Often, when we hear the term “tax haven”, the first things that come to mind are shady or questionable jurisdictions that impose very low or zero tax rates either on income or other significant revenue-generating components of the economy.
There is no formal definition of the term anywhere, even though international organisations such as the OECD use certain markers for non-transparent or non-cooperative countries in relation to tax matters and the facilitation of tax evasion.
A tax haven typically has a tax structure designed to attract companies and individuals from higher-tax jurisdictions to avoid paying taxes in their home countries. Another feature of such tax havens is that the individual’s or the company’s substantive local presence in that jurisdiction is not required.
Some have the mistaken impression that Singapore has replaced Switzerland as tax haven, which is wholly untrue. The Singapore banking and finance industry is highly-developed and facilitates a large amount of wealth management activities with standards of regulation and compliance practiced at an internationally-lauded level.
For example, there are some who opine that Singapore is on some kind of ‘list’ of countries like the U.S. because there is a great deal of discussion and engagement on these matters between the governments of the two countries. The reality is, there are many real American investors, entrepreneurs and businesses that come to Singapore to do business, form a Singapore company or generate large profits. Therefore, it makes sense that the IRS attempts to engage the Singapore government in their FACTA activities.
The fact is, however, Fair and Accurate Credit Transactions Act (FACTA) is a US federal tax policy that applies across the board and to all countries where there are Americans, that the Obama administration introduced to increase the efficiency of the US government in improving tax compliance of Americans with regards to their foreign financial assets internationally.
Besides, the singapore tax system aims to attract substantive economic activities by keeping the tax burden on enterprises and individuals as low as possible. Businesses are taxed at 17% and the individual income tax rate is progressive up to 20%. Such a tax system is designed to boost a diversified, knowledge-based economy, spanning a wide range of economic sectors and not a means for wealthy individuals to merely park their money inactively in Singapore so as to avoid taxes back in their home countries.
Furthermore, Singapore strictly does not allow the abuse of its financial system to facilitate tax evasion and/or other crimes such as money laundering or the financing of terrorism. As an international financial centre, Singapore has an internationally-acknowledged reputation for being highly vigilant against illicit funds that could threaten its integrity, and cooperates extensively with international partners and authorities eg. the Interpol, to deter and prevent such criminal abuse.
Singapore also endorses and implements the internationally agreed Standard for Exchange of Information (the EOI Standard) for tax purposes in its tax treaties. The level of tax cooperation that Singapore renders to its tax treaty partners is fully in line with global standards.
Additionally, Singapore’s financial sector is characterised by high standards of financial regulation and supervision by the authorities, and it is not through low taxes per se. Singapore’s banking and financial system is open and transparent, and rules are rigorously enforced. Investors choose Singapore as the place in which to manage their wealth because of the country’s economic and political stability, sound regulations, respect for rule of law, and the availability of fund management expertise.
While Singapore privacy laws provide bank customers the right to confidentiality of information, banking confidentiality has never prevented the Singapore authorities from providing information to assist domestic or foreign authorities in bonafide investigations of potential criminal activities.
Countries That Are Actual Tax Havens
According to CNBC’s “Countries with Zero Income Taxes”, the following are the top countries that are actual tax havens in terms of them not having any income taxes.
United Arab Emirates
The United Arab Emirates has one of the world’s highest per-capita incomes of US$48,200, and has no personal income or capital gains taxes.
The country is the third-biggest exporter of crude oil globally, is therefore dependent on oil companies that pay up to 55% in corporate taxes.
Statistically, oil revenue accounted for 80% of consolidated government income in 2010, whereas income from other taxes, fees and customs duties made up less than 12%.
Expatriates who work in the UAE do not have to pay for any social security contributions, but citizens make monthly contributions of 5% of their total earnings for such purposes and their employers, 12.5% of that citizen employee’s base salary.
Other indirect taxes include housing fees, road tolls and municipal taxes. A 50% tax on alcohol is also charged, and if a person with a liquor license buys alcohol to drink at home, an additional 30% tax is charged.
According to Forbes, Qatar is one of the world’s richest country this year with GDP per capita of more than $88,000,
As a gas-rich nation, Qatar relies on its natural gas reserves — which are the world’s third largest — for revenue and has invested heavily in infrastructure to liquefy and export the commodity. As such, it levies no taxes on personal incomes, dividends, royalties, profits, capital gains and property. However, citizens will have to pay 5% of their income for social security benefits, while employers contribute 10%.
Recently, it was reported that the government was considering a VAT in an attempt to broaden its revenue base and reduce its deficit last year. Other indirect taxes include a 5% charge on imported goods.
Oman, like its neighboring Middle Eastern countries, derives the majority of its revenue from crude oil. Its oil revenues in April increased 35% to $8.49 billion compared to the previous year and accounted for over 71% of its total revenue.
The country imposes neither individual income nor capital gains taxes, but citizens must contribute 6.5% of their monthly salary for social security. A stamp duty of 3% is also charged on the purchase of property.
However, unemployment (of citizens) is high and income disparity is a much-debated issue.
As the world’s sixth-largest oil exporter and one of the wealthiest countries per capita, Kuwait’s oil revenue of $63.5 billion between last year accounted for 95% of total revenue in the period.
While there is no income tax in the country, Kuwaiti nationals must contribute 7.5% of their salary for social security benefits; their employers, an 11% contribution.
However, Kuwait is constantly exposed to political turmoil, ushering in four new parliaments in the past 6 years.
For various reasons, the IMF has recommended that Kuwait introduce a value-added tax and comprehensive income tax system.
Well known as an offshore financial center, the Cayman Islands are a big draw for the wealthy with its zero personal income and capital gains taxes and because it has no mandatory social security contributions.
Employers, however, are required to provide a pension plan for all workers, including expatriates. While there is no value added tax or government sales tax, the country does have some indirect taxes such as import duties, which can range up to 25%.
A high standard of living in the Caymans also means high property prices, that are among the highest around.
Despite its oil wealth, Bahrain had a budget deficit of $83 million in 2011 and is considering issuing an international bond. Bahrain relies on output from the Abu Safa oilfield, which is shared with Saudi Arabia, for about 70% of its budget revenue.
In terns of social security, citizens contribute 7% of their total income, while expatriates pay 1%. Likewise, employers contribute 12% of a citizen’s salary and 3% for expatriate employees.
Other indirect taxes include a stamp duty of up to 3% of the value of the property on real estate transfers. Expatriates also have to pay a 10% municipal tax for rent on residences.
The country has also been in turmoil from pro-democracy protests against the government.
Considered one of the world’s most affluent countries, Bermuda also has among the world’s highest cost of living.
While there is no income tax, there are other variations like a 16% payroll tax and payments for social security insurance. Other taxes include property tax of up to 19% and a stamp duty also applies to inheritance/estates from 5% to 20% depending on the property value.
Custom duties on imported goods are a major source of revenue for the government, and individuals relocating to Bermuda are charged 25% tax for goods they bring. Given its relatively low taxes, the country is a big draw for international firms, and more than 20% of its population is foreign-born.
Among the wealthiest of Caribbean countries, the Bahamas is an economy heavily dependent on tourism and offshore banking from entities that mostly have a presence there only for tax benefit purposes.
About 70% of revenue comes from duties on imported goods. Although there is no personal income tax, employees have to contribute 3.9% of their salary for a form of social security called National Insurance while their employers also have to contribute 5.9%. Self-employed individuals are charged 8.8%. The country also has a property tax of up to 1%.