FT: Tax havens
Zolpitald
By Catherine Moye
Financial Times
Published: July 18 2008 21:28 | Last updated: July 18 2008 21:47
The phrase łtax haven˛ conjures a twin image of swimming pools and tedious
form filling; of meeting to discuss your financial affairs with a
Hawaiian-shirted adviser under a coconut palm. But never before has the
package of fiscal inducements that exotic islands offer looked so alluring
to wealthy people battered by the current financial markets and looking to
shore up their assets in idyllic settings.
Whether it be retirees consolidating their pensions, entrepreneurs looking
to establish off-shore companies or individuals on the hunt for centres of
low taxation, the market is as international as the destinations. The mobile
nature of modern-day business has further liberated high-flyers from key
commercial capitals.
łMany people who have made money assume that the only thing to do is to move
abroad,˛ says Duncan MacIntyre, head of Coutts Private Office, which manages
the needs of the ultra-wealthy. łBut often their wants are different to
their needs. I had one client who called me from his wardrobe in a hurricane
saying Śget me the hell out of hereą.˛ And MacIntyre, the majority of whose
clients are British, also points out that entrepreneurs are getting younger
and the practicalities of living overseas, such as educating children, can
be a challenge.
Nevertheless, the lure of fat financial carrots combined with blue seas and
pristine beaches is fuelling a market that, for example, allows islands such
as Anguilla in the Caribbean to offer luxury houses priced at $36m.
The Caribbean
Of all of the worldąs low-tax islands, the most winning ledger-lifestyle
combinations can be found here. Several islands openly compete for the
attentions of the rich: including Anguilla, Bermuda, Barbados, the Bahamas,
the Cayman Islands, Grenada, Nevis and the Turks and Caicos.
Although details vary, as a rule of thumb there are no income, capital
gains, value added, sales or wealth taxes. Barbados has developed a range of
offshore formats. In the Cayman Islands, there are no taxes other than
import duties and 7.5 per cent stamp duty on the transfer of real estate.
Barbados will charge 20 per cent tax on any rental income you receive from
your property but this is not so in any of the others.
łHigh-net worth individuals are not only more numerous than ever before,
theyąre more interested in tax havens in exotic locations,˛ says James
Hickman of Caxton FX, a specialist currency exchange company.
Those who want to take advantage of personal tax breaks through residency
status are generally required to own a home and the islands will apparently
go to any lengths to attract investors. Anguilla, Grenada, the Turks and
Caicos, the Bahamas and Bermuda are all constructing homes with berths big
enough to accommodate the rise in ownership of łsuper yachts˛ (over 24
metres long). łMarinas have overtaken golf as the key driver at the top end
of the second-homes market,˛ says James Price of estate agency Knight Frank.
Mauritius
Well-situated between India, Africa and Asia, Mauritius was hardly a dot on
the second homes map before 2005, when property ownership was opened to
foreigners. This attracted a slew of upmarket resort-style developments,
such as Villas Valriche and the Banyan Tree groupąs complex at Corniche Bay.
Three years later Mauritius is a fixed star in the second homes firmament.
Its favourable tax treaties with more than 30 countries can be combined with
its off-shore companies laws to produce very good results. The purchase of a
villa allows for residency and qualification for its 15 per cent tax rates.
There is no inheritance or capital gains tax.
Seychelles
When the Seychelles offered property ownership to foreigners three years ago
the islands became as attractive to investors for their
very-few-strings-attached attitude towards tax as their lush setting. There
is no income, capital gains or inheritance tax, although rental income is
counted as company income and is subject to a progressive tax rate of 25 per
cent and up.
Resort developments by leading hotel groups such as the Four Seasons, Banyan
Tree and the spa company Per Aquum have underscored the islandsą intention
to pitch themselves at the upper end of the market.
The Islands of the World development Dubai
If pearls can be cultured and salmon farmed, łthe world˛ can be sucked from
the waters of the Persian Gulf and sold. So believes Nakheel, the property
developer offshoot of Dubaiąs government that is creating the Islands of the
World a 300-island verisimilitude of planet earth just off the countryąs
coast. And while the development carries no extra tax incentives, it hardly
needs to, according to Alex Upson at estate agency Cluttons. łEvery
foreigner in Dubai is attracted by the tax free environment. There are very
few who go only for the lifestyle or the job opportunities,˛ he explains.
In essence there are no income or capital taxes in Dubai. It has several
double taxation treaties (which prevent people having to pay in both their
country of origin and their place of residence) with high-tax countries and
is often used in international tax planning by large corporations that have
made it their headquarters.
In recent years the country has made great efforts to improve its financial
reputation. łYou had people turning up with suitcases of money to purchase
property and the banks would take it over the counter,˛ says Upson. łYou
canąt do that today. There are strict procedures in place and everything has
to have a proper paper trail.˛
Southern Cyprus
By 2020 an extra 2.3m Britons over the age of 50 (one in five retirees) will
have retired abroad, according to research by Alliance and Leicester
International. Many of those, like 68-year-old Andy Leck and his wife,
Eileen, will be heading to the Mediterranean island of Cyprus.
łThe climate was the most important thing attracting us, then the 5 per cent
tax on my pension I was paying 40 per cent back home,˛ says Leck, a former
chief executive with a house-building company. łThat means I save Ł40,000 a
year by being in Cyprus rather than Britain.˛
Leck is among those taking advantage of Cyprusąs double tax treaties with 33
countries, including most western łhigh-tax˛ countries and most central and
eastern European states. Nearly 50,000 off-shore companies are registered on
the island.
Aware that Cyprus is attractive for retirees, developers the Leptos Group,
is directly targeting its Apollo Beach Villas, a beachfront development
close to a proposed marina, at this valuable market.
Madeira
Madeira is somehow still redolent of the era of elegant liners calling on
route to the southern hemisphere. The island government has a good degree of
autonomy from Portugal but most legislation including tax is Portuguese.
Its 46 double taxation treaties are very attractive to retirees.
Malta
The łSwitzerland of the Mediterranean˛, Malta lies 100km south of Sicily. It
has a population of 400,000, a warm climate and a Westminster-style
democracy. As a politically-stable, English-speaking retirement destination,
it has experienced a real-estate boom, especially since joining the European
Union in 2004. Malta has moderately high internal taxes such as value added
tax but offers low tax regimes to companies and individuals.
Jersey and Guernsey
The Channel Islands have numerous low-tax business and personal incentives.
What they do not have is guaranteed sun.
łNo one really wants to go and live in a freezing tax haven and today people
like the excitement of a completely different lifestyle,˛ says David Franks,
of European financial advice group Blevins Franks. łBut the advantage of a
British tax haven (including the Isle of Man) is that at least you can
return to the mainland to take care of business or to visit friends and
family.˛ Not that, as Franks points out, the UK itself isnąt busily
flaunting its own tax appeal.
łBritain is incredibly attractive to non-domiciles,˛ he observes. łThe
government realises that the wealthy create employment and that the economy
benefits. They even get more tax just indirectly.˛
With people the world over owning two, three or even several overseas homes,
the relationship between government fiscal generosity and quality property
is likely to become ever more intimate.
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