The definition of an offshore tax haven is a country other than the one in which you reside or do business that levies taxation at a lower rate than the country in which you reside or do business.
There are many offshore tax havens in the world that offer various and varying degrees of taxation related incentives to individuals who wish to bank or incorporate or establish their business within the country in question. The general reasons why some countries choose to become havens are discussed in this article as is the moral question about whether offshore tax havens are in fact depriving the world of money required for development.
There are well in excess of fifty low tax/no tax havens in the world today and the number of countries who offer taxation incentives to those who bring money or employment to their nation has increased substantially in the last thirty years. As the demand for tax havens has increased so has the number of nations who recognise the benefits that setting themselves up as an offshore centre can bring.
The reasons different nations chose the offshore path are diverse. Certain smaller islands and nations have low national budgetary requirements and require far less financial throughput in their economy therefore they can afford to become offshore tax havens by not charging income tax for example and instead welcome a regular supply of money from those who pay to incorporate their companies in such an offshore centre.
Other countries may use low tax incentives to attract large companies to their country which bring employment and skills and such countries seek to ultimately encourage investment and commercial development. A final group of counties are unable to compete with the industrialised world in terms of exporting, manufacturing, the service industry or even agriculture and so they establish their status as an offshore tax haven as the only viable means possible to attract much needed investment.
The Tax Justice Network, which consists of taxation experts and economists and which was established in 2003, has begun vociferously raising the question about the overall morality of the use of offshore tax havens as a means to shelter money, some of which would otherwise be channelled into developing the nations from which the money was derived or even being channelled overseas into poorer nations in need of international aid.
Certain facts speak for themselves, according to figures collated by the Economist a few years ago for example the amount of money siphoned offshore by leaders of African nations was in excess of twenty billion dollars, at the time that was twice the amount that sub-Saharan African nations spent on servicing their debts. Some argue that allowing legitimate tax avoidance ultimately results in illegal tax evasion which leads to money laundering and other criminal activities which are damaging for the whole world…but while politicians, major international conglomerates and high profile, high net worth individuals continue to make use of offshore tax havens and the act of placing money or assets offshore continues to be legal it is unlikely that a crackdown on the world’s offshore centres is imminent.
