What are Tax Havens and How Do They Work?

Rate this post Surely you have heard of tax havens, those where they say that those who flee from taxes and the law go. Yes, they are super common, in the notes of politicians and famous people who identify with millions of pesos, dollars (call the currency that is) badly had. Yes, it is clear to us that there are many of these characters and their millions, but what exactly are tax havens? Let’s find out!

What are tax havens?

They are called tax havens territories whose tax systems favor their non-residents, both natural persons and legal entities in very particular ways and are characterized by:

  • Offer protection of banking and commercial secrecy to both individuals and businesses
  • They do not have norms for controlling capital movements (origin or destination). This allows money laundering and capital recycling.
  • They have a system that allows the coexistence of a tax regime for nationals and another for foreigners
  • Not having or being scarce agreements with other countries in tax matters
  • They have a legal, accounting and fiscal infrastructure that allows freedom of movement of people and goods

It should be noted that, unlike the conditions of the countries that regulate the transparency of the income of the inhabitants, as in Mexico through the Tax Declaration, there are innumerable tax advantages received by companies or citizens domiciled there. We can list the partial or total exemption of the payment of taxes, or also offer laws or regulations that do not allow the exchange of information for tax purposes with other countries.

How does a tax haven operate?

This type of company offers companies, therefore, an alternative way of financing, which has led many multinationals to consolidate their habit of establishing their service subsidiaries in low tax territories. 

For many people, tax havens offer the safest path to their tax planning strategies. There they can deposit their money without the treasury of their country of origin can touch it or even have access to their accounts.

The legality of tax havens

The legality of tax havens is a widely discussed issue, although it is true that each country is free and in its sovereignty lies the right to allow such transactions and custodians of money and property without investigating the origin of them, it is well known that many of those belongings do not come from lawful acts, hence the great debate.