Whatever your wealth levels, thereâ€™s always the inclination to see what the very rich do with their money with offshore accounts which sound fun and mysterious while probably avoiding the tax collectorâ€™s eyes. Perhaps if you have real money in your account, the answer to where you should spend it could be near to home.
With so many visitors arriving by cruise ship via ocean tourism the Canary Islands offers a multitude of tax friendly onshore investment facilities.
Tax haven attacks
Switzerland and many small Caribbean islands have been forced, gently, to open up their bank account information to the largest of countries in recent years. A declaration of assets has been the initial favour asked of these countries, before real pressure is exerted for information to be released.
The problem with tax havens is the strict policy of refusing to declare information concerning these accounts but this advantage is dwindling fast. The Organisation for Economic Co-operation and Development (OECD) is arguing with private bank account owners that they should declare the information held. The UKâ€™s HM Revenue & Customs now offers the Offshore Coordination Unit (OCU) to seek and declare account details.
The argument is clear. Money held in foreign bank accounts that is not declared to the host country is depriving the taxpayerâ€™s home nation of taxation due. It is with this in mind that the larger nations have been seeking to gain more tax during these years of recession.
As those who held money offshore in the Isle of Man showed, an entire countryâ€™s banking system gave in to the pull of European laws when the UK demanded that all bank account details were declared. To be fair, the British government suggested that those declaring their hidden money would escape fines, but those that waited too long found the money was taxed after the bank account information was passed over to the UK tax authorities with substantial fines to follow.
Which tax haven will break next?
No-one knows which tax haven will buckle next, but it might make sense to deal with the issue sooner, rather than later.
With 6,000 Swiss accounts currently under investigation, you have to decide whether you just sit tight and hope to avoid the tax office chasing your funds, or choose to place your funds in a tax haven, onshore. Where better than the Canary Islands?
The Canary Islands benefit from double taxation rules which means you only pay tax in one of the two countries where you hold the money or where you live. If you pay tax on your money in one, youâ€™ll be able to claim a credit of that amount in the other. The Canary Islands are part of Spanish territory under EU rules and share double taxation agreements with many countries.
Good taxation options
One good reason to be taxed in the Canary Islands is the rate of Corporation Tax, set at 4%. To be able to claim this rate, the company must employ five people on the islands and invest at least â‚¬100,000 within two years of registering the business on the islands.
For businesses that do not have to be located in any particular country, such as internet businesses, this is an ideal opportunity especially as salaries in the Canaries are often lower than major EU countries. The local government is also offering help for employers to try to reduce the recession hit unemployment levels.
The IGIC (Impuestos General de las Islas Canarias) tax rate of just 5% applies to business conducted on the islands. There is no VAT. If you are billing someone or a business offshore, then the 5% rate doesnâ€™t apply.
It might be to an individualâ€™s advantage to look at Spainâ€™s income tax rules. People who emigrate to Spain (including the islands) and live there for ten years can pay a 24% flat rate of taxation under the rules of the special expat tax scheme.
The EU considers the Canary Islands a special situation and has agreed with the tax advantages of being based in the islandâ€™s tax system. The EU suggests that the island requires some special favours since the location is remote and the size quite small.
The Canary Islands provide some good tax incentives for the fiscally challenged. The days of the tax havens being offshore look to be ending rapidly. It could be a good time to re-arrange individual and company taxation to gain the advantages offered by the Canary Islands.