The future of tax havens and how it affects Britons working overseas

The Economist magazine ran an excellent article this week on the new business model that offshore tax havens are considering  in face on an ongoing onslaught by aggressive tax agencies in the US and EU. From Cyprus to Liechtenstein to Cayman Islands to the British Virgin Islands and Cook Islands, the offshore tax havens are regressing with the latest tax haven to give up bank secrecy being Luxembourg. Pressure is also growing on Austria and it may be a matter of time before Austria too gets tax religion. Funnily enough the best and safest offshore tax havens happen to be right under the very noses of the most aggressive tax agencies - the US State of Delaware and the UK offshore islands of the Isle of Man and the Channel Islands.

After Switzerland, UK and Channel Islands top the list of offshore domiclies

Funds Europe magazine reports that the UK and Channel Islands are at number two on the list of offshore domiciles, with assets under management of US$1,800 billion at the end of 2011. Switzerland still tops the list, with more than 80% of the funds held in Switzerland being for foreign clients.



India's new wealth tax surcharge of 10% on individuals with taxable incomes topping 10 million rupees will not work thanks to a well-established tax dodge wealthy people and corporations use that involves sending money to and from Mauritius. Under a tax treaty between India and Mauritius, companies based in Mauritius are not taxed on their investments in India. The Isle of Man or the Channel Islands may not have a similar tax avoidance agreement as Mauritius but they are certainly far safer havens (see video) to protect assets if return of assets is considered more important than return on assets.

New EU rules to double cost of British Pensions - Time to head for safer shores?

The Telegraph has a great article today on how new EU rules are set to double the cost of pensions to British companies. According to the article, the EU body that regulates occupational pensions estimated that the deficit in the UK’s defined benefit pension schemes would be£450bn if the new rules, called “Solvency II”, were introduced. The deficit currently stands at £237bn, according to figures released on Tuesday by Britain’s Pension Protection Fund. The National Association of Pension Funds (NAPF) has also warned that moving to the new rules for pensions would put a “huge burden” on Britain’s remaining final salary pension schemes and the businesses that run them undermining the retirement plans of millions of people both in the UK and across Europe. As I keep harping time and again, it is well worthwhile to consider moving your pension to a safe offshore location such as the Isle of Man or the Channel Islands taking advantage of HRM's QROPS provison and escape EU bureaucracy and costs on your pensions.

Isle of Man and the Channel Islands - havens of calm in stormy economic seas

A former chief economist at McKinsey estimates that wealthy individuals worldwide may have as much as $32tn (£21tn) stashed in overseas havens. As well as Britons, an extraordinary array of government officials and rich families from Canada, the US, India, Pakistan, Indonesia, Iran, China, Thailand and former communist states have offshore accounts. The largest share of the people setting up offshore accounts live in China, Hong Kong, Taiwan, Russia or another former Soviet republic. In turbulent Greece, both the upper and middle class are increasingly keeping their money in offshore accounts and a number of the world’s largest art collectors use offshore accounts to buy and sell art without paying taxes.

The Isle of Man and the two Channel Islands are self-governing possessions of the British crown and not part of the U.K.- 50,000 UK companies are listed on the Isle of Man and 20,000 are listed in Guernsey in the Channel Islands. The Isle of Man has an excellent double taxation avoidance agreement (DTAA) with the UK making it a particularly safe and appealing tax haven. The Isle of Man and the Channel Islands are probably the best places in the world to have retirement or pension plans or assets for the expat who considers living overseas for a substantial part o their lives.

Indian Stock Market Main board plunges to 7 month low

As warned in an earlier post, the Indian Stock Market has started its downward journey and reached new 7 month lows today. India also posted a record current account deficit in the October-December quarter causing the Indian rupee to weaken and foreign investors have now sold a net total of $137 million in Indian shares in the four trading sessions to Monday and a net total of $710.68 million in domestic debt over the same period, according to regulatory data.



I have always encouraged the diversification of portfolios away from an Indian equities focused portfolio to a more diversified global exposure. RBI's Liberalised Remittance Scheme in combination with fund houses in the Channel islands and Isle of Man are the right tools to use to achieve this diversification.

Changing tax haven scene - Switzerland and Caribbean trusts no longer preferred

The Economic Times writes today about the changing tax haven scene where traditional tax havens such as Switzerland, Liechtenstein and Caribbean countries are quickly dropping out of favor as their bank secrecy is rapidly eroded and they come under attack from aggressive tax agencies chasing tax dodging citizens. The article further posits that Singapore and Dubai may now be the tax haven of choice for rich Indians or NRIs looking to invest overseas.

I would argue against the choice of either Singapore or Dubai as the base for overseas investments for Indian residents or NRIs for the same cautionary tale told by recent events in Cyprus (see video clip above). Moreover, Singapore and Dubai are in restive neighborhoods and there is always a political risk from this geographical closeness. A better choice for overseas investment gateways for resident Indians and NRIs alike are the Isle of Man and the Channel Islands. Both these locations are protected under British Sovereignty and are very clean with transparent regulation.

With Cyprus money grabbing happening all over - where do you park your cash?

The question for hard working expats has always been that with investment bankers like the ones portrayed in this classic video, playing with depositors money - is there a safe place to park your money? The bitter truth is - not really but there are indeed some places that are safer than most - and ironically very close to home. The Isle of Man and the Channel Islands by far have the best prospects of fully honoring "return of assets". They are the quite literally the last bastion of tax havens (along with Delaware in the US) that is not under attack from rogue central banks or aggressive tax agencies.

Don't get Cyprused - cardinal rules for protecting your assets

Cyprus bank customers with assets exceeding € 100,000 will be taxed with 37.5 % as reported by Friedlnews. BBC further reports that big savers could effectively loose up to 60% of their savings. Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs. The other 40% will attract interest but this will not be paid unless the bank performs well - a very unlikely scenario. This seizing of a large chunk of depositor assets by a Government can happen just about anywhere - Cyprus is only the unfortunate canary in the financial coal mine. I have a few cardinal rules to protect assets in the long term which savers will do well to heed:

1. Return "off" assets is more important than return "on" assets - In other words attractive looking assets such as cloud computing equities may do well in the immediate short but they are getting to be bubbles of massive proportions - so best to stay away.

2. The Euro is effectively a currency on life support and not tenable in the long term - avoid investing anything in Euros or Euro denominated market instruments. The story of Cyprus is likely to get repeated in other Euro zone countries over the medium term.

3. Gold is a good holder of value in the medium term but unlikely to do well over the long term.

4. Isle of Man or the Channel Islands are quite possibly the safest jurisdictions for holding assets compared to other offshore jurisdictions for cash assets as well as from a tax perspective.

5. It is very prudent to have some of your non cash assets invested in real estate, farm land, water resources, food commodities and energy.