How to Work with Tax Haven Jurisdictions
Entrepreneurs are always coming to me asking how to pay zero tax by relocating their business to a tax haven jurisdiction. Every time, I tell them the same thing—the tax savings is not triggered when you relocate your business; the tax savings is triggered when you relocate.
If you create, for example, a Cayman Islands LLC, you do not automatically reduce your tax liability to zero. If you are living in a higher tax jurisdiction like the US, Canada, Europe, or Australia, you are subject to tax on your worldwide income, but only to the extent that that income is sourced to your home country. In addition, LLCs are flow-through entities, so all income flows through to you personally and is taxed at personal income tax rates.
So for example, if you create a Cayman Islands LLC, which you operate from Australia where you live, the LLC income would be sourced to Australia, as that is the location from which the business is considered to operate, and you would be subject to tax in Australia on 100% of your LLC income, which would flow through to you from the Cayman Islands LLC and be taxed at personal income tax rates in Australia.
Thus, the only way to take advantage of reducing your taxes via your Cayman Islands LLC would be to move to a jurisdiction that has low personal income tax rates. There are many jurisdictions whose personal income tax rate is as low as 0%. Cayman Islands is one such jurisdiction. So if you were to relocate to the Cayman Islands along with your LLC, that’s when you would get your tax bill down to $0. Alternatively, you could relocate to other tax haven jurisdictions with low personal income tax rates. There are 17 countries with no personal income tax, listed below.
Bahrain
Bermuda
British Virgin Islands
Brunei
Cayman Islands
Kuwait
Maldives
Monaco
Nauru
Oman
Qatar
Saint Kitts and Nevis
Somalia
The Bahamas
The United Arab Emirates
Vanuatu
Western Sahara
Once you have relocated, your business will be considered to be operating from your new, low-personal income tax jurisdiction, and 100% of its income will be sourced there, resulting in you paying little to no tax.
