The OECD – Organisation for Economic Co-operation and Development (well, these are the guys who think high and uniform taxes are good for everyone) describes the tax haven as a jurisdiction which actively makes itself available for the avoidance of taxes which would otherwise be paid in a higher tax jurisdiction. The term “tax avoidance” should be noted, because there are ways of avoiding taxes without breaking the law, whereas the opposite term is “tax evasion” – which is generally classified as a crime.
Offshore, in its broadest sense of the term, means simply a jurisdiction other than your own. The country next door can be offshore for you. Offshore is anything that is not “onshore”, not at home.
In a more practical context offshore usually means a country or territory which offer specific benefits or incentives to foreigners. The most obvious ones are tax concessions. These come in different forms. It may be a complete tax exemption for all international business operating outside the contry of registration (Belize or Seychelles International Business Companies), an ultra-low income tax for international businesses, a complete exemption from income and capital gains taxation for all companies, regardless of their ownership or place of operation (British Virgin Islands), local no-tax or low-tax liability on all investment income regardless of the residence of the investor (Bahamas, Cyprus, Cayman Islands); local tax exemption for non-residents of that jurisdiction (Gibraltar, Channel Islands); tax holidays for certain types of investment (Portugal, Netherlands Antilles, Iceland); favorable tax treatment through treaties and agreements with the investor’s home country (Cyprus, Barbados, Netherlands, USA).
In addition, some foreign countries may afford better legal protection from creditors and other potential litigants who might attempt to seize an individual`s wealth. This is the second most important aspect why offshore jurisdictions are so popular – asset protection. It may even have nothing to do with tax, although usually both are intertwined. It`s just safer to be offshore. Except in the event of proven criminal activity (excluding so-called “fiscal offences” such as tax evasion or other money collection disputes), most offshore governments uphold strict confidentiality laws for banks, corporate registries, and trust companies. These laws protect offshore investors from third parties, including both private and governmental authorities.
