Tax Havens for the Super Wealthy

Written by: Lee Sherman

If you’re among the super-wealthy, you may be looking for a place to stash your cash so that you can avoid paying taxes.

Most so-called “tax havens” are idyllic island nations with beautiful scenery, quiet beaches, and  little in the way of local economic activity or rules and regulations. The British Virgin Islands, Samoa, the Cayman Islands, Andorra, the Bahamas, Belize, Bermuda, the Cook Islands, The Isle of Man, Mauritius,, Panama, St. Kitts, Nevis, and Malta are among the countries that allow you to hold your money in a shell company and pay little or no tax.

Switzerland, a snowy, mountainous place, is known for its private banking services that allow money to be kept safely, securely and discreetly. Huge sums of money can be parked in a Swiss bank account, often with no questions asked about where the money came from. That has led to a perception that there is something nefarious about Swiss bank accounts but that perception isn’t always reality. While they certainly can and have been used for activities such as money laundering, their real appeal lies elsewhere. In fact, many wealthy people would simply prefer not to have their finances made public.

In part due to the lack of local activity, these countries rely largely on foreign investment for government revenue, hence the tax incentives offered. They are able to attract a considerable amount of capital, especially from countries with high tax rates such as the US. Besides low rates, there are also many tax loopholes that US investors can take advantage of. There is little regulation of these activities by the local authorities.

Tax havens, which are also called offshore financial centers (OFCs) can be found in remote locations that are not under the jurisdiction of the US tax code, making them particularly attractive to US investors. That said, there’s no escaping the taxman completely. All income earned by US citizens is subject to taxation. You will be required to report any foreign income  when investments exceed $50,000 under the Foreign Account Tax Compliance Act (FACTA). You’ll need to file a Schedule B and/or Form 8938 and you may also be required to file Form 114. Your tax advisor can help you make sure that you’ve met the requirements for reporting.

A large part of the appeal of tax havens comes from the fact that they operate just outside of global banking regulations but there are still regulatory bodies that monitor them, including the Organization of Economic Cooperation and Development (OECD) and the US Government Accountability Office.

In the  60s and 70s, many British rockstars including Rod Stewart, Ringo Starr, and David Bowie left their country to avoid the onerous taxes at the time (95% income tax!). The Rolling Stones recorded one of their most classic albums, Exile on Main Street, in a French Chateau and the Beatles’ George Harrison gave us “Taxman”. While leaving the country was once seen as an anti-establishment move, it has now become mainstream. It’s hard to know how much money the government lost but the value of the music remains priceless.

Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.

Related: Direct Indexing: The Best of Both Worlds?