Offshore Tax Shelter

An offshore tax shelter does just what its name suggests – provide a shelter from taxes by providing very low or no taxes on certain legal entities, transactions and services. Offshore tax shelters are countries where foreign nationals are capable of opening bank accounts, registering offshore companies, like Panama companies, or establishing trusts, corporations, limited liability companies, mutual and hedge funds.

The way in technological progress in technology especially internet and telecommunications has rapidly spread to virtually every corner of the world, made it possible for any economically capable country to convert itself into an offshore tax shelter.

The flight of many corporations to offshore tax shelters is often viewed as a direct result of a combination of factors. Based on tax exemptions that are granted to offshore banks and international business companies, corporations and entrepreneurs from around the world are able to source business and wealth offshore. In most instances, domestic taxes were either too elevated, strict and suppressive corporate laws were passed and businesses felt over weighted with unattractive and burdensome laws and taxes. The growth of offshore tax shelters was also spiraled by other factors such as lower operation costs and cheaper labor forces that were equally as well trained and educated in certain fields.

The existence and nature of offshore tax shelters helped in shifting global wealth from wealthy to poorer and developing nations, to which large sums capital investments were being made and contributed to infrastructural development and job creation. In the need to reduce elevated taxes, the registration of offshore corporations became a major source of revenue for many offshore tax shelters through incorporation and annual renewal and maintenance fees.

The impact of offshore tax shelters on the world economy, history and politics lead to the formation of international agencies such as the Financial Action Task Force (FATF) and Organisation for Economic Cooperation and Development, which saw the need to monitor and establish a form of control of both financial and legislative activities in offshore tax shelters. Members of the OECD acted in reaction to the reduced tax bases, which directly was translated into less revenue generated from taxes. The FATF, on the other hand, was concerned with the unprecedented transfer of funds that took place worldwide and sought means of clamping down and eliminating the transfer of funds that were deemed as having been acquired from suspicious sources. By implementing a number of measures that were geared at cleaning up the international offshore sector, offshore tax shelters were required to adhere to new policies and international financial regulations that sought to eliminate the exploitation of offshore financial services for illicit activities and establish uniformity in international tax laws.

Nevertheless, offshore tax havens have successfully revised their offshore legislations and built stronger offshore services by establishing frameworks that allow for the formation of offshore structures that enhance the possibility of asset and wealth protection and accumulating wealth. Offshore tax havens also serve as a haven for residents of countries where the right to seize savings, wealth and dictate succession and inheritance of assets by undemocratic dictatorial governments.

Offshore banking in tax shelters plays an important part in international business. Properly regulated and established offshore banks provide a platform for international trade and investments, as well as personal transactions when traveling or receiving or sending funds by wire. Offshore tax havens such as Bermuda, Bermuda, the Bahamas, Switzerland, Liechtenstein, Panama, the British Virgin Islands and the Cayman Islands have all made their names as established and premier offshore tax shelters. However, younger offshore tax shelters such as Belize, Dominica, Anguilla, St. Kitts and St. Vincent have over time made remarkable steps in building sound offshore financial services industries with sturdy legislative frameworks and regulations.

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