          
          
          
                             The Use of Tax Havens
          
               Tax havens are one of the most important subjects
          for an international entrepreneur, yet few understand
          and use them properly.  One group discount them as
          hiding holes for dirty money, which is not a legitimate
          use for tax havens. Others think they are only for
          banking money after you have made it.  Not true either.
          Money grows much faster if a tax haven is part of your
          business planning, and almost any international
          business has an opportunity to use tax havens.  It is
          the purely domestic business, confined to one country,
          that cannot benefit from the international fiscal
          loopholes.  Switzerland is a major financial center,
          but not generally a tax haven.
               Simply stated, a tax haven is any country whose
          laws, regulations, traditions, and, in some cases,
          treaty arrangements make it possible for one to reduce
          his overall tax burden.  This general definition,
          however, covers many types of tax havens, and it is
          important that you understand their differences.
          
          No-Tax Havens.  These are countries that have no
          income, capital gains, or wealth (capital) taxes, and
          in which you can incorporate and/or form a trust.  The
          governments of these countries do earn some revenue
          from corporations; "no-tax" means that what you pay is
          independent of income derived through a company.  These
          states may impose small fees on documents of
          incorporation, a small charge on the value of corporate
          shares, annual registration fees, etc.  Primary
          examples are Bermuda, Bahamas, and the Cayman Islands.
          
          No-Tax-on-Foreign-Income Havens.  These countries do
          impose income taxes, both on individuals and
          corporations, but only on locally derived income.  They
          exempt from tax any income earned from foreign  sources
          that involve no local business activities apart from
          simple "housekeeping" matters.  For example, in such a
          haven there is often no tax on income derived from
          export of local manufactured goods.
          
          The no-tax-on-foreign-income havens break down into two
          groups.  There are those that allow a corporation to do
          business both internally and externally, taxing only
          the income coming from internal sources, and those that
          require a company to decide at the time of
          incorporation whether it will be one allowed to do
          local business, with the consequent tax liabilities, or
          one permitted to do only foreign business and thus be
          exempt from taxation.  Primary examples in these two
          sub-categories are Panama, Liberia, Jersey, Guernsey,
          Isle of Man and Gibraltar.
          
          Low-Tax Havens.  These are countries that impose some
          taxes on all corporate income, wherever earned.
          However, most have double-taxation agreements many the
          high-tax countries that may reduce the withholding tax
          imposed on income derived from the high-tax countries
          by local corporations.  Cyprus is a primary example.
          The British Virgin Islands is another, but no longer
          has a tax treaty with the U.S.
          
          Special Tax Havens.  These are countries that impose
          all or most of the usual taxes, but either allow
          special concessions to special types of companies (such
          as a total exemption from tax on  shipping companies,
          or movie production companies) or allow very special
          types of corporate organization, such as the very
          flexible corporate arrangements offered by
          Liechtenstein.  The Netherlands and Austria are
          particularly good examples of this.
          
          To understand the precise role of tax havens, it is
          important for you to distinguish two basic sorts of
          income:  (1) return on labor and (2) return on capital.
          The first kind of return is what you get from your
          work:  salary, wages, fees for professional services,
          and the like.  The second kind of return relates,
          basically, to the return from your investments:
          dividends on shares of stock; interest on bank
          deposits, loans and bonds; rental income; royalties on
          patents. It is the second kind of income, income from
          an investment portfolio, that tax havens are useful
          for.  Forming a corporation or trust in a tax haven can
          make the second form of income totally tax free, or
          taxed so low that you will hardly notice. Certain types
          of businesses can be effectively based in a tax haven.
          If you publish a newsletter, for example, you might be
          able to set up the entire operation in a totally tax
          free country such as the Bahamas or the Cayman Islands.
          If your income comes from copyright royalties, perhaps
          on the computer program you invented, the Netherlands
          is famed as a base for sheltering royalty income.
          
               Tax havens are a very complex subject, but the
          hours you spend studying their use will probably pay
          you more per hour than the hours you spend directly
          earning an income -- an unfortunate commentary on the
          confiscatory taxation policies of most governments.
          
               For the best detailed information on tax havens,
          order The Tax Haven Report from Scope International
          Ltd., 62 Murray Road, Waterlooville,  Hants., PO8 9JL,
          United Kingdom.  Price is approximately US$135,
          including airmail postage worldwide, and they accept
          Visa or MasterCard.
          
               Just stop and think for a moment how much faster
          your money can grow if you are not paying out an
          average of 40% to a taxing government somewhere.
          
          
