We’ve all heard the term in the media, or tossed around by savvy financial planners or accountants. But what are corporate tax havens? Are they legal? And can they help you reduce your tax liability?
Read on to learn more…
What is a Corporate Tax Haven?
In lay terms, a “tax haven” refers to any jurisdiction or country that offers minimal or substantially reduced tax liability to foreign businesses and individuals.
These so-called havens typically place an emphasis on privacy, sharing little to no financial information with other foreign tax authorities, and often do not require residency or a physical business presence within their borders for a business or individual to benefit.
Criteria to Qualify as a Tax Haven
Interestingly, there are a number of qualifying factors that a jurisdiction must meet in order to qualify as a tax haven. The OECD (Organization for Economic Cooperation and Development), in 1998, offered a number of criteria that could be used to identify such financial centers worldwide.
Tax Haven Characteristics:
- Zero, or minimal imposed tax on income
- Privacy standards and no exchange of information with other parties
- A lack of transparency (to improve privacy/anonymity)
What do Governments Have to Gain?
Tax havens are certainly attractive to investors, business professionals, and wealthy individuals. But what do governments stand to gain by establishing their jurisdiction as a tax haven?
Turns out tax havens have a lot to gain as well.
Benefits of Tax Havens for Countries and Governments:
- Despite the name, tax havens aren’t typically “free” of cost or fees. Although favorable from a tax liability perspective, they often charge a nominal tax rate while making up for fees in other areas such as high import duties.
- Registration fees and annual renewals. Some tax havens charge fees for registration, annual licensing and other fees.
- The attraction of foreign investors and money brings with it a vital infusion of capital into the local economy. Further, the country may benefit from ongoing business operations within its borders, such as investments in local infrastructure, offices, job opportunities and more.
As you can see, there are a number of built-in incentives for a government to operate a tax haven, including capital injection into the country’s economy where investments may flow into local businesses, financial institutions, and other vehicles.
Key Tax Haven Benefits
International tax havens have long been the preferred domicile for Fortune 100 companies, astute investors and privacy-minded individuals. But why?
1. No (or minimal) Tax Liability
As the name clearly suggests, these domiciles are havens for corporations, individuals and investors seeking to reduce their tax liability. Many developed countries have implemented a “progressive” tax system that places an increasing burden on those with higher income.
International tax havens offer a clear path to minimizing taxes safely and effectively, with many locales having zero corporate taxes, capital gains tax, personal income tax and more.
2. Privacy and Discretion
Corporate tax havens offer more than just tax savings. These locations boast unmatched privacy for individuals and corporations alike. Many tax havens accomplish this by not keeping any publicly accessible bank account or company information, and policies preventing them from sharing any recorded information with outside third parties (such as international tax agencies). For example, in Antigua and Barbuda, it is actually illegal for a bank to disclose account holder information to any third party. Interestingly, not even Antigua and Barbuda’s own government can access this information.
3. Security and Peace of Mind
International tax havens often play by their own rules, outside of the jurisdiction of (sometimes) overbearing nations such as the United States or the governing bodies of the EU. This level of independence can be a major benefit for individuals who have concerns about their privacy and outside governmental agencies such as the IRS, FAFT, OECD, and others overstepping their bounds.
Furthermore, most corporate tax havens do not participate in what are known as TIEAs or “Tax Information Exchange Agreements” with the EU or USA.
This means that even if outside organizations try to investigate or uncover information, there is no legal framework in place to allow them to do so.
For those seeking alternative locales to do financial business, corporate tax havens are attractive options due to their simplicity and well-defined processes for setting up new accounts. In fact, due to their business-friendly legislation, getting set up with many tax havens can take as little as 2-4 days. Not to mention business registration is typically low, with many jurisdictions charging $500 or less and can be done all without even visiting the country.
But that’s not where the convenience factor ends. In an effort to attract more business, many corporate tax havens work to make the process of running and managing a business within their domicile as easy as possible. This typically manifests as less paperwork and administration.
Highlighted Tax Havens
The number of popular tax havens is extensive. Below we’ll highlight two popular corporate tax haven destinations.
The nation island of Malta is a member state of the EU (European Union), a key reason why Malta passports are highly sought after around the world. Malta is a safe country, rich in culture and strategically located between Africa and Europe. Their program, simply named Malta’s Individual Investor Program (MIIP) is a popular option for many investors worldwide.
Malta’s Individual Investor Program (MIIP) Requirements:
- Contribution of €650,000 to the National Development and Social Fund
- Contribution of €25,000 for minor children and a spouse of the primary applicant
- Contribution of €50,000 for each dependent child age 18-26 or dependent parents age 55 or older
- Due diligence fees
- Residence in Malta for 5 years
- Purchase of property valued at €350,000 or lease a property at €16,000 or more per month
- €150,000 deposit in a government-approved financial instrument
Benefit of the Program:
- Advantageous tax system
- Tax concessions
- Centralized business hub
- Tax treaties with over 50 countries
- English as the primary language of business
- Access to free EU healthcare and education systems
- Malta passport opens up visa travel to over 160 countries
- Stable and safe country
- Lifetime citizenship can be passed to future generations
2. Saint Kitts and Nevis
The duel island nation, also sometimes referred to as the Federation of Saint Christopher and Nevis, represents one of the most popular corporate tax havens. Known for its charming islands and beautiful backdrop, the two offer what is known as the St. Kitts and Nevis Citizenship by Investment Program. This program, established in 1984 is the longest-running economic citizenship program worldwide.
Benefits of the Saint Kitts & Nevis Citizenship Program:
- Passport can be obtained within 6 months
- Enjoy citizenship in a Commonwealth country
- Dual citizenship is allowed
- Enjoy visa-free travel to more than 168 countries
- No physical residence required
- No education, test or interview requirements
- No tax on worldwide income
- Full citizenship for life that can be passed on to future generations
3. Other Popular Corporate Tax Havens Include
- Cayman Islands
- Isle of Man
- The Channel Islands
Corporate tax havens provide a myriad of benefits for those businesses and professionals seeking to reduce their tax liability, increase privacy, obtain second citizenships/passports and more. These benefits are key drivers for so many corporations, large and small, to seek out these domiciles for their business and investments. With proper due diligence and planning, you too can take advantage of all these havens have to offer.
Corporate Boards are Critical Starting Points for Implementing Stakeholder Capitalism
COVID-19 has led to global and systemic economic, social and environmental disruption, and an increasing number of companies are recognizing the need for pragmatic approaches to implement the principles of stakeholder capitalism.
A new white paper, The Future of the Corporation: Moving from Balance Sheet to Value Sheet, provides analysis about the important role boardrooms and corporate governance play in addressing the environmental, social and governance (ESG) challenges their companies face. Focusing on practical tools for corporate leaders, the white paper, produced in collaboration with Baker McKenzie, provides a set of actions and stakeholder governance considerations boardrooms can take to reshape their company’s purpose and practices.
This includes leadership-level actions, such as aligning company purpose and incentives with transparent goals and KPIs, increasing board diversity and adopting the common stakeholder capitalism metrics to measure and manage global risks and opportunities related to business, society and the planet.
“Business leaders are increasingly implementing business models that create value based on stakeholder needs,” said Klaus Schwab, Founder and Executive Chairman, World Economic Forum. “While there’s increasing momentum towards stakeholder capitalism, many businesses are also looking for practical solutions to help them fully understand and address the concerns of all their stakeholders. The Forum is committed to providing measurement and governance tools that will help these leaders succeed, thereby advancing stakeholder capitalism globally.”
Effectively aligning a company’s practices with its purpose is another key role boardrooms must play when integrating stakeholder interests into their business models. Setting clear metrics for management, which align with company purpose is an important step for boards.
Ørsted, a company who successfully transformed its business from fossil fuels to renewable energy, is a clear example of how effective governance is critical to company-wide transformation For example, in its transition to being a sustainable business, Ørsted made it a board-level priority to ensure its transformation was transparent, the journey was measured with concrete metrics and it was communicated to all relevant stakeholders.
“The pandemic, climate and inequality challenges of the last year were and continue to be unprecedented. Against this backdrop, how can companies drive long-term value creation and sustainable growth? A good stakeholder governance framework will help companies mitigate risk, build resilience and enjoy sustainable value creation and long-term success; at the heart of good stakeholder governance is clearly understanding who key stakeholders are, engaging with them and bringing their voice into decision-making,” said Beatriz Araujo, Head of Corporate Governance, Baker McKenzie. She added: “There is no ‘one-size-fits-all’ approach; each company must embark on its own stakeholder governance journey and we have suggested some of the steps companies should consider taking on such a journey.”
In addition to the examples above, the white paper provides a stakeholder governance framework centred around four key areas of four key areas of leadership focus. These are:
Purpose is returning centre stage as an enabler for long-term sustainable value creation for corporate success.
Boards should ensure their companies have a clear and well understood purpose, informed by their key stakeholders’ expectations, and regularly use this purpose as a guide in their strategic decision-making.
Corporate leaders should ensure their company’s strategy is robust and designed to deliver the company’s purpose.
This strategy needs to be flexible to take account of changing stakeholder considerations. Periodic ESG risk and opportunity assessments are a tool that leaders can use to ensure they are pursuing an appropriate strategy in light of changing externalities and stakeholder feedback.
A company’s culture and values are important in ensuring decisions and daily business practices appropriately reflect their stated purpose.
Effective governance, which regularly addresses stakeholder input, is critical for running a sustainable, resilient business.
Board composition, diversity and inclusion are important factors in ensuring boardrooms are equipped with the skills needed adequately understand and consider the needs of their stakeholders.
Along with input from the Forum’s Community of Chairpersons, the whitepaper is based on interviews with senior leaders at bp, the Cambridge University Institute for Sustainability Leadership, Fidelity International and Ørsted.
Digitalization crucial to SIDs’ COVID-19 recovery, long-term development
The upscaling of digital technologies presents a host of opportunities for small island developing states (SIDS) to diversify their economies, boost manufacturing, gain greater access to global value chains, and improve disaster preparedness. However, significant obstacles remain, including inadequate digital infrastructure, insufficient training opportunities for women and young people, a growing digital divide, and a lack of data and policy knowledge. That’s according to an expert panel convened for the Global Manufacturing and Industrialisation Summit’s Digital Series on the topic: “How Information and Communication Technologies can foster inclusive and sustainable industrial development in Small Island Developing States”.
Ralf Bredel, Chief of the Asia-Pacific Regional Programme at the United Nations Industrial Development Organization (UNIDO), said that SIDS share common challenges such as limited resource bases, long distances to primary markets, and vulnerability to climate change.
“ICT has the potential to help SIDS in overcoming some of the challenges derived from the isolation and remoteness. It can support trade in economic diversification. This is even more true under the current circumstances, with COVID-19 and the restrictions on people’s movements and the heavy blow to SIDS’ economies in relation to their continued reliance on tourism,” said Bredel.
Vanessa Gray, Head of the Division for Least Developed Countries (LDCs), Small Island Developing States (SIDS) and Emergency Telecommunications at the International Telecommunication Union (ITU), added, “We know that small islands are naturally prone to disasters caused by earthquakes and severe weather events and are being affected by climate change, resulting in increased tropical cyclones, hurricanes, flood and landslides, to name a few. Connectivity can help address these events by providing remote communities with access to early warning systems, real-time weather information, remote sensing and geographic information systems.”
Gary Jackson, Executive Director of the Caribbean Centre for Renewable Energy and Energy Efficiency (CCREEE), said that countries in the region are “pushing the envelope” towards energy efficiency.
“We have to recognize that islands don’t have what we call a supergrid, don’t have a lot of interconnections that would give us reliability and availability and that’s what people really want,” said Jackson. “So one of the things we have to consider is how we move towards decentralization, decarbonization and some of the things that we need to do to ensure that reliability, availability and affordability are consistent with what people require.”
Michelle Marius, Publisher of the ICT Pulse blog highlighted a continuing gender gap concerning digital employment. “We do have so many girls and women in the workforce. Many of them, sometimes even in management positions in reputable organisations, but somehow we still have not been able to crack that barrier between women in tech and digital entrepreneurship by women” she noted.
Amjad Umar, Director and Professor of ISEM (Information Systems Engineering and Management) programme at Harrisburg University of Science and Technology, said, “We know that, in many cases, SIDS do not have 3G technologies – they are still at 2G range. So, we specifically designed this plan (for the ICT4SIDS Partnership) that produces solutions that would work with very, very low technologies…”
“Digitalization consists of people, processes and technologies,” underlined Umar.
Concluding, moderator Martin Lugmayr, Sustainable Energy Expert at UNIDO, stressed that there is a long way to go towards realizing inclusive and sustainable industrial development in SIDS, particularly in light of current circumstances. “COVID-19 recovery must have a long-term perspective. Iit has to be green, it has to be blue in the case of Small Island Developing States, and it has to be digital,” he said.
Fewer protections, lower wages, and higher health risks: Homeworking in the COVID era
The UN’s labour agency (ILO) called on Wednesday for greater recognition and protection for the hundreds of millions of people who work from home, accounting for almost eight per cent of the global workforce even before the COVID-19 pandemic.
Since movement restrictions linked to the global spread of the virus were implement in many countries, the number of people working from home has increased sharply, and that trend is expected to continue in coming years, despite the rollout of vaccines that began in late 2020.
Drop in wages in rich and poor countries
According to a new ILO report, many of these “invisible” workers experience poor working conditions, face greater health and safety risks, and lack access to training, which can affect their career prospects. They are also likely to earn less than their counterparts who work outside the home, even in higher-skilled professions.
“Homeworkers earn on average 13 per cent less in the United Kingdom; 22 per cent less in the United States; 25 per cent less in South Africa; and about 50 per cent in Argentina, India and Mexico”, ILO said in a news release on Wednesday.
The report, “Working from home. From invisibility to decent work”, also showed that homeworkers do not have the same level of social protection as other workers, and are less likely to be part of a trades union or to be covered by a collective bargaining agreement.
Homeworkers include teleworkers who work remotely on a continual basis, and a vast number of workers who are involved in the production of goods that cannot be automated, such as embroidery, handicrafts, and electronic assembly. A third category, digital platform workers, provide services, such as processing insurance claims, copy-editing, or cutting edge specializations such as data annotation for the training of artificial intelligence systems.
Growth likely to continue
According to ILO estimates, prior to COVID-19, there were approximately 260 million home-based workers globally, representing 7.9 per cent of global employment.
However, in the first few months of the pandemic, an estimated one-in-five workers found themselves working from home. Data for the whole of 2020, once available, is expected to show a “substantial increase” over the previous year, said the agency.
The ILO predicts that the growth of homeworking is likely to continue and take on greater importance in the coming years, bringing renewed urgency to the need to address the issues facing homeworkers and their employers.
At the same time, homeworking is often poorly regulated, with little compliance with existing laws, and homeworkers usually classified as independent contractors, which means that they are excluded from the scope of labour legislation. In response, ILO outlined clear recommendations to make working from home “more visible and thus better protected”.
Industrial homeworkers should be made part of the formal economy, given legal and social protection, and made aware of their rights, ILO urged. Similarly, teleworkers should have a “right to disconnect”, to ensure the boundaries between working life and private life are respected.
The report also urges governments to work closely with workers’ and employers’ organizations, to ensure that all homeworkers move from invisibility to decent work, “whether they are weaving rattan in Indonesia, making shea butter in Ghana, tagging photos in Egypt, sewing masks in Uruguay, or teleworking in France”.
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