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Offshore banking, commonly known as underground economy is notorious for organized crime, tax evaders, and money laundering. These banks are frequently used as a tax haven. Many people who do not wish to pay their taxes and find places to hide their income without having to pay tax on it, invest in such offshore banks. Tax haven is when people invest in foreign banks where they have to pay a considerably less amount of tax compared to their own country. Many times the tax is not even charged. Wealthy individuals and businesses often take advantage of this. The good part of this is that parts of the world who might not have enjoyed a very strong economic growth are helped by businesses establishing themselves in their countries. Different countries work in different ways regarding jurisdiction of taxes.There are different laws for different businesses and individual accounts. It is wise to check this before starting accounts and establishing businesses. These days all countries impose or demand taxes from residents earning within the country. Thus traders and businessmen, first check various laws of different countries, to see which one will benefit them the most and where they will have to pay the least amount as tax, before starting their industry. Many traders even choose countries where they can legally set up offshore companies, offshore foundations and offshore trusts. They later transfer their assets to their new companies or trusts. Hence they do not pay income tax in countries where they are residents of. USA has a creditable method of ensuring that citizens do not have a chance to evade taxes; by taxing them on both their domestic and international incomes. This has prompted some people to give up their US citizenship to avail of greener pastures in foreign lands. US tax laws however exempt a citizen to up to USD 80,000 of their salary and household costs if they are residing abroad. Some of these kinds of incomes are siphoned away from taxes. US citizens can also establish offshore foundations and trusts, which in turn can be operated as tax havens. There are many advantages for countries to set up tax havens. It is not compulsory for countries to charge as much tax as other industrialized countries. Many countries offer tax exemptions and tax incentives to companies and traders to set up their business in their country, so that they recruit local people which will solve the problem of unemployment. This helps to enhance the country's economy. New businesses increase the standard of living and help the locals to learn new skills. Thus these countries are no more in competition with large developed countries. Many are against these tax havens declaring them to encourage people to evade taxes in their own counties. They also feel that money laundering can be more widely practiced. This is not necessarily so as these tax havens do cut down on the black markets and sometimes have tougher laws for laundering money. Not all tax havens are completely tax-free and some do charge taxes on income and assets. Different countries will vary in the laws and regulations. It is wise to look into this carefully when considering using a tax haven. In this way you will find a tax haven that is right for your needs.
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Peter Waterhaze is the chief editor for F offshore, a fantastic resource for information about offshore. For questions or comments about this article why not visit: www.fyioffshore.com/articles Get a unique version of this article from our offshore article directory
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