Different categories of tax havens are as below:
- No-tax havens
Certain countries does not require companies to pay taxes at all. These are commonly known as no-tax havens.
- Only income that derived locally is being taxed
On the other hand, there are countries that only tax income that derived locally i.e., any income from local operations.
- Tax treaties
Another category of tax haven is countries that have signed tax treaties with other countries. In this way, investors do not get taxed twice for the same income.
- Special privileges to foreign companies that incorporated in the nation
There are also tax havens that offer special privileges to companies incorporated in their country.
- Offer better benefits to international business
You would also be able to find tax havens that offer better benefits to international businesses while others pose advantages to individuals.
The key is to find a tax haven that is most suitable for your business operations and which offers favorable jurisdiction. Tax havens generally follow the rule of favorable jurisdiction. Any large corporation will be able to tell you the difficulties in setting up businesses and operating from countries with a prominent level of bureaucracy and legal obligations. Thus, you would want to operate from a country that can give you favorable jurisdiction.
When making such a comparison, you would look at it from these few criteria: an economically stable country which is neutral politically, adopt a free trade policy, ability to offer privacy to corporations based there, and ease of which each business can conduct their operational activities. These are the main factors you would want to investigate before thinking of setting up an offshore company. Of course, the fact is still that you do not need to be physically present when setting up an offshore company.
Countries such as Seychelles and Luxembourg allow you to set up businesses there through an agent. Other countries such as Cyprus and Cayman Islands allow you to open bank accounts the same way. You do not even need to step foot in the offshore office if you do not want to. Thus, it is even more important that you select a tax haven that will give you the flexibility to operate a business without having to be there all the time.
For an in-depth description of offshore companies and tax havens, click here.