A tax haven is any state or country or a territory where either some of the taxes are imposed at lower rates or not at all. In these places they also have a system of financial secrecy. These places act as a heaven for millionaires and billionaires where they can easily transfer their funds and capital to any offshore accounts to avoid high tax payments. According to a study, these High Net Worth Individuals have hidden almost $21 trillion in these countries. It is assumed that the tax evaders have managed to evade $250 billion per year from governments of countries around the globe. It is not an easy task to list a group of countries into tax havens, as a result of which, in the year 2011 the Tax Justice Network came up with Financial Secrecy Index. FSI ranks the countries according to their level of secrecy and the scale of the activities involve. The list below is comprised of the top 10 tax havens in the world. These are those countries which allow the maximum financial secrecy, highest tax evasion and provide offshore accounts.
The only reason Japan could make up to this list is because Japan has highly efficient financial services industry. Japan has one of the best financial services industries in the world. Japan has a financial secrecy score of 61 out of 100 points. Japan offers low transparency in terms of financial services and information exchange. The offshore financial services of Japan accounts for almost 1 percent of total global share making it a small player. Japan has Financial Secrecy Index value (FSI value) of 513.1.
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With 75 secrecy points out of 100 and FSI value 591.7, Jersey stands at 9th position in the list of top ten tax havens. Jersey, the largest of the Channel Islands has its own self-governing parliamentary, financial, legal and judicial system. The island however, comes under the British crown dependency but is not part of the United Kingdom. Despite of its tiny size, Jersey accounts for around 1% of the global share of offshore financial activities. Jersey follows the culture of non-disclosure and financial secrecy. Having close association with UK and its proximity to Western Europe has made it ideal for people willing to evade tax in nearby region. Nearly, fifty percent of Jersey’s tax avoidance income comes from UK.
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Germany made its way in the lower mid-range of the secrecy score with 59 points out of 100. Germany has offshore market share of 4% which makes it a big player but not as big as other countries on the list like the USA and the UK. Germany has a financial secrecy index value of 738.3. The basic reason behind Germany being in this list is that Germany has a large financial centre i.e. Frankfurt- the largest financial centre in the Europe. Germany possesses a classic combination of medium level secrecy and a vast financial centre which has made it home for the large number of tax evaders from around the globe.
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With 79 secrecy points out of 100, Lebanon accounts for less than 1% of total offshore financial activities around the globe, leaving it a small time player in comparison to other tax havens. Lebanon has FSI value of 747.8 and has supremely tight secrecy laws. Lebanon offers high flexibility in tax exemptions to non-residents, along with exemptions in other legal and financial activities such as stamp duties, inheritance taxes, dividend distributions, corporate taxes etc. Lebanon got on the verge of becoming a tax haven quite early soon after the World War I.
Having the least secrecy score among all the countries in the list, USA has scored 58 secrecy points out of 100. USA, world’s largest economy, accounts for 22 percent of global market share in offshore financial services, making it a mammoth compared to other financial secrecy Jurisdictions. The country provides financial secrecy at both the levels- Federal level and individual US states level- to its non residents. US provide tax free treatment and various other amenities in forms of secrecy to non-resident individuals as well as corporations. The US states of Nevada, Wyoming and Delaware are the major contributing factors in US being a tax haven as these places provide various tax exemptions.
Singapore set itself in the quest of setting itself as a financial service hub soon after it got independence from Federation of Malaysia in 1965. At present Singapore accounts for 4.3 percent of total global share in offshore financial services. It is believed that Singapore would surpass Switzerland and would become world’s largest offshore wealth centre by 2020. Singapore has tight financial secrecy laws and has the secrecy score of 70 out of 100. Anyone can open account in Singapore without experiencing any difficulty and it is quite difficult to track the millions of transaction taking place in Singapore on a day to day basis.
4 Cayman Islands
Situated in the western part of Caribbean Sea, Cayman Islands is another British Territory to make up to this list. Cayman Islands is Tax haven for people willing to evade the taxes. Companies registered in Cayman Islands do not need to pay any personal income tax, corporate tax, capital gains etc. This small set of three Islands accounts for almost 4 percent of total offshore financial services of global market. The tight secrecy laws also safeguards companies from revealing their transaction and finances. The Cayman Islands has a secrecy score of 70 out of 100 and lies in the mid range on the secrecy scale.
3 Hong Kong
Being one of the fastest growing tax havens, Hong Kong stands at third position in our list, with the secrecy score of 72. Hong Kong is a special administrative region of China having its own currency, laws and political system. The offshore accounts registered in Hong Kong do not need to pay various taxes such as sales tax, payroll tax and capital gains, and hence it is tax haven for many people around the globe. The total offshore financial services from Hong Kong accounts for the 4 percent of global market share. Hong Kong is also known to be as “the freest economy in the world”.
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Luxembourg is the big fish in offshore financial services with 12 percent of global market share. The country attracts the large amounts of money through its low tax corporate structure and tight norms for secrecy. Luxembourg has a secrecy score of 67 out of 100 and FSI value of 1454.4 rendering it into second place on the list. The country also offers many of the offshore financial services like wealth management, asset management and others forms of financing activities.
Ranked at the first position, Switzerland tops the charts with 78 secrecy points out of 100. The country has a FSI value of 1765.2 and accounts for little less than 5 percent of total offshore activities on global level. The country has been favorite for decades to the tax evaders, so that they can secretly deposit their money without providing any clue to their local governments. The offshore accounts in Switzerland enjoy total or partial tax evasion depending on the banks.