Warren: Hello, everyone. Welcome to our Offshore Sovereignty series and webinar. We would be teaching on various topics through offshore sovereignty, offshore banking, offshore tax havens, you name it. Today, I’m with Stephen Petith with me today. And, welcome, Stephen. Good to have you again.
Stephen: Hey, Warren, it’s good to be here.
Warren: Excellent. So, obviously we’ve been covering offshore companies, offshore banking. We’ve been covering offshore even tax residency and why it’s a good idea. Today, we’re going to be covering offshore tax havens, and, Stephen, that’s certainly a topic I know that would always gets people’s interests, gets the juices flowing the whole idea of this secret of tax havens with Cuban-smoking cigars and [0:00:44] sitting there, you know, with cloak and daggers and basically with sunglasses on the beach, that kind of stuff. Is that pretty true?
Stephen: Not at all, not at all. Not, I’m actually – you know, the Wall Street bankers as offshore mafia.
Warren: Yeah, we probably could, you know. But, I’ve got probably five main questions I’m going to ask you today, Stephen, in our 30-minute segment. First one I just want to ask you what would you describe as an offshore tax haven. Because it’s got a bit of a strange [0:01:12] and we always think of the Caymans, the Caribbeans, and certainly, we’ve got certain tax havens. But also know there’s a second layer of tax havens as well which are places which aren’t necessarily seen as tax haven. So maybe just explain to us what is a tax haven?
Stephen: Yeah, okay. So, if we go back to our original conversation what is offshore. Offshore is anything outside of your home borders. And what most people forget and here’s a question for you, Warren. What are the three largest tax havens in the world?
Warren: Good question. I’ve heard that U.S., Australia out there, is that right?
Stephen: Exactly. Most of the [0:01:50] we see the nations are in the top 5. So the three largest are actually the U.S., the UK and Germany.
Stephen: Yeah, seriously. That’s three largest tax havens are the three main countries roaming around the world, trying to clamp down on everyone else from doing it. They don’t want people in on their game.
So, if you go back to what we said before, tax haven or an offshore place is something outside of your home. Okay. So, it’s somewhere that it’s outside of your borders. So, if you take the U.S., for instance, if you set up a U.S. corporation or a U.S. structure, and there’s varying types of structures to use, and you are not dealing with U.S. citizens, and it is not owned by U.S. citizens, it is basically 100% tax-free. There can be just a pure pass-through entity.
Warren: Could be like a Nevada [0:02:49] or something?
Stephen: Nevada, Wyoming, there’s basically 40 odd states where you can set things up. And there’s different reasons why use different states – Nevada, Wyoming, probably the two best for this along with Delaware. But there are certain very large families around the world that have moved a lot of their assets into Nevada for international investment so the European families that are investing into Europe. And vice versa as well. There’s North American families investing into the UK that aren’t dealing with the UK, but are once again investing back into other jurisdictions.
Warren: Sorry to interrupt you. So what you’re saying is that someone living in Europe might set up a Nevada corp and invest back into Europe from Nevada?
Stephen: Yes, you could do. As long as they’re set up in the right way, then, the members of the Articles of Association or the Articles of Membership are all set up in their own way. Yeah. You can do that all day every day and now and in the U.S. [0:03:53].
And it’s the same if a foreign seller is selling in the U.S. and have no physical presence in the U.S., that’s one of the other case as well. The U.S. don’t care tax-free status anywhere you go. And that’s why the U.S. is the largest tax haven in the world. It’s quite surprising when you start talking to people.
But to get back to your question, Warren, yes, there is multiple tiers of tax havens, just as there’s multiple tiers of banking jurisdictions, the scope of jurisdictions. So the main what we call white tier where no one really cares, no one really even classes them as offshore tax havens are the U.S., the UK, Germany, Australia, New Zealand. If it’s done to the right level.
A tax haven is not necessarily a zero-tax jurisdiction. A tax haven under most laws is a jurisdiction that offers a tax advantage greater than that of its local jurisdiction. So, if you’re taking Australia as a foreign investor, it’s 10%. In some other jurisdictions, it’s 30%. So you’ve got a 20% difference.
If you’re investing in through, say, Hong Kong and Singapore, which are once again, white-tier tax havens. But because their corporate tax rate’s 15%, 11% in some instances. Singapore’s is 0% and Hong Kong can be 0%. But it’s 16% on the statutes. You basically have a differential in tax. That’s why they get labeled tax havens.
Then you have the 0 tax havens. So, these are the places like the Cayman Islands, the British Virgin Islands, Bermuda, anywhere in the Caribbean basically that offers great advantages.
Another tax haven that’s a U.S. territory is Puerto Rico. It has some really good advantages for investing, especially for different types of investments and different places. Panama is also on there.
And then you’ve got the tax havens that everyone’s going after and that’s where everything is zero. And the secrecy is very high. So, the Seychelles are starting to fall into that category. Belize is definitely in that category now. Even Guernsey and Jersey to some respects are starting to fall into this part of the tax haven as well.
Warren: [0:06:35] Got you. So, really that’s my next question, Stephen. So, do they really work anymore? Are they legal?
Stephen: They are 100% legal. There is nothing at all to say that you can’t use them. The governments will make it very, very hard for you because they want the tax revenue. It’s as simple as that. Governments are broke. They want you to bring all your money onshore, bring all your money onshore. They want you to be open to any crackpot that wants to sue you. They don’t care because every time there’s a lawsuit or something, the government wins, the government gets money.
So, governments are after money so they’re going to make it as very hard as possible. There is some transactions around especially when you’re doing a lot of international finance, massive restructures of international corporations and stuff like that where tax havens have to be used. Different financing institutions, insurance institutions will not let you use anything other. They actually make it write it into the contracts. This will be – this has been – they will be established in the Cayman Islands. This fund will be established in the Cayman Islands.
Those sort of things get written into the terms of contracts for large scale, [0:07:48] $100-million-, $200-million-type deals. But, yeah, tax havens still work. But there’s ways of using them. And it’s how you use them, as we’ve said before. It’s structuring and it’s structuring your total affairs so you become totally capital efficient. So being able to use a tax haven like the British Virgin Islands, for instance, is very much a doable vehicle if it’s an asset holding company, where you can bring royalties back or dividends back to locally held bank accounts in the British Virgin Islands. Or even into a master fund situation.
So, having your fund set up there, your – an international hedge fund manager, so set up your hedge fund in the Cayman Islands or the British Virgin Islands and then use that. Have your funds set up in Guernsey or the Isle of Man as well for investing into Europe.
So, there is ways of using them and, yes, they still work.
Warren: That’s excellent. So, really, it’s just, I mean, Google big companies using it. It’s just really all I’m hearing you say. You just got to know how to do it properly and not be silly and go, “Oh, I want to go down,” and you got a pair of sunglasses, and you go and get one of those debit cards from, say, Seychelles or from Guernsey to Cayman Islands, and then you go to your ATM and pull money out and [0:09:10] big [0:09:11]. That’s the kind of tax havens where you’re playing silly games and you’re playing dangerous fire, but if used properly, absolutely legal from what you’re saying.
Stephen: 100% legal all day, every day. And, yes, withdrawing money with it with a credit card or a debit card from overseas and it’s not reported, it is – if it’s not reported and it’s directly coming to you, yes, that’s illegal. Making sure that you report the income that is directly attributable to you has to be done all over the world. Do you have to pay tax on it? No. Do you have to report it? Yes.
And there’s ways that we confuse what people call tax havens and media love the term “tax haven” because most of them aren’t smart enough to go and work out how to use them themselves. But you can, yeah, you can use them and every day all day, and it’s 100% legal.
Warren: Excellent. Thank you, Stephen. So my next question is what are the most common mistakes made with tax havens or what are the myths that people seem to have about them, you know, experience, you just laugh, what a lot of crap. What’s the biggest mistakes or myths people have about them would you say?
Stephen: The biggest myth that gets put around is they’re illegal. It’s illegal to do. It’s illegal to have [0:10:26]. Illegal to have a bank account offshore. That is 100% illegal. Sorry, it’s not illegal. It’s illegal to tell it’s illegal.
But, no, it’s all legal and that sort of stuff. And a lot of this is just myth and misunderstanding and people not doing it. The other thing is people not using trust and advisors or the right people and getting it set up right. They get on to a quick search online. They have a look and they go and grab a guy that’s doing a $500-company that can open these bank account offshore. And then, all of a sudden, you know, two years down the track, they wonder why it’s all working wrong. They haven’t got the right forms. They haven’t done this. The bank account’s being closed. They just haven’t got the right steps. The old adage you pay for – you pay what you get for.
So, you know, you pay $2, you’re going to get a $2 company. If you want the right structure, right everything your trusted advisors and most of my clients come to me before they get into that trouble what I do go through and help a lot of people out. And sometimes, I just can’t help them because they will not help themselves. It’s all about it’s got to be cheap; it’s got to be this. Or if you want it cheap, [0:11:45] even nasty. It’s just that simple.
Warren: Yeah, you’re playing a dumb game and we don’t want you anyway because you’ll get yourself into trouble.
Stephen: You’ll get involved. Only you’ll get everyone looking at us. And that’s just not, yeah, the right way to go. The whole offshore world is a real great world to get into, but it’s like anything, you need to educate yourself. And most of the time, I say to my clients, “Start educating yourself.”
In the last episode that you’ve got to hear somewhere again or is it with my great trustee friend, here it is. Go get yourself this book. There are several out there and there are several others out there as well. Go educate yourself. And don’t go always listen to the guys that are peddling information. Go and have a look at the statutes on in the websites of some of these countries. Go and have a look at the laws that are put in place. It is quite easy. A lot of the public companies out there file that they’re using certain jurisdictions for certain things, learn from them. And just see what’s happening out there. Don’t just take what you read as gospel because most of the time what’s in the media these days is out of bullsh*t.
Warren: Yeah, couldn’t agree more. That’s excellent. So, they’re the main mistakes you can see is that basically the belief is illegal and the other one is doing it – just not doing it properly in the first place. Is there any other myths or major mistakes that, you know, maybe one more major one that you’d noticed?
Stephen: One of the big one is around bank accounts and that is that you can open bank accounts remotely these days. There is some places that are doing it, but my – it’s like anything. If you want a good relationship with someone, you have to go and see him face to face. At least, have phone calls and that sort of stuff and then get up and go and visit him. If you want to build a great banking relationship with someone and you want to get the best deals that you can, go and have a meeting with him. Go and sit down and talk to him.
The investment of flying over there and talking to him and seeing him face to face will be so they’re brought back to you in spades. You know, 10 times the results, it’s probably the best investment you can make is building up relationships with your providers in a face-to-face and a personal manner. That the just trying to do it all from behind the computer screen doesn’t always work.
I’d meet with most of my clients face to face at some point in our journey. And normally it’s sooner rather than later.
Warren: That’s really good, Stephen. And just another quick one before I go to the next question, would you say that another myth or mistake that people make about tax havens is assuming that, oh, yeah, it’s just basically got to be something like the Virgin Islands and the Caymans and they miss the fact that many of the best jurisdictions, best tax havens in the world like you said, the Hong Kongs, the Singapores, the even the UK, even New Zealand I know that’s a brilliant tax haven, but as far an income exception using trusts, for example.
Stephen: Yeah. The – and that goes back to what people are reading in the media. They keep seeing the same names over and over and over again, so, they keep going or they must be the tax haven is that’s must be where I’ve got to get.
But what they’re doing it’s look over here while the rest of the world’s working over here. And it’s different jurisdictions for different things. If you’re at the moment, one of the best things going around the world is the Hong Kong offshore pension, the pension systems that are happening up here and now are fantastic when no one’s talking about them. Everyone here in Hong Kong we know that, you know, everyone’s got one; everyone’s using them. Hedge fund managers are flying out here from the US and the UK in droves to set them up so that they meet all the current requirements and they don’t have to lose 50%, 60% of their income.
So, yeah, it’s not asking the right questions and not being informed. Get informed, be informed, talk to people.
Warren: Brilliant. Thank you, Stephen. The next question is what are the best locations? You’ve kind of answered that before, but one of them is just what are the best locations I need to avoid really. If someone comes to you saying, “Look, I really want to minimize taxes and do it all legally in a good tax haven, just for everything, for bank accounts, getting good companies, getting good favor, what are the best places and what – are there any that should be avoided?
Stephen: Okay. So, the ones to avoid these days are anywhere that is one on the black list that and when you can’t get bank accounts or you can’t get good advisors offering services.
So, there are some the old jurisdictions that everyone used to and I think were great places like Vanuatu for Australians and Fiji and that sort of stuff. They sort of gone by the wayside. They do have their use in the world, same as the Marshall Islands and the Cook Islands and all that. They all have their use in the world, but they’re not an everyday business restructure use.
So if you wanted to take your business offshore, and you wanted to minimize your tax, you wanted to – become capital efficient, you wanted to get the best of both worlds, you are really now looking at what I call the very light gray or the white jurisdictions. So it’s your Hong Kongs, your Singapores, your Maltas. Panama to an extent. The Bahamas, America, Canada. There’s all sorts of other places around. Estonia, Latvia can all contribute. Dubai, depending on what it’s used for. So, and this is where it gets back to being educated and knowing what you want. But then, talking to someone who can give you some impartial advice.
So, sitting down and talking to someone and say, “Look, my company does this and I deal with this person because it’s not always who you are, it’s also who you’re dealing with.” Because if you get that wrong, that mix wrong, you don’t use the right tax treaties, for instance. If you’re not using tax treaties in the right way or if you’re not using [0:18:13] letter or agreements in the right way, you can find yourself getting into some really strange and tricky situations that you need to get yourself out of that you didn’t have to in the first place.
Warren: Yeah. Excellent. Now, that’s really good. So, really, from what you’re saying, yeah. It’s just like anything. That’s why I always tell people you’ve always got to come to the best of – get the best of [0:18:36] and check it out [0:18:37], what’s the best place at the time. And really, what I tell people, as much as possible, use the white-tier places like Hong Kong, Singapore, New Zealand and places like that.
And then you go to second-level tier which you can use for protection and some level of tax minimization like the Caymans and a few of these others. But, yeah, I mean, [0:18:56] from what I noticed in Seychelles, for example, is very hard to get bank accounts for now. And when even and some of these others like Belize and all that, just, yeah, it’s almost next to impossible now.
Stephen: It’s almost [0:19:08]. But I still use Belize and the Seychelles for certain particular things. And it’s normally if you want to use it just purely and simply to hold shares and something else. You don’t want a bank account. You just want an asset holding vehicle to create a layer of protection for you. And then, places like Belize and Seychelles are perfect for that.
Warren: Brilliant. And my last question, Stephen, is where do you see the future of tax haven, especially now with our friend Donald Trump and everything else and the changes and all that, what do you see the future of them happening? I mean I know we’ve discussed this in offshore companies and banking [0:19:45], you know, the worst of it may be a little bit longer but it will improve, do you feel with tax havens? Like more and more sovereignty and less borders like you said, and, really taxes will kind of – would change them back down a lot and become less [0:19:58]?
Stephen: Yeah, I can see tax havens having their day in the sun again. We’ve got breaks are happening and hopefully the UK politicians will see that and grab it and run with it and then turn the Commonwealth back into what it was. If you have a look at most of the tax havens around the world. And 30% to 35% of the world’s wealth is all in British [0:20:24] nations or countries that were part of the British Empire.
So, I could see that sort of strengthening again. Brexit getting its act together. The Commonwealth becoming stronger especially around financial services on the international level. The freedom of financial transactions between those nations will open so that’ll mean that the places at the Cayman Islands and the BVI, [Antigua 0:20:47], [0:20:49] all these sort of places will start to become very attractive again.
Places like Australia, Canada, and New Zealand would be forced to lower their regulatory standards and overbearingness due to their nature of being part of the Commonwealth. Australia has to wake up at some point. Everyone around us has, you know, 5% to 10% lower taxes and they’re all major competitors of ours.
So, I don’t know when we’re going to wake up or when Australia’s going to wake up but we’ll be shortly.
Warren: Did you hear about the – just the other day, I was reading about it that it was either Turnbull or someone wrote an article which basically said where Turnbull was very unhappy because you said with Trump lowering tax rates in England, instead it makes Australia uncompetitive, and I just couldn’t stop laughing because that’s a classic Australian approach. It’s like rather than say, “Sh*t, maybe we need to actually reduce our taxes and get on on board.”
You’ve got the Democrats and the Greens and [0:21:48], you know, and labor breathing fire saying, “We don’t want to favor the rich,” but even the government saying, “Well, you know, it’s not fair. Why should these other people, you know, lower their tax rates and leave us out here now with high tax rates, we want to keep charging high.” And I’m like, “That’s a bit like Telstra charging way too high and [0:22:05] prices [0:22:06], I mean, if Telstra that good then maybe people stay with them and they keep their prices high, but I just found that really funny myself.
Stephen: Yeah. And it’s we’re in the age of where people have been able to leverage jurisdictions. Basically, you connecting now going arbitrage where you live. You can say, “Well, I get this, this, this, this, and this here. I get this, this, this and this here. And, guess what? I’m going to pay less tax and have a better cost – better standard of living, I’m going to live over here.” And I’m not talking about the [0:22:39] sacrifice stuff and go live in a Third World Country.
Most developing nations are actually quite good but I’m talking about you can actually go to some very sound places in Europe, Portugal, Spain, France, Southern of France is relevantly cheap; Italy, that they’ll have way better cost of livings and lifestyles than we have in Australia. And they have good beaches. You know, some of them are rocky in that. But, yes, there is some good beaches and a beach can be found anywhere in the world.
So, you know, you’re really going to start looking at [0:23:21]. Not only that. You can actually start creating jobs from a lower cost point in some of these other countries. So, you can actually then let that marginal business that you’ve got in Australia are all of a sudden is not marginal anymore if you move overseas. And I really don’t think that the Liberal Party in Australia or in that matter, the Labor or the Greens or anyone, absolutely has any idea what’s happening outside of Australia.
Warren: I agree with you.
Stephen: They just none of the ministers, they all travel around the world, but they see themselves in five-star hotels, they just got no idea. And, but one day, they’ll realize but I just hope it’s not one that’s too late.
Warren: No, I want to [0:24:05] you last quick comment I’ll make before you go on that is that I think [0:24:08] but surprising enough at some of his other silliness got that got the closest to me. He actually wrote a very sound paper about why Australia needed to reduce tax rates. I needed to actually improve the toll system of making more efficient government. I don’t know if you saw it, but a few months ago, he wrote a very good paper on it.
Stephen: Yeah. And I think he was quite sound in some of that stuff. He just wasn’t a good people person’s leader. That was his problem. But, in some of his economic policies is very sound and that’s the stuff. So I can always remember years ago, been in some of these roundtables with people and one of my comments was, “Well, Australia is an island. Why don’t we make it the largest tax haven in the world?”
You know, all the other tax havens are mainly islands, so why don’t we become one? Everyone in the ring just looked at me as if I had two heads. I just really couldn’t get it. Australia’s perfect example to have free trade zones, set up all over the country for different things. You take the Gold Coast, for instance, in Queensland, be a great place to make it a hedge fund capital. You know, you take [0:25:19] over in Perth, make it the ship registry capital of the world.
Stephen: All these things could happen in Australia. But, meanwhile, we’re not doing it, but everyone else is. So, yeah, I think it’s time for most people in Australia, if you’re sitting there living and the only thing keeping you there is blue skies and a beach, it might be time to reconsider your options.
Warren: Excellent. Well, thank you, Stephen. I appreciate your time. And, yeah, look forward to our next time that we talk.
Stephen: Definitely. Definitely. All good and thank you very much, listeners. And look forward to meeting you all in person. Coming to get some more great advice and education.
Warren: Yes. Well, we’ll be talking more about that and putting on the retreat [0:26:02] sooner I know and as well as there’ll be some stuff on the website as well where people get in contact with us if they – if you want to find out more about tax havens and how to structure yourself and take advantage of it for your business.
Warren: Good. Thanks very much.
Stephen: Thanks, Warren.
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