Tax Havens, Letterbox Companies and Offshore Finance

Tax Ha-ven n. [jurisdictions with very low or no income and corporate tax burden]

Let-ter-box Com-pa-ny n. [a company domiciled in a low tax jurisdiction where it does not actually operate a staffed office]

Off-shore Fi-nan-ce n. [term used for assets administered outside a company's legal domicile]

Tax havens (or tax shelters) are countries or areas which levy little or no income or corporate tax. Such tax havens are often characterised by liberal economic policies, political stability, weak mechanisms for the international exchange of information and strict banking secrecy laws. Liechtenstein or Monaco are examples of tax havens. Taxpayers from countries with high taxation have an incentive to invest their income and assets in these "low-tax" countries.

A Letterbox in a Tax Haven?

Tax havens are also often known for so-called "offshore" or "letterbox" companies. These companies have their domicile in a low tax jurisdiction where they do not employ staff, and their places of business elsewhere. They are able to reduce their tax burden by managing profits via the lower-tax country.

"Offshore" versus "Onshore"

The term "offshore money" is applied to assets that are not managed in the home country of their holder. Offshore finance centres offer their services mainly to foreign clients. The target audience of offshore financial centres are mostly multinational companies and so-called "high net worth individuals" (persons with freely disposable assets of above one million US dollars).

The opposite of "offshore" is "onshore". In the case of "onshore wealth management", banks operate branches in the countries where their clients are domiciled.

And Switzerland?

Switzerland occupies a dominant position in "offshore wealth management". Foreign private assets invested in Switzerland are estimated at around 2,500 billion Swiss francs.