Owning wealth has countless benefits, but one of the main benefits is utilizing global tax loopholes. Many high-net-worth individuals like to place their wealth in tax-advantageous countries (commonly known as tax havens.)
Tax havens are places where corporate companies and high net worth private individuals place wealth in offshore accounts for tax avoidance and other advantages. Nonetheless, the banking world also calls these places offshore financial centers (OFCs.)
Here are some statistics on tax havens:
- Tax havens cost governments $200 billion per year
- Companies shift 40 percent of multinational profits into tax havens
- The world’s largest multinational corporations are responsible for 98 percent of wealth places in tax havens
- Private individuals have placed $8.7 trillion in tax havens
Tax havens are a massive part of the world economy, and they’re here to stay. Here are some of the world’s top places where the wealthy park their money.
Switzerland
Switzerland is the world’s number one spot for private off-shore wealth. Private wealth reached a total of $2.4 trillion in 2020, accounting for a quarter of the world’s total offshore private wealth. The world considers Switzerland tax-friendly because of low taxation rates, excellent privacy laws, and friendly corporate tax laws.
- Swiss banks hold $6.5 trillion in assets, with 48 percent coming from off-shore individuals.
- Switzerland is one of the oldest tax havens, dating back to the 1920s
- Switzerland has one of the world’s strongest currencies, offering excellent forex opportunities for high-net-worth individuals
Although Switzerland still ranks high as an off-shore tax haven, the nation has phased out much of its unique corporate tax benefits in 2019. With that said, Switzerland is still the world’s leader for off-shore wealth.
Hong Kong
Hong Kong has the second-highest amount of off-shore private wealth worldwide. The financial world has seen the territory as a bridge between the east and the west for decades. High net worth individuals love the enormous banking sector here, a rival to London, NYC, and Singapore. Furthermore, the Hong Kong Dollar is a robust currency and stronger than the Chinese Yuan.
- High-earners only pay 2-17 percent income tax, significantly lower than many western nations
- High net worth individuals pay zero net-worth taxes or public benefit taxes
- Hong Kong accounts for $3 trillion of global asset management, 45 percent coming from outside Hong Kong
Although Hong Kong remains a fantastic place to invest money, recent political instability and uncertainty over the future are casting doubt on its position as a tax-friendly hub. The rapid changes in legislation as Hong Kong moves to closer to full reunification with Mainland China is creating volatility.
Singapore
Many economists regard Singapore as one of the world’s genuine economic miracles. A considerable portion of the nation’s remarkable success is down to its position as a worldwide tax haven and corporate-friendly tax laws. In addition, the country is the getaway into the far east for many investors and has a robust currency for private off-shore investors.
- Singapore’s corporate tax level is only 17 percent, far less than many other nations in Asia
- Offshore funds may be eligible for tax exemption from dividends, bonds, stocks, shares, securities, and deposits.
- Singapore offers tax breaks to businesses from various industries, and these include global trading companies, foreign banks, and offshore funds
Singapore has laws for financial companies which prevent companies — such as banks and hedge funds — from sharing private information on individuals. However, wealthy people value their privacy, and Singapore offers that in abundance.
The United States
The United States is the world’s largest economy. Therefore, it’s not surprising that the country attracts $900 billion in off-shore private wealth. The U.S. is a secure place for foreign investors, and its robust economy offers a predictable place to park money. Furthermore, the United States has a respected rule of law.
- The United States is the world’s largest consumer market
- The U.S dollar is the global currency and highly attractive for overseas investors
- The nation has a strong position in the R&D
The United States remains a global superpower and a superb place for foreign investors. Although the market is highly competitive, the country is the largest recipient of FDI (foreign direct investment.)
The Channel Islands/Isle Of Man
The British Channel Islands and the Isle Of Man attract around $500 billion in private off-shore wealth. In addition, these British islands have a long history of economic stability and tax-friendly laws, attracting off-shore wealth for centuries. Wealthy individuals love stability, and these islands offer precisely that.
- 0 percent income tax on most company income
- A top marginal tax rate of only 20 percent, far less than most other western countries
- Zero capital gains tax, stamp duty tax, or inheritance tax
Other than similarities in VAT, these islands have a separate tax system from the rest of the United Kingdom.
The United Arab Emirates
The United Arab Emirates was nothing but a vast desert 50 years ago. Today, largely thanks to the discovery of enormous oil reserves, the nation is one of the world’s most tax-friendly hubs. As a result, there’s an estimated $500 billion of off-shore private wealth entering the country, and the U.A.E is the world’s sixth-largest territory for private off-shore wealth.
- There is no income tax in the U.A.E, which has attracted high net worth individuals for 20 years
- The U.A.E has no taxes on capital and corporate profits
- There are zero custom duties on goods brought in from free zones
The U.A.E has built itself into a travel hub, business hub, and investment hub. With many excellent real estate developments and a growing stock market, its popularity continues to boom for private off-shore investors.
Luxembourg
Luxembourg attracts over $400 billion of private off-shore wealth. The tiny nation has been one of the world’s top tax havens since the 1960s, becoming very popular for off-shore trading of European bonds. Even though the nation has a tiny population of 630,000, the country attracts the same FDI as the United States, which is staggering.
- Luxembourg has a corporate tax rate of 17 percent
- The country has an income tax rate of 0.25 percent
- There is zero tax on interest or royalty payments
Luxembourg is popular with various mega-corporations because of its friendly corporate tax laws. These companies include Apple and Amazon.
The United Kingdom
London is arguably the world’s financial capital, offering off-shore investors enormous benefits and a robust financial system. London is one of the world’s oldest economic leading cities, and private off-shore investors enjoy London’s prosperity and centuries-old financial stability. The U.K is also the world’s 5th largest economy.
- London is one of the world’s leading property markets, with around 55 percent of property bought by foreign investors in 2019
- London’s place as a safe global market protects itself from fluctuations
- The U.K offers low-interest rates and excellent leverage
Although the UK has faced uncertainty about withdrawing from the European Union, the Uk still attracts $300 billion of off-shore private wealth.
Final Thoughts
Rich people will park their money in places with stability, friendly tax laws, and excellent privacy. The places above offer investors these benefits and continue to attract vast sums of the world’s wealth.