The phrase "tax haven" conjures a twin image of swimming pools and tedious form filling; of meeting to discuss your financial affairs with a Hawaiian-shirted adviser under a coconut palm. But never before has the package of fiscal inducements that exotic islands offer looked so alluring to wealthy people battered by the current financial markets and looking to shore up their assets in idyllic settings.
Whether it be retirees consolidating their pensions, entrepreneurs looking to establish off-shore companies or individuals on the hunt for centres of low taxation, the market is as international as the destinations. The mobile nature of modern-day business has further liberated high-flyers from key commercial capitals.
"Many people who have made money assume that the only thing to do is to move abroad," says Duncan MacIntyre, head of Coutts Private Office, which manages the needs of the ultra-wealthy. "But often their wants are different to their needs. I had one client who called me from his wardrobe in a hurricane saying 'get me the hell out of here'." And MacIntyre, the majority of whose clients are British, also points out that entrepreneurs are getting younger and the practicalities of living overseas, such as educating children, can be a challenge.
Nevertheless, the lure of fat financial carrots combined with blue seas and pristine beaches is fuelling a market that, for example, allows islands such as Anguilla in the Caribbean to offer luxury houses priced at $36m.
Of all of the world's low-tax islands, the most winning ledger-lifestyle combinations can be found here. Several islands openly compete for the attentions of the rich: including Anguilla, Bermuda, Barbados, the Bahamas, the Cayman Islands, Grenada, Nevis and the Turks and Caicos.
Although details vary, as a rule of thumb there are no income, capital gains, value added, sales or wealth taxes. Barbados has developed a range of offshore formats. In the Cayman Islands, there are no taxes other than import duties and 7.5 per cent stamp duty on the transfer of real estate.
Barbados will charge 20 per cent tax on any rental income you receive from your property but this is not so in any of the others.
"High-net worth individuals are not only more numerous than ever before, they're more interested in tax havens in exotic locations," says James Hickman of Caxton FX, a specialist currency exchange company.
Those who want to take advantage of personal tax breaks through residency status are generally required to own a home and the islands will apparently go to any lengths to attract investors. Anguilla, Grenada, the Turks and Caicos, the Bahamas and Bermuda are all constructing homes with berths big enough to accommodate the rise in ownership of "super yachts" (over 24 metres long). "Marinas have overtaken golf as the key driver at the top end of the second-homes market," says James Price of estate agency Knight Frank.
Well-situated between India, Africa and Asia, Mauritius was hardly a dot on the second homes map before 2005, when property ownership was opened to foreigners. This attracted a slew of upmarket resort-style developments, such as Villas Valriche and the Banyan Tree group's complex at Corniche Bay. Three years later Mauritius is a fixed star in the second homes firmament. Its favourable tax treaties with more than 30 countries can be combined with its off-shore companies laws to produce very good results. The purchase of a villa allows for residency and qualification for its 15 per cent tax rates. There is no inheritance or capital gains tax.
When the Seychelles offered property ownership to foreigners three years ago the islands became as attractive to investors for their very-few-strings-attached attitude towards tax as their lush setting. There is no income, capital gains or inheritance tax, although rental income is counted as company income and is subject to a progressive tax rate of 25 per cent and up.
Resort developments by leading hotel groups such as the Four Seasons, Banyan Tree and the spa company Per Aquum have underscored the islands' intention to pitch themselves at the upper end of the market.
The Islands of the World development - Dubai
If pearls can be cultured and salmon farmed, "the world" can be sucked from the waters of the Persian Gulf and sold. So believes Nakheel, the property developer offshoot of Dubai's government that is creating the Islands of the World - a 300-island verisimilitude of planet earth just off the country's coast. And while the development carries no extra tax incentives, it hardly needs to, according to Alex Upson at estate agency Cluttons. "Every foreigner in Dubai is attracted by the tax free environment. There are very few who go only for the lifestyle or the job opportunities," he explains.
In essence there are no income or capital taxes in Dubai. It has several double taxation treaties (which prevent people having to pay in both their country of origin and their place of residence) with high-tax countries and is often used in international tax planning by large corporations that have made it their headquarters.
In recent years the country has made great efforts to improve its financial reputation. "You had people turning up with suitcases of money to purchase property and the banks would take it over the counter," says Upson. "You can't do that today. There are strict procedures in place and everything has to have a proper paper trail."
By 2020 an extra 2.3m Britons over the age of 50 (one in five retirees) will have retired abroad, according to research by Alliance and Leicester International. Many of those, like 68-year-old Andy Leck and his wife, Eileen, will be heading to the Mediterranean island of Cyprus.
"The climate was the most important thing attracting us, then the 5 per cent tax on my pension- I was paying 40 per cent back home," says Leck, a former chief executive with a house-building company. "That means I save £40,000 a year by being in Cyprus rather than Britain."
Leck is among those taking advantage of Cyprus's double tax treaties with 33 countries, including most western "high-tax" countries and most central and eastern European states. Nearly 50,000 off-shore companies are registered on the island.
Aware that Cyprus is attractive for retirees, developers the Leptos Group, is directly targeting its Apollo Beach Villas, a beachfront development close to a proposed marina, at this valuable market.
Madeira is somehow still redolent of the era of elegant liners calling on route to the southern hemisphere. The island government has a good degree of autonomy from Portugal but most legislation - including tax - is Portuguese. Its 46 double taxation treatiesare very attractive to retirees.
The "Switzerland of the Mediterranean", Malta lies 100km south of Sicily. It has a population of 400,000, a warm climate and a Westminster-style democracy. As a politically-stable, English-speaking retirement destination, it has experienced a real-estate boom, especially since joining the European Union in 2004. Malta has moderately high internal taxes such as value added tax but offers low tax regimes to companies and individuals.
Jersey and Guernsey
The Channel Islands have numerous low-tax business and personal incentives. What they do not have is guaranteed sun.
"No one really wants to go and live in a freezing tax haven and today people like the excitement of a completely different lifestyle," says David Franks, of European financial advice group Blevins Franks. "But the advantage of a British tax haven (including the Isle of Man) is that at least you can return to the mainland to take care of business or to visit friends and family." Not that, as Franks points out, the UK itself isn't busily flaunting its own tax appeal.
"Britain is incredibly attractive to non-domiciles," he observes. "The government realises that the wealthy create employment and that the economy benefits. They even get more tax - just indirectly."
With people the world over owning two, three or even several overseas homes, the relationship between government fiscal generosity and quality property is likely to become ever more intimate.
Article by: Catherine Moye - www.ft.com