Offshore tax havens: What countries in the world could be counted?

The media and public often portray jurisdictions with low rates of taxes as tax havens, and this is mainly directed at countries such as the British Virgin Islands, Seychelles, the Cayman Islands, etc. In some cases even high profile jurisdictions with strict tax regulations are portrayed as tax havens due to the tax incentives they offer to taxpayers in selected circumstances. Therefore, in some cases, it is important to form a clear understanding of what countries in the world are offshore tax havens?

Currently, the Organization of Economic Cooperation and Development (OECD) evaluates four separate factors to determine whether a jurisdiction should be classified as a tax haven, consisting of:

  • Whether the jurisdiction imposes no taxes or only nominal rates of taxes.
  • Whether there is a lack of transparency.
  • Whether there are laws or administrative practices that prevent the effective exchange of information for tax purposes with other governments on taxpayers benefiting from the no or nominal taxation.
  • Whether there is an absence of a requirement that the activity be substantial.

The OECD recognizes that every jurisdiction has a right to determine what taxes it will impose, and international regulations maintain that levying low rates of direct taxes is not enough to classify a country a tax haven without it first meeting the other conditions listed above.

In summary, in order to determine whether a jurisdiction is a tax haven, one should consider the following factors:

  • Whether jurisdiction attempt to attract investments or international businesses which lack local substance and are driven only by tax purposes.
  • Whether a jurisdiction has the ability to comply with a request from a competent authority in another country for information regarding a specific tax inquiry.
  • Whether a jurisdiction applies its tax laws equally to all taxpayers.
  • Whether a jurisdiction consistently applies rules regarding statutory record keeping and taxation.
  • Whether a jurisdiction applies appropriate measures to protect the confidentiality and human rights of taxpayers.

Taking into consideration the factors above, since 2009, there OECD has not recognized any country as tax havens in its “List of Unco-operative Tax Havens” (black list). Strictly speaking, if one would like to address the question of “What countries in the world are offshore tax havens?” it should be noted that there are no more tax haven jurisdictions in the world at the moment. However, the current use of the terms “offshore company” or “tax haven” indicates the illegitimate practice of using overseas registered companies to evade taxes in your own country, and as such, each country has the potential to be seen as a tax haven in the eyes of the public and media.

April 24th, 2012