Tax Havens: Advantages and Disadvantages
Generally speaking, tax havens are defined by multiple characteristics, and not just by whether or not the taxes in the respective country are low or inexistent. Bank secrecy, lack of transparency when it comes to the tax system, ineffective exchange of information with other countries, bypassing financial regulations, laundering money and even hiding from the criminal law – these are the main traits that would characterize a so-called tax haven.
For an outsider who has nothing to do with the business world, tax havens sound like a very bad thing. However, some of the most developed countries in the world are very often categorized as tax havens. Switzerland, Luxembourg, Monaco, the British Virgin Islands and even states in America (such as Nevada and Delaware) – these are just some of the places out there that are generally considered to fall into this category.
Tax havens can be both beneficial and incredibly disadvantageous for a country. On the one hand, being a tax haven incorporation country means that you will constantly attract foreign investors and entrepreneurs, which essentially builds on your economy. Furthermore, arguments such as protecting human rights have been brought on the side of the tax havens and the fact that these places can actually help controlling the political elites is also frequently brought into discussion.
On the other hand though, tax havens can burden the average citizens of that country. When businesses do not have to pay taxes (or if they have to pay just very low taxes), the remaining financial burden is carried by the citizens. Furthermore, in certain cases, local businesses can be affected by the fact that the government only gives advantages to the foreign entrepreneurs and their businesses. Last, but definitely not least, some of the so-called tax havens can actually be a Heaven on Earth not only for honest entrepreneurs with legit businesses, but also for true money laundering machines that deal with criminal activities (such as drugs, prostitution and so on).
So, is Singapore a Tax Haven in the End?
As mentioned in the beginning, the answer to this question is rather complex. On the one hand Singapore can actually be considered to be a tax haven because the government and the laws to give benefits to foreign entrepreneurs and businesses.
However, the more recent laws have become stricter when it comes to taxes and financial secrecy and there are serious endeavors of making the entire banking system more transparent. That means that, under certain circumstances (related to criminal activities), banks are obliged to provide secret information about their clients (which consequently means that they cannot “hide” behind bank secrecy any longer).
Even more, Singapore has signed double taxation treaties with other countries as well. Thus, companies that are incorporated both in Singapore and in another country out there cannot “dodge” the system and they will have to pay the taxes according to the law.
If you want to look at the issue from another point of view as well, you should think of the fact that there are multiple advantages to incorporating a business in Singapore and not avoiding taxes. There is a limit of 5 tax payments, corporations only have to pay a 17% tax on their revenue (and the profit is split among the shareholders without having to be taxes as well) and tax payments can be made online. If you add that to the fact that the government is constantly trying to avoid situations where criminals can get away (such as by passing laws such as those described above), you can actually consider Singapore to be on the path of becoming one of the most well-balanced economic environments in the world.