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Tax Shelter: Till A Fair Tax Is Introduced, Use It!

Jul 31, 2008
To reduce our payments to tax collecting agencies such as state or federal government we need to reduce our taxable income and the method or methods that enable us to do so is known as tax shelter or shelters. Tax shelter methods can be different depending upon local or international tax laws and hence jurisdictions should be properly studied before opting for any such method.

For example in North America it 4 years to recover $1 spent on taxes. Some of these methods which are used by individuals or corporations alike to save on taxes may raise questions or can also be considered as illegal. Sometimes offshore companies transfer company funds to another country to lower taxable income and the laws or treaties governing such countries can make it difficult for tax agencies to levy taxes on such incomes thus diverted.

Certain financial practices resorted to by individuals or corporations give them adequate tax shelter even if it amounts to financial cheating on their part. Practices such as paying high interest rates on investment can actually reduce income on investments but when the same investment is withdrawn a substantial capital gain can be made. This is because taxes on capital gains are much lower when compared to the taxes on investment income.

From the above it is clear that certain tax shelter methods do raise questions because such transactions are considered as unethical. Apart from serving the purpose of lowering tax liabilities such transactions has no economic value.

Tax agencies may at times try to neutralize such tax benefits being enjoyed by clients but steps taken are seldom effective. However other tax shelter methods are legal and legitimate. These include flow through shares/limited partnerships with the facility of distributing production costs of a company among shareholders as tax deductions.

This is quite in vogue with oil exploration companies in countries like USA. This typical shelter from taxes is provided to such oil companies because their gestation period is longer with common investors shying away from investing in such companies.

With media reporting that now banks in Europe have to disclose bank account owner information to tax authorities of their respective countries it has led to a term popularly known as euro tax haven threat. It is known to all that European countries like Gibraltar, Monaco, Malta and Andorra are easy on taxes and people flock to these countries to get maximum benefit on their incomes.

Certain property specialists say that this news has been blown out of proportion by the media and actually such a directive if any has been given aiming primarily at those who hold illegal funds for example drug dealers. Countries like Monaco and Andorra are known for their zero percent income and inheritance taxes and have long been considered as one of the most favored destinations of the well to do class.

With property prices doubling in such locations and real estate dealers raking in profits a euro tax haven threat would definitely not augur well for investments.
About the Author
Ramapati Singhania specializes in creating and managing web businesses. His latest website http://www.incorporation-offshore-saves-wealth.com focuses on helping you to incorporate offshore companies in Seychelles, Mauritius and BVI. You can also visit his blog, http://www.ramapatisinghania.com
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