Today we are going to delve into the controversial world of tax havens.
Tax havens are one of the most controversial and criticized topics in the field of tax planning.
As Tax Nomads, we are accused of “escaping to tax havens” and are seen (by some) as individuals who are doing something wrong, illegal, or at least suspicious…
In this article, we will unravel the truth behind tax havens and how they have been misunderstood by many people.
What are tax havens?
Before addressing misconceptions and criticisms, it’s essential to understand what is meant by “tax haven.”
Each country and organization has its own criteria for what constitutes a tax haven. For instance, countries like Ireland may not appear on Spain’s list of tax havens but could be flagged as such by organizations like Oxfam.
Moreover, the famous European Union list of tax havens (EU Blacklist) fluctuates and may not always align with the lists of individual member states.
In general terms, there are three common characteristics of what is considered a tax haven:
- Low tax rates
- High legal security on assets
- Resistance to international regulations and pressures (often related to information exchange)
What is considered a tax haven today may not be one tomorrow.
The perception of a country as a tax haven can change over time and largely depends on who is evaluating it and in what context.
For example, a country that was considered a tax haven in the past may cease to be due to changes in its tax policy or because it starts sharing banking information.
This dynamic is particularly relevant for those involved in international tax planning, as a country’s status can change drastically, influencing the decisions made.
Countries considered tax havens
The reason why some countries are labeled as tax havens is largely a matter of tax competition.
In a world where taxes seem to be constantly rising, some countries choose to maintain low or zero tax rates to attract investments and individuals.
There are also nations where principles of freedom and private property are highly valued over the egalitarian/statist principles that are widespread (such as social democracy, welfare state, socialism), and where it is unacceptable to conform to the demands of countries committed to continually raising their taxes.
This does not mean that these countries are “bad” or engaged in illegal activities; they are simply adopting a different tax strategy.
It is in this context that countries with higher tax burdens often join forces to criticize and exert pressure on those that do not wish to follow their dictates.
One of the main points we wish to address is the unjustified criticism towards those who choose to relocate their tax residence or establish businesses in countries considered tax havens.
This criticism largely stems from a lack of understanding of what this decision truly entails.
In fact, in 90% of cases, a Tax Nomad is NOT relocating to a tax haven, as the number of countries considered as such is decreasing.
However, there are countries like Cyprus that continue to be falsely perceived as “havens” despite having been removed from such lists years ago.
