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  • Offshore Legal and Tax Consultants

    How Tax Havens Work

    EST. 1996

How Do Tax Havens Work & Why Do They Exist?


With banks failing, governments coercing and economies collapsing, establishing yourself offshore is more important than ever. Despite the attention grabbing headlines showing solemn face bankers being slapped with heavy fines by the IRS for tax evasion, the offshore industry couldn’t be doing better.

The very reason why the IRS, FATCA and the US government regulators are becoming increasingly tight on foreign banks, offshore accounts and international transactions, is because the offshore industry is growing at such an alarmingly rate due to the current international political and economic uncertainties, that they felt compelled to intervene in hopes that some of the deferred tax revenue might cover their increasingly large deficit.

With banks failing around the world (2008-2010 500 banks closed in the US alone); governments coercing (through FATCA compliance regulations, and stolen retirement funds in Hungary, Poland, France); and economies collapsing, (Venezuela, Greece, and Argentina without mentioning half of Eastern Europe which is on the brink of collapse) the need to protect your assets is higher than ever.

Table of Contents:

Why Do Tax Havens Exist?

While the offshore industry has been given a bad rap as it is smeared through countless headline-grabbing controversies. We have been built a narrative around offshore banking.

Sitting on private yachts smoking cigars with Panama hats, piles of cocaine sitting around cabanas in the Caribbean handing over briefcases filled with cash, secret meetings with suited government and bank officials to launder money through the banking system.

Offshore banking now is some exotic affair that has been romanticized. Money Laundering is almost made sexy. Provocative imagery is the only way to capture the imagination. And it seems like they did a good job, because now offshore banking is equated with tax evasion. 

Advantages of Foreign-Owned Non-Resident Companies

The simple fact is, that its a perfectly legal. Owning an offshore company whether in the Caribbean or Germany makes no difference. If I live in Canada with a UK bank account, I have an offshore account. If I live in Australia and I have a Cyprus Company, I have offshore company.


What We Offer? Offshore Protection provides offshore strategies to restructure your business and assets. See our services for more or get in touch and see if an offshore plan is right for you.


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Foreign ownership of an offshore company or account is not as exotic and mysterious as all that it's made out to be. There are many liberal tax regimes that provide serious incentives for foreign capital. If you run a global or digital business, why wouldn't you go offshore?

It is of no surprise, then, that over 70% of Fortune 500 companies use offshore companies as a means to lower their tax burden. Despite whatever is said about offshore vehicles whether companies or accounts, they provide necessary services for companies conducting global business. 

How Do Offshore Tax Havens Work? The Unequal Balance of Power

more important than ever to go offshore

The rise of global communication technology has virtually eliminated boundaries creating a hyper-globalized economy allowing financial flows access to markets in all corners of the world.

This has enabled the spread of global transactions stimulating innovation and growth along with many areas of the global economy.

However, the current trend of globalization is now fast becoming authoritarian, moving away from a hands-off liberalized version, as it has become entirely self-serving, governed and manipulated by the economic elites, Multi-National Corporations (MNC), and powerful state governments and institutions that have to a large degree forced their agendas and policies on the rest of the world.

Western industrialized countries have become more forcefully outspoken against the perceived inadequacies of the current offshore system as it watches frantically its capital flowing out to alternative low-tax markets.

This is, however, a natural movement of a person or asset in a liberalized economic order - one that seeks to maximize efficiency where one has a comparative advantage.

Intimidation tactics, trade barriers, and economic blacklisting have been used as a response as a means against the smaller Offshore Financial Centers (OFC) that do not go along with the new regulations and supervisory institutions established.

As many of these OFCs are former colonies whose economic development has been severely curtailed by continuous exploitation and occupation it has little other recourse but to create avenues of competition in sectors where it retains some advantage.

Since the last global financial crises, emerging markets have been particularly hit, coupled with the increased regulatory effects that have come since, has severely threatened the economy of many financial havens.

Why Do Tax Havens Exist?

In order to attract foreign capital, many emerging markets offer low tax burden recipes and vehicles to attract foreign investments.

Just like many western countries, seeking to attract investors and economic opportunities give advantages to companies seeking to establish themselves in certain sectors; similarly, many emerging market countries have created a financial environment that seeks to due to same - provide conditions that favor international investment and capital flows.

While certainly overly-exposed unregulated areas of the world's economy need tighter regulations to prevent malfeasance, they should do so in collaboration and not by brute force.

These regulations come primarily through the economic hegemony of highly developed nations that seek to retain their grip over the world's economy by exploiting their unequal balance of power enjoyed primarily from its past imperialistic legacy.

And so, such countries not wanting to lose any possible tax revenue, have used regulatory bodies including the U.S. Government, EU, OECD, and FATF to ensure that their place in the world order remains intact.

Income tax competition remains a significant sore spot for many developed countries that seek to keep a firm hold on their tax base.

The OECD deems such income tax competition as harmful to the global economic order, and suggests that they are acts of ‘civil disobedience against income redistribution’.


The dangers of labeling one form of competition as dangerous and another as advantageous, like income tax and commercial trade, for instance, comes with biases and colors what should be pure open market liberalization.

It moves farther away from a free open border economic globalization that encourages innovation and competition through the freedom of financial movement and becomes more like a fascist world order of slaves and masters.


Can We Help You? Offshore Protection offers holistic offshore strategies that includes the use of offshore companies, trusts, accounts, and second citizenships to diversify, protect and internationalize your life. We also offer a range of financial & legal services. Get in touch to see if going offshore is right for you.


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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. Read more here about FATCA and CFC laws.



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Disclaimer: Offshore Protection strives to keep information on this website updated, however, laws and circumstances are subject to change. All information on this website is for reference purposes only and does not constitute legal or tax advice. Contact an Offshore Protection representative for specific advice regarding your situation.

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