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What is Tax Haven definition/concept

What is popularly known as a tax haven is a territory whose tax-related legislation is especially favorable to (non-resident) investors who deposit their capital there or establish partnerships.

Generally, these territories allow foreign capital deposited there not to have to pay fees or taxes, or even to comply with their tax obligations , which are more advantageous than their country of origin. Furthermore, another characteristic of tax havens is their opacity. The existence of deposited capital does not yield what is expected in their countries of origin.

Why do tax havens exist?

Tax havens are born from the coincidence of interests between territories with few resources and the desire of large companies and fortunes to considerably reduce the taxes they have to face as a result of their economic activities.

With the intention of attracting money, these territories put into practice legislation that has a certain objective and manage to generate an economic activity around this capital that drives its development and improves the standard of living of its inhabitants. However, the existence of a tax haven is based on the taking of certain political decisions, thus, the governments that put these strategies into practice receive pressure from the countries that tax these fortunes.

Due to these pressures, a large part of those considered to be tax havens have put in place automated information exchange systems that could possibly lose interest with these new capitals installed.

Disposing of capital in foreign countries is not illegal, as long as its owners pay taxes in their countries of origin on time.

The opacity of tax havens makes it possible to avoid this obligation as there is no evidence of the existence of this money.

Despite all this, and despite the pressures on countries considered tax havens are constantly growing, capital control in a globalized world is very complicated, taking into account the tendency of international trade bodies to favor the liberalization of markets.

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