Governments want you to pay taxes. You don’t want to pay too much taxes. This dichotomy is usually what sparks people and companies to take advantage of lower (or no) tax rates in certain jurisdictions.
Once people reach a certain asset level, they want to protect their finances any way they can. Richard Cayne of Meyer International suggests that there are ways to safeguard their assets without running afoul of tax regulations.
Havens in the spotlight
Using an entity or instrument created in a tax haven is an option that many corporations and high net worth individuals leverage to keep their tax liabilities in their home countries low. That may sound like a fancy way of avoiding paying taxes, and, in some cases, it is.
There are some countries like Bermuda, Switzerland, Guernsey, and the Cayman Islands that are famous for being a financial haven. From offering low tax rates to having stringent bank secrecy laws that prevent investigators from tracing transactions, many of these countries market themselves as “international finance centres” to encourage more investments. They profit from local tax revenue and their citizens can profit from the local businesses that are needed to support this industry.
However, over the past few years, stricter anti-money laundering laws and tax avoidance regulations being passed worldwide (led by the US), some may question the efficacy of opting for moving their wealth to a haven. And those who do create shell corporations in these countries to hold their assets often may fall under greater suspicion by their home nations of illegal activity.
Seeking safer shelter
There are other methods of protecting your assets that are lower risk. To encourage savings and to keep money flowing through their economies, most countries have financial mechanisms in place that investors can use to lower their tax exposure. These can include interest deductions, charitable donations, retirement accounts, and tax-exempt bonds.
Depending on the taxing jurisdictions, how you can account for your assets and liabilities will determine your tax bill. For most people, this is usually very simple, but if you have a diverse portfolio, you should get professional advice as to how you should approach mitigating your how much you’ll need to pay in taxes.
“You want to protect your assets, but you should do it safely,” warns Richard. “Don’t try to outsmart the authorities – you may end up risking more than shielding.”