The pulling power of the tax haven shouldn’t be underestimated, as Arcadia Group’s Sir Philip Green, one of the UK’s most famous tax haven mavens, would attest. Amid severe hikes in tax rates in the UK, speculation is rife that Barclays is to move its operations offshore. Needless to say, these rumours have sent the UK government into something of a panic, and the fear is that the bank’s imminent move might create a domino effect among British banks and other financial institutions, leaving Canary Wharf deserted.

The benefits for entities such as Barclays are obvious, but the incentives for the tax havens themselves are many – and can differ quite significantly from territory to territory. Put in place primarily to generate self-promotion and gain status internationally, some nations find that they get by well without charging as much tax as some industrialised countries; others have decided to offer a lower tax rate to larger corporations in order to create employment for the local population.

Another valid reason to offer beneficial tax merits is to encourage sophisticated conglomerates to transfer and share their skills to the population of the host nation. As to make a distinctive mark on the tax haven arena, different jurisdictions tend to act as havens for different types of taxes, and thus appeal to different categories of people and companies.

Bermuda’s exemplary portfolio
Bermuda’s tax regime is considered one of the world’s most attractive, and the spot is certainly also one of the cleanest tax havens. Popular with international investors for its wholesome image, pleasant surroundings and sound infrastructure, Bermuda levies income tax on foreign earnings, and companies are invited to incorporate at the destination under an exempt status. In this case, the exempt tag refers to the local 60/40 ownership laws, not to special tax status. There are restrictions and regulations, however, and exempt companies are limited from trading locally and may not hold real estate in Bermuda.

Also, companies need a licence to get involved in banking, insurance, assurance, reinsurance, fund management or similar business. Despite the drawbacks and not so favourable tax policies for individuals, Bermuda’s pulling power as one of the key tax havens in the world remains strong. According to the Association of Bermuda International Companies, there are more than 1,500 exempted or international companies currently registered in Bermuda, of which about 400 have actually set up office in the island nation. Remarkably, international business has come to generate more than 70 percent of total revenue for the Bermuda government.

Cayman Islands – the hedge fund’s haven of choice  
The tax haven of choice for hedge fund managers is indisputably the Cayman Islands. Offering tax merits tailor-made to appeal to the financial sector in particular, the British territory does not tax income, capital gains or inheritances. Consequently, the destination is flooded with international financial companies looking to shelter their profits from the tax man on their native shores. The Cayman Islands is home to more than 10,000 investment funds, as well as a healthy number of other institutions, financial or otherwise.

Aside from the tax merits themselves, another reason why the island is so popular is that companies find it relatively easy to establish funds there – and non-public funds can be registered in less than a working week.

Although the Cayman Islands committed to the OECD tax standard in 2000, it’s still not as squeaky clean as fellow tax haven, Bermuda. To tidy up its reputation the Cayman Island government is looking to improve its cooperation to fight tax evasion, and by doing so it hopes to wangle itself out of the greylist, where it’s been placed by the OECD. This not so flattering stamp is received for having agreed to improve transparency standards, without yet having signed the necessary double taxation accords.

Switzerland – best tax haven for the individual
Although Switzerland is a reluctant member of the tax haven brigade, and doesn’t like being identified as such at all, its fiscal benefit scheme targeting individuals as well as companies is well known. Taken advantage of by many, the country’s tax benefits are so coveted that a big chunk of its population is non-Swiss, about 21 percent to offer an approximate figure.

Each canton in the country has its own scheme, and the competition between them is high. Switzerland’s most famous tax break is the lump-sum concession, which is available only to those who do not work in the country. The specifics of the scheme sees individuals paying tax based on their annual living costs rather than their income. The living cost figure is calculated based on five times the rental income, and taxed at 40 percent.

Those who do not qualify for this concession face one of three other types of tax, based on income, wealth and property.