Section 13

Types of Tax Havens

An example of a pure tax haven is the Bahamas having no taxes. The IRS identifies 29 countries as "tax havens," but it must be noted that all tax havens are not equal. Some are as attractive as the Bahamas, but others may have only certain aspects that are as advantageous.

Three types of tax havens are prevalent:

1. Zero or no tax havens.
2. Low tax havens.
3. Special circumstances.

The first has no taxes on personal or corporate income, estate, inheritance, capital gains, etc. The Bahamas are a good example.

The second has low taxes on some or all of the above mentioned sources of income or profit, with the exception of foreign sources, making it attractive to non-residents. Of these low-tax havens, some have treaties and exchange of information agreements with the U.S. and other industrialized nations.

The third may have high taxes, but select industries are granted certain exceptions to the rule.

There are many tax havens and not all are identified by the IRS. The major tax havens of the world follow: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Channel Islands, Cook Islands, Costa Rica, Cyprus, Gibraltar, Grenada, Hong Kong, Ireland, Isle of Man, Liechtenstein, Luxembourg, Madeira, Malta, Monaco, Montserrat, Nauru, Netherlands, Netherlands Antilles, Nevis, Panama, St. Vincent, Turks & Caicos, Vanuatu and Western Samoa.

There are other tax havens of a lesser extent. These marginal and incidental tax havens are: Andorra, Bahrain, Campione, Liberia, Malaysia, Palau, Seychelles, Singapore, Sri Lanka, Truk, and others are emerging.

Even this comprehensive list does not include all of them, and the rankings, status and stature among tax havens will change in time, making some more attractive than others.

Switzerland for decades has been viewed by people worldwide with great respect. The Swiss have remained politically neutral. They vehemently protect financial privacy and are regarded as a respectable tax haven, although this will change if they join the EC. This is one tax haven and offshore banking center that nearly every American has heard of and probably also has a fundamental idea of what it represents.

Switzerland groomed itself away from its former notorious image as a secret cache for frightened money, underworld profits and the greed of dictators. Swiss banking gradually grew respectable, shedding off the last traces of its origins, until recent disclosures of unethical practices during and after World War II.

But today, the famous little country nestled in the Alps is not a serious contender in the world of tax havens. There are finer tax havens to choose from. By joining the European Community they will voluntarily be choosing not to remain politically neutral. In 1992, the "numbered account" was abolished. The fact is, Switzerland wants only the world's most reputable and well-heeled customers.

As governments have become more assertive and people have become more fearful, more and more tax havens have surfaced, offering their wares in response to a rising demand for offshore banking. For the same good and bad reasons that built Swiss banking, so offshore banking is growing today. The more rich and powerful a tax haven becomes, the greater is their desire for respectability, and greater are outside pressures, which, as we know from Switzerland, leads to change.