Tax Havens

Every so often we read in newspapers that governments are going to crack down on tax havens and offshore bank accounts. But exactly tax havens are? Let us know.

A tax haven is a country which has little or no income tax. Some tax havens have zero income taxes, while others may have very low taxes - or only tax local income not worldwide income.

To give a few examples: If you live in Hong Kong you will be taxed at a flat rate of 17% on your income. On the other hand, if you live in New Zealand you will be taxed on a sliding scale all the way up to 38%. Obviously if you lived and worked in Hong Kong, then you'd be keeping a lot more of your own money.

Another issue is whether a country taxes domestic income only or worldwide income. Most countries tax worldwide income, which means if you live in the USA but earn income in the UK, then the UK income is also taxable and is to be considered part of your total income for tax purposes.

But if you lived in Singapore and made money outside that country, then you wouldn't be liable for income tax on the overseas income, only your local income. So while Singapore is not considered a tax haven in the usual way, it is in fact a tax haven for those who live there and earn money outside Singapore.
The attraction of tax havens is obvious. If you live there, or do business there, you could end up keeping a lot more of your own money. For it never pays to forget that income tax is a tax on your very life.