          
          
          
          
                           THE USE OF TAX HAVENS
          
               Tax havens are one of the most important subjects
          for an international entrepreneur or investor, 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.
               Called a paradis fiscal by the French, a rifugio
          fiscal by the Italians, and a Steureroase by the
          Germans, it obviously means a place where the fiscal
          grass is greener than in your own particular backyard. 
          But an effective tax haven is not determined simply by
          geography; it all depends on what particular asset or
          transaction you are trying to defend from the tax
          collector.
               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 by Adam Starchild, from:
                   Scope International Ltd. 
                   Box A5215, Forestside House
                   Forestside, Rowlands Castle,
                   Hants., PO9 6EE, Great Britain.  
               The price is $125, including airmail postage 
          worldwide, ($100 if you want it by slower surface mail) 
          and they accept Visa or MasterCard.  A free catalog is
          available on request.
               Another source of information is Eden Press, which
          publishes a series of special reports on different
          havens and techniques by which Americans can use them. 
          You can obtain their catalog free by writing to them at
          P. O. Box 8410, Fountain Valley CA 92728.
               If you want to gain a good understanding of how
          the government views tax havens, University Microfilms
          International, through its Books On Demand program, is
          now making available Tax Havens and Their Uses by
          United States Taxpayers by Richard Gordon.  Frequently
          referred to as "The Gordon Report," this was a 1981
          U.S. Treasury Department study prepared at the request
          of Congress.  It gives considerable detail and examples
          of the uses of tax havens.  It is available from
          University Microfilms for $67.30 softbound, or $73.30
          hardbound.  Out of print for over a decade, anyone
          interested in tax havens who has not studied the work
          will find much still useful information in it.  Copies
          can be ordered through booksellers, or directly from
          University Microfilms International, 300 North Zeeb
          Road, Ann Arbor, Michigan 48106-1346; telephone 800-
          521-0600 or 313-761-4700.  The UMI catalog number of
          the book is AU00435, and UMI accepts 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, which
          will give you more money for your tax-free Swiss
          investments.
          
          
          
