceeds of a crime covered by the treaty. The treaty needs cause no fears to anyone who does not engage in crime.” –

Thomas C. Jefferson,
Financial Secretary of the Cayman Islands,
Government Administration Building,
George Town, Grand Cayman, B.W.I.
Telephone: 94844, Ext. 112

In 1976, secrecy of ownership was reinforced further when the Cayman government enacted its Confidential Relationships Law (Preservation Law of 1976).

As Andy McNab (deputy inspector of banking and trusts) points out, “The Caymans have an unparalleled infrastructure within the region and the islands’ traditional use as a major transit point for inter-bank transfers, combined with political stability, have made the Caymans what they are today.”

One final point about bank secrecy and legal tax avoidance. It was perhaps best expressed by international tax lawyer and professor Marshal J. Langer in his book, Practical International Tax Planning, what doctrine and code of conduct planners should stick to. In chapter 1, titled “The Growth of Excessive Taxation”, Langer writes…

“Tax evasion is illegal. This is not a book on how to evade taxes. Tax evasion is illegal. Tax avoidance is legal. This book will discuss foreign tax planning, including some ways in which tax havens and financial centers are used by taxpayers to avoid or reduce their tax liability in a legal manner.”

[h=1]Cayman Islands Contacts[/h]
Cayman Islands Department of Tourism
420 Lexington Ave., Suite 2312
New York, N.Y. 10170
(212) 682-5582

Cayman Islands Chamber of Commerce
The Secretary c/o
P.O. Box 1000
George Town, Grand Cayman, B.W.I.
Telephone: 94746

The Caymanian Compass
(Newspaper, daily, Monday to Friday)
The Cayman Free Press LTD.
P.O. Box 1365
Grand Cayman, B.W.I.
Telephone: 95111

Mr. Richard Chalmers
Inspector of Banks & Trust Companies
Government administration Bldg.
George Town, Grand Cayman, B.W.I.
Telephone: 94844, ext. 156

[h=1]Advantages of Using the Cayman Islands as an Offshore Financial Center[/h]
Apart from a nominal capitalization tax of CI$10 per adult male (which was abolished in 1985), the Cayman Islands never have had any form of direct taxation, so that “anyone doing business in the islands can be assured that his dollars will work for him free of such depredations as income tax, profits tax, or corporation tax.”

Advantages to overseas investors, bankers or companies can be summarized as follows:


  • The stability of a well and progressively governed colony of Britain.
  • Low crime rate, social harmony, absence of racial tensions.
  • Excellent telecommunications, the latest in technology, efficient air services provided by 4 international airlines, reliable shipping links, regular freight supply.
  • Proximity to United States – about 2-½ hour to Miami, with good daily connections worldwide.
  • Highly developed infrastructures, including ports, airfields, roads, utilities and medical and educational services.
  • No exchange controls
  • Fixed rate of exchange CI$1 = US$1.20
  • Modern commercial legislation and legal judicial systems based on that in United Kingdom.
  • Severe penalties ensure confidentiality between client and professionals under Confidentiality Relationship (Preservation) Law, qualified only by Government’s accepted duty to assist U.S. Government in the investigation of drug-related and other serious crimes.

Offshore Holding Companies

According to Company Registrar, the number of companies registered in Cayman went over the 32,000 mark in 1993. This continues an upward spiral with a 200% increase in the last seven years.

In 1993 there were 2,696 new exempted companies registered, making the total number of exempted companies 16,465. This is increasing – in the six months to June 30, 1994, there were 1,897 new registrations.

And the Cayman government has recently lowered the annual renewal fees for exempted companies to US$500. Most foreign investors choose the exempted company because names of shareholders and directors are not open to public inspection.

Caymanians have historically had distaste for taxation, and this has provided a natural setting for the system of laws and regulations, dating back to the 1960’s, which have created and encouraged the growth of the Islands as an offshore financial center. Tax lawyers refer to the Caymans as a no-tax or zero tax haven. Taxes or all types simply do not exist in this country.

Like the other no-tax havens of the Bahamas, Bermuda, Anguilla, Vanuatu and Nauru (in the South Pacific), the Caymans have traditionally enjoyed a complete absence of direct taxation. The only form of direct taxation the Cayman Islands ever had was a $10 a year tax on adult males, but that was abolished in 1985.

[h=1]New Mutual Fund Law[/h]
The Cayman government has been a leader in the introduction of new legislation specifically designed to attract new Mutual fund Law, designed primarily for institutions and wealthy individuals.

It was in June of 1993, that the Caymans passed its Mutual Fund Law. This legislation was designed to be self-regulating and flexible so to meet the needs of the 48 mutual fund administrators already licensed in the Caymans, including Goldman Sachs, State Street Bank, and Bank America. While the fund administrators need to be licensed, the fund itself need not be licensed.

The Section 4(3) Mutual Fund must stipulate the minimum investment per investor at $48,000 or have its equity interests listed on a recognized stock exchange. The Mutual Fund Law requires a simple registration with the CI Inspector.

Anthony Travers, senior partner of the law firm Maples & Calder, has argued that the new Mutual Fund Law wasn’t really necessary. “There existed and continues to exist good argument that the introduction of mutual fund regulation was neither necessary nor essential.”

“The Cayman’s fund industry has always been privately placed or structured for specific institutions, and there was never any market-driven need to obtain Designated Territory or Ucits status for funds.”

However, with the tremendous growth of Luxembourg’s mutual fund industry, the Caymans thought it time and appropriate to jump on the bandwagon and create a Mutual Fund Law.

In the Bahamas and the BVI, mutual funds can be formed under the respective IBC Acts. Since this often requires the drafting of a special Memorandum and Articles of Association designed especially for an investment company, as well as Investment Advisory Agreements, Subscription Agreements, etc., the costs usually is run much higher.

Mutual funds formed in the BVI can cost upwards of US$15,000 to organize. One of my lead banks here in Nassau charges $10,000 for a mutual fund. My group can register a mutual fund here in Nassau for $3,000. Ordinarily, an IBC costs $1,950 with us.

[h=1]Limited Duration Company[/h]
The Caymans was also the first to set up its Limited Duration Company, not primarily designed for funds but as a corporation which is treated as a partnership for U.S. tax purposes “enabling a flow-through” but without the complexity of the limited partnership structure.

LDCs have been used to establish mutual funds both for inward and outward investment in the U.S., and may be used to access double taxation treaty networks.

[h=1]Streamlining the Companies Law[/h]
Other changes that have recently been enacted to the Cayman’s Companies Law include allowing companies to be formed with a single subscriber. Allowing companies to repurchase their own ordinary shares as well as redeemable referred shares. A company’s Memorandum of Association is now not required to stipulate its objects if its business is legal.


 
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[SIZE=+2]Switzerland
[/SIZE]​
No discussion of tax havens would be complete without mention of Switzerland. Switzerland is a financial center and money haven more than it is a tax haven. The Swiss tax resident companies on three levels – federal, canton and municipal. Federal tax rates range from 3.63% to a maximum of 9.8% and that's in the ballpark with other low tax havens, but Swiss cantonal and municipal taxes can effectively raise the tax rate on a resident Swiss company to as high as 20% or 30%. That's more in-line with industrial nations' tax rates. Switzerland is very much an industrial country. Its banking system is world-renowned. It's negotiated many tax treaties with other industrial nations, including the USA.

What makes Switzerland more in-line with the low-tax and no-tax havens and boldly different from the industrial nations is the way the Swiss look upon income tax evasion and income tax avoidance. Income tax evasion is not a crime in Switzerland as it is in the industrial nations. Tax evasion is a misdemeanor. The Swiss do not consider tax evasion (or tax avoidance) a crime unless the taxpayer has falsified records. Swiss Courts will no lift the elaborate veil of secrecy that Swiss institutions offer unless a violation of Swiss criminal statutes has occurred.

Opening a secret Swiss bank account (either a numbered or ciphered bank account) is perfectly legal in Switzerland. Hiding information from outsiders has always been a tradition here. In this respect Switzerland is very much a tax haven like the Caymans, Panama, Vanuatu, the Bahamas or Hong Kong. Author Midas Malone sums up the Swiss attitude when he writes….
" In the U.S., tax evasion – failure to declare all income – is a criminal offense. In Switzerland (and several other countries) it is not. For that reason, if the U.S. Internal Revenue Service asks Switzerland for information on an American suspected of not paying all his taxes, the Swiss Government politely refuses on the grounds that no Swiss law has been broken. A Swiss citizen might be asked by his government to provide documents or other information supporting his tax claims, but Swiss law bars the government from fishing expeditions to dig up hidden information on its taxpayers. It is interesting to note that the Swiss meet all their tax needs without resorting to strong-arm methods. The Swiss attitude is that people will voluntarily support reasonable government spending and fair taxation… Obviously, their policy works, and they simply will not participate with other governments in activities they feel are unnecessary, nonproductive, and which they basically disagree. They will cooperate in prosecuting tax fraud, however, which is different from tax evasion" [Midas Malone: How to do business tax free (pg 65)]

[h=1]Swiss Bank Secrecy Law is Tough[/h]
Then years ago American entrepreneur Marc Rich (now a resident in Switzerland) was indicted in New York for racketeering, fraud and tax evasion. The U.S. asked the Swiss to extradite Rich to the U.S., but the Swiss government refused. Later Rich made good the U.S. government's tax claims against his companies, paying $200,000,000 in taxes and penalties in one of the largest tax claims ever collected. But the U.S. still refused to drop charges against Rich. While Rich's companies were allowed to resume their U.S. operations, Rich remains a fugitive in the eyes of the U.S. tax authorities to this day, although he is a popular hero in his home canton of Zug.

In Switzerland, it is not a crime for you (or a Swiss citizen) to evade U.S. taxes, but it is a criminal offense if your Swiss banker or one of your Swiss corporate directors violates Switzerland's official secrecy laws. Violations of trust, as the Swiss calls them, are prosecuted ex-officio by law. A person who is subject to the Swiss banking secrecy law is bound from giving up such secrets for the rest of his life. Anyone, including yourself as a director of a Swiss company, who willfully divulges a secret entrusted to him can be punished by a prison term of up to 6 months in jail and a fine of up to $50,000 Swiss francs.

At the end of 1982 the Swiss banking system included 512 banks and investment companies subject to the Swiss "Banking Law" with total assets of Sfr.611 billion (about US$381.8 billion), fiduciary deposits of Sfr. 166 billion, and a domestic network of 5,069 banking offices, which means that on the average there is one such office for every 1,276 inhabitants – density matched by few other nations.

In addition, Swiss banks held over Sfr.218 billion in assets abroad, with the three leading big banks accounting for Sfr.142.8 billion of the total.

In addition, Switzerland's total assets and investments abroad, including official monetary reserves totaled Sfr. 438 billion (about US$273.7 billion). Deducting from this sum Swiss liabilities to foreigners estimated at Sfr.279 billion, and one comes to a net creditor position for Switzerland of Sfr.159 billion.

[h=1]Company Formations[/h]
Swiss Companies Law is embodied in the Swiss Code of Obligations, which is issued in Swiss, German and Italian. An unofficial English translation of the part of the Code dealing with companies incorporated with legal liability was published by the Swiss-American Chamber of Commerce in 1980, and copies are available on request.

At least three founders (individuals, or entities) are needed to form a Swiss (AG/SA) company. To form a private company (GMbH/Sarl) two shareholders are required.

The minimum paid-up capital required to start a Swiss company is 20,000 Sfr. (about $12,400). Upon formation, a one-time Federal Stamp duty of 3% is due on the total share capital. The total expenses incurred to form a Swiss corporation starts out about Sfr. 5,000, but may be considerably higher if the authorized capital is sizable.

[h=1]The Pure Holding Company, the Participating Company, and the Domicile Company[/h]
In Switzerland there are three types of companies that you can choose to use. The first is called Pure Holding Company. A pure holding company normally acquires and permanently holds "substantial participations"in the equity capital of other corporations. Its income consists of dividends, interest on bank accounts and capital gains. Pure holding companies generally pay no canton or municipal taxes. They do pay taxes on their capital gains and other ordinary incomes.

A pure holding company that holds 20% or more of the shares in another Swiss or foreign corporation is exempt from Federal tax with respect to dividends and liquidating dividends from the substantial participation. If the shares in the other company are worth at least Sfr.2 million (about US$1.3 million) the substantial participation exemption still applies.

Another category of Swiss holding company called a Participating Company is an everyday commercial or industrial company, which holds equity investments in other companies. It is a mixture of holding company andindustrial company. It is permitted the same tax relief that a pure holding company can get with regards to substantial participations in other Swiss or foreign corporations.

The third type of Swiss holding company is the Domicile Company, which can engage in any type of business, but not from its registeredSwiss office (which is merely an address for official communications). Its transactions must originate from places other than its registered office, and management board and directors must supervise operations essential from outside Switzerland.

[h=1]Taxation[/h]
Swiss resident companies are taxed on their worldwide income from all sources, and on capital and reserves at 0.825% rate pa. The tax rate on accessible income (including capital gains) for federal income tax purposes ranges from 3.63% to 9.8%. Nevertheless, certain items of income are exempt from Swiss income taxes. Aside from the substantial participation privilege described above, the following items of income are not subject to corporate tax;
- Income from a foreign branch or permanent establishment.
- Foreign source real estate income.

It is important to obtain these benefits to come to an agreement with the tax authorities beforehand, so a method of assessment can be negotiated. Once made, the agreement will remain in force until the situation of the company changes. The final decision is made by the Canton tax authority, and is valid also for federal income tax purposes.

[h=1]Income Tax Treaties[/h]
What makes Switzerland a powerhouse in the financial community is her ability to negotiate important income tax treaties with the other industrial nations while persevering her own perspectives in regards to confidentiality and bank secrecy. To be sure, the Swiss tax treaty with the U.S. offers benefits to Swiss trading companies that cannot be procured anywhere else. Some of these advantages are outlined by Edwin J. Reavey, Esquire in an article beginning on page 154.

[h=1]Dividend Withholding Taxes[/h]
Under the Swiss-United States tax treaty the U.S. dividend-withholding rate is reduced from 30% to 15%, with a further reduction to 5% when the Swiss company owns 95% of the voting stock of the U.S. Company paying the dividend.

Dividends paid by a Swiss company are subject to a 35% Swiss withholding tax, but resident Swiss individuals and companies get a full refund, so the 35% Swiss dividend withholding tax really doesn't apply to Swiss entities. Foreign companies and individuals are subject to the 35% Swiss withholding tax, however. Here again, some Swiss tax treaties reduce the rate and allow for a refund. Under the U.S. treaty, the Swiss will refund 30% of the tax if the U.S. Company owns 95% of the voting stock of the Swiss company paying the dividend. Under the Netherlands-Swiss treaty the entire 35% withholding is refunded if a Dutch company owns at least 25% of the Swiss company.

Combining the Swiss substantial participation privilege, the dividend refund provisions (above), and the tax treaty benefits can lead to a very low effect tax rate, even though the Swiss federal and canton taxes can approach 30% on other types of incomes.

[h=1]Exporting U.S. Products Tax Free[/h]
A U.S. manufacturer that exports or ships his products overseas would be liable to U.S. federal income tax on his profits, the same as on sales of product sold within the U.S. However, if a Swiss trading company coordinates the sales through its U.S. branch office, thereafter exporting the goods overseas, its profits would go entirely untaxed.

This often-used tactic was highlighted in the December '86 issue of an international tax journal by Boston attorney Dale Johnson. According to Attorney Dale Johnson…

"The U.S. exempts a Swiss enterprise operating through a U.S. office from U.S. tax on its foreign source income even though such income might be taxable in the U.S. absent the treaty. This means a Swiss enterprise may export U.S. goods from the U.S. through a U.S. office (permanent establishment) without incurring any U.S. tax on its income."

Where you place your Swiss trading company branch office within the United States may one day save you a bundle of state taxes too. Although each U.S. state taxes differently, some states conceivable can apply their state. States like Minnesota and New York have income tax rates that approach 18%. Others, like Texas, do not tax corporations or individuals. A Swiss branch could operate in Texas free from federal and state income taxes.

Texas' sales tax (about 6% for sales within Texas) does not apply to cattle and farm products. Those products are exempted. In addition, companies that export Texas products within 30 days get a tax refund. The Texas office of a Swiss Trading Company could export products from other states (using telephone, fax machines and independent agents) tax free, so long as it doesn't open a branch office within the other state.

The Tax Reform Act of 1986 and the Technical & Miscellaneous and Revenue Act of 1988 added some minor restrictions to the Swiss-U.S. treaty loophole for exporters and importers.

The following article by Edwin J. Reavey, Esquire analyzes this U.S. tax loophole. It is reprinted for you here with written permission from Tax Management International Journal (1987) – the publisher.
TRA 86 Changes to the Source of Income Rules can result in taxation of a Swiss or Netherlands Antilles Trading Company Operating in the U.S. [by Edwin J. Reavey, Esq.]
Prior to the Tax Reform Act of 1986 (P.L. 99-514), it was possible for a foreign corporation to purchase U.S. goods for resale abroad through its foreign office without incurring U.S. tax, if the title to the property passed outside the U.S. If the foreign corporation was incorporated in certain treaty countries, it could conduct these same operations entirely within the U.S. and still avoid U.S. tax. A change to the source of income rules in the 1986 Tax Reform Act has the effect of overriding this favorable result for foreign corporations incorporated in those treaty jurisdictions.

Background:
Under §882, a foreign corporation is taxed at regular U.S. corporate rates on its net income, which is "effectively connected" with its U.S. trade or business. For a foreign corporation purchasing U.S. inventory for resale, its "effectively connected" income upon which U.S. tax is imposed includes its U.S. source trading income and, under certain circumstances, also its foreign source trading income.

To determine the geographical source of income, §§861(a)(6), and 862(a)(6) provide that the income from the sale of purchased inventory property is generally sourced at the location where the sale occurs. Under Regs. §1.81-7(c), a sale is considered as occurring at the place where title to the property passes to the purchaser ("title-passage" test). Thus, a foreign corporation that purchases U.S. equipment for resale to foreign purchasers, with title passing outside the U.S., would generate foreign source income on the transaction. Where the title-passage test was used, the foreign source income generated by selling U.S. equipment for consumption abroad would only be "effectively connected" and taxed by the U.S. if the foreign corporation (i) had a U.S. office or other "fixed place of business" within the U.S., (ii) the income from the equipment sale was attributable to that office, and (iii) a foreign office did not participate materially in the sale. See §864(c)(4)(B) prior to the TRA 86 amendment.

Thus, a foreign corporation conducing a trading operation that could generate foreign source income by passing title abroad could avoid having the income "effectively connected" with a U.S trade or business, and, thus, avoid U.S. taxation if:

- the corporation did not have a U.S. office, or
- the corporation had a U.S. office, but its foreign office participated materially in the sale of the U.S. equipment. Avoiding the existence of a U.S. office. Ordinarily, it is a question of fact whether a foreign corporation has a U.S. office or "other fixed place of business in the U.S." Under certain circumstances, the U.S. office of another person (e.g., a shareholder or an agent) could be viewed as the foreign corporation's office. Because of the concerns in determining whether a U.S. office existed, as well as the difficulty from an operational viewpoint in not having some presence in the U.S., the first threshold mentioned above avoiding the U.S. office was often not relied upon to escape U.S. taxation. Having the foreign office participate materially in the sale. Where a U.S. office existed or was needed by the foreign corporation, it was still possible under (he Code to avoid "effectively connected" income status on its foreign source income U.S. inventory that was sold for consumption outside the U.S. if a foreign office or other fixed place of business of the taxpayer participated materially in the sale. Thus, if a foreign office existed and was significantly involved in the transaction, it was possible for the foreign corporation to conduct its operations without incurring U.S. tax, and still maintain a U.S. presence.

The Treaty Exception, notwithstanding the above Internal Revenue Code rules, it was also possible for a foreign corporation operating as a trading company and generating foreign source income from the sale of U.S. equipment abroad, to have a U.S. office, and have that office perform all of the activities with respect to the sale, without such income being taxed by the U.S. as effectively connected income. This possibility arose under certain tax treaties which provided that only the U.S. source income of the foreign corporation could be taxed by the U.S., even where the foreign corporation had a U.S. as effectively connected income. This possibility arose under certain tax treaties which provided that only the U.S. source income of the foreign corporation could be taxed by the U.S. even where the foreign corporation had a U.S. "permanent establishment" (e.g., an office). Thus, a foreign trading company, incorporated in a country, which had a tax treaty with the U.S. containing such a provision, could have a U.S. office, which participated materially in the foreign sales of the U.S. property, and still avoid U.S. taxation on its foreign source trading income. In general, it was only the older U.S. treaties that prohibited U.S. taxation of this foreign source income.

[h=1]The 1986 ACT Changes[/h]
Although the 1986 Tax Reform Act retained the title passage test for inventory sales, it did make certain changes that will have an impact on a foreign trading company, incorporated in a tax treaty jurisdiction, that relied on the treaty rule discussed above. Specifically, the Act made the following changes:



  • It deleted §864©(4)(iii). This, by itself, has the effect of treating only U.S. source trading income as effectively connected income.
  • It added new §865(e)(2)(A) which, for foreign persons, overrides the title-passage rule with respect to inventory sales and treats the income from such sales as U.S. source, if a U.S. office exists and the income is attributable to the U.S. office.
  • It added new §865(e)(2)(B) which creates an exception to the U.S source rule mentioned immediately above, if a foreign office of the foreign person participates materially in the sale. If this exception applies, the title passage rule continues to determine the source of the income. Thus, as a result of the Act, a foreign corporation purchasing U.S. goods for resale and use abroad can only avoid U.S. taxation if it generates foreign source income with respect to the sales, and
  • It does not have a U.S. office, or
  • If it does, a foreign office participates materially in the sale. If, one the other hand, a U.S. office participates materially in the sale on a regular basis, §865(e) will treat this income as U.S. source so that the treaty rule does not apply.

[h=1]Conclusion:
[/h]
Netherlands Antilles or Swiss corporations that were conducting U.S. trading activities through their U.S. office and relying on a combination of the title passage rule and Article lll of their respective treaties to escape U.S. activities to a foreign office in order to continue to avoid U.S. taxation under the remaining Code exception. Failure to take such steps may subject these entities to both U.S. income taxation as well as the new §884 branch profits tax. Note also that, although a Netherlands Antilles or Swiss corporation that had been relying on Article III of their respective treaties would no longer be able to rely on such treaty to escape U.S. tax as a result of the 1986 TRA change, it is questionable whether such change would be considered a "treaty override". In this area, the 1986 Reform Act only changes the internal U.S. rules for determining the geographical source of income, and neither treaty contained specific source of income rules.


 
Lambardi said:
Mauritius kwa Africa Nayo Imo kwenye list ingawa si top ten!
Click to expand...

[SIZE=+2]Mauritius
[/SIZE]​

[FONT=Arial,Helvetica][SIZE=-1]At present, there are two main fiscally advantageous companies in Mauritius: "Ordinary offshore Companies" (Governed by the General Companies Act, 1984 as amended by the Mauritius Offshore Business Activities Act, 1992) and "International Companies" (Governed by the International Companies Act, 1994). In synopsis, the former can avail of the Mauritian double taxation treaty network whilst the latter are directly analogous to West Indian 'Tax Free' IBC Companies and do not enjoy tax treaty benefits. To enjoy the substantial benefits afforded by the Mauritian/Indian Double Taxation Treaty, which interestingly was signed in 1983 and hence before much of the Mauritian tax planning legislation, it is necessary to prove that the recipient is resident. Under Article 4 of the Treaty a company, including an ordinary offshore company, will be deemed so resident if:

(i) The undertaking is liable to indigenous tax, and

(ii) there is genuine proof of local management and control.

Mauritius has a significant number of local lawyers and accountants who can provide resident directors, maintain local bank accounts, record official "minutes", hold board meetings and submit the annul audited accounts. In respect to the liability to local tax there would of course be no benefits if fiscal liability was merely extrapolated from India to Mauritius. The full normal corporate tax rate for the latter being a very non Tax Haven" 35%. However, under S.59D of the Income Tax Act the proscribed rate of tax for an Ordinary Offshore Company is 0% unless otherwise elected up to a maximum rate of 35%. This provision existing for tax planning and anti-avoidance reasons. In other words, it is quite possible for a Mauritian Ordinary Offshore Company to have no indigenous tax consequences. The question therefore becomes at what level will India impose withholding taxes on investments. Under the Treaty, once a Mauritian company holds an investment stake of 10% or more in an Indian company - known as a participation exemption - India will only impose a withholding tax rate of 5% on dividend distributions. In addition, tax on realised capital gains from the disposition of shares are fully exempted from Indian taxes. Of course, it would be wrong to give the impression that Mauritius is the ubiquitous solution for investments into India. Cyprus may provide a more successful catalyst especially where a Cypriot company wishes to grant a loan to an Indian subsidiary. The withholding tax on interest payments merely being 10% as opposed to the 20% rate levied in the case of Mauritius. Cyprus can also provide protection against the imposition of capital gains taxes.

Mauritius permits the incorporation of companies under the International Companies Act of 1994 and exempts them from all taxes except for a $100 annual fee. Bearer and no par value shares are permitted. No information need be given to the authorities prior to incorporation or prior to exempt tax status being granted. There is no information open to the public about exempt companies and there is no restriction on where meetings may be held. A registered office and a representative is required and certain documents must be kept at the agent's office. Exempt companies can not however take advantage of double taxation treaties, the most important of which is with India.

As can be seen from the above, Mauritius offers substantial advantages for investors who are active in India. In addition, exempt companies, which may not avail themselves of the double tax treaty, are nevertheless private and inexpensive and may be appropriate in may other situations.[/SIZE][/FONT]

Mauritius (Low Tax Haven in the Indian Ocean)

Mauritius, in the Indian Ocean 500 miles east of Madagascar, is a little island democracy about 2/3rds the size of Rhode Island. Mauritius has a topography and subtropical climate much like the Hawaiian Islands. Oval shaped, only 38 miles long and 28 miles wide, Mauritius is almost completely surrounded by a coral reef. Average temperatures of 74[SUP]0[/SUP] on the coast and 67[SUP]o[/SUP] on the misty central plateau make Mauritius a land of enchantment.

The first Westerners to visit Mauritius were the Portuguese in the 16[SUP]th[/SUP] century, and they found the island totally uninhabited. Since then much of the original plant and animal life has been displaced, including the flightless dodo bird. After the Portuguese came the Dutch, who gave up establishing a settlement there in 1710. The French took possession next, introducing sugar, spices, coffee, tea and other crops to the island.

During the Anglo-French wars of the 1700s the French made the mistake of attacking British shipping from their I'le de France (Mauritius' French name). In 1810 the British captured the island and renamed it Mauritius. Today, Mauritius is an independent nation and member of the British Commonwealth of Nations. A governor general is appointed by Great Britain representing the Crown.

[h=1]Political Stability[/h]
Mauritius is politically stable, although the government is run by former leftists who balked at carrying out radical socialistic policies in 1983 to redistribute the sugar cane fields owned mainly by French-Mauritian families. As Minister of Finance V. Seethanah Lutchmeenariaidoo said… "Either we had to nationalize the land and distribute it to co-operatives in a Mexican style agrarian revolution, or we had to use consensus and dialog. We chose the second route."

Ministry official Emmanuel Arouff insists that the "spirit of democracy and free enterprise are deeply ingrained in Mauritius. We are only too happy that our socialist experiment lasted only 9 months. We value our little bit of prosperity and independence."

Mauritius maintains ties with the government of South Africa yet openly opposing apartheid. The Mauritian government believes there should be a negotiated settlement. Tourists that visit Mauritius are struck by the island's lack of racial friction and a 94% literacy rate.

Currently, trade (mainly food and machinery) with South Africa account for 10% of Mauritius imports. With its one economy crop Mauritius must import foodstuff heavily.

[h=1]Territorial System of Taxation[/h]
Mauritius is not a no-tax haven like the Bahamas. Its tax system can best be described as territorial, somewhat like Singapore's but with lower rates. All companies in Mauritius, whether resident or nonresident, are taxed only on their net profits earned in Mauritius. There are no capital gains taxes, and stocks and bonds in publicly traded companies and private companies can be sold tax-free. There is a land development tax, called Capital Gains Morcellement tax, which is levied on real estate developers who parcel out land for development (resale) purposes. Mauritius tax system is designed to make it a regional warehouse and re-export center to Africa.

[h=1]Corporate Tax Rates[/h]
There are two brackets for the corporate taxpayer. Special Certificate Companies pay a flat rate of 15% and Non-Certificate Companies pay at a 35% rate. Generous allowances can often reduce the effective tax rate to a much lower level. For example, investment tax credits for industrial, manufacturing, shipping or tourist activities permit a deduction from income tax equal to 30% of the cash actually paid up as share capital. The credit is spread out over three years, but limited to R$30,000 for individuals and R$100,000 for companies.

[h=1]Individual Tax Rates[/h]
Resident individuals are taxed on their gross personal income on a sliding scale from 5% to 35%. Personal income consists of earned income (salary, wages, bonus, commissions, fees, pensions and benefits in kind) and unearned income (dividends, trade profits, rents, interest partnership profits). Capital gains are not taxed. Dividends paid on shares of Special Certificate Companies are exempt from tax during the first 10 years starting from the company's production date. Dividends that accrue to foreign investors who get approved status may be repatriated without tax being levied.

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ndio maana nimepanga kuhamisha mshahara wangu toka NMB kwenda benki za Uswisi.
 
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