What are tax havens, and how do they work?

We explore what you should know about tax havens, including what they are, how they work, and whether you can legally retire in one.

What is a tax haven? 

A tax haven is a country or territory that offers foreign businesses and individuals no or low tax liability to attract external investment. 

They usually impose special tax rules to encourage wealthy businesses or people to deposit money in a bank in that country.  

Many common factors help identify tax havens, according to the Organisation for Economic Co-operation and Development (OECD) including: 

• No, or low tax on relevant income

• A lack of effective exchange of information

• A lack of transparency

• There is no requirement for substantial activities, so profits can be made from certain mobile activities without corresponding economic activity

Many tax havens are well-established and are fully compliant with international standards.

For example, Ireland, Luxembourg and Singapore are often called tax havens because they charge lower taxes than elsewhere.

They are compliant with international law and are low-tax jurisdictions rather than secret tax havens.

However, according to the Tax Justice Network, some tax havens are known as ‘secrecy jurisdictions’ as they often specialise in helping individuals hide their wealth and financial affairs from the tax authorities.

Are tax havens legal?

Although controversial, the use of tax havens can be legal and is a common method for the super-wealthy to reduce their tax.

Wealthy individuals use specialist advisers and accountants to make sure their affairs are compliant and meet any disclosure requirements.

What are the problems with tax havens? 

Many believe tax havens create financial injustices, with some of the main issues including: 

• Loss of tax revenue: If an individual or company does not pay tax in their home country, the government loses out on tax revenue, which can impact funding for vital services and infrastructure. 

• More inequality: Tax havens are usually used by the wealthy, who have the resources to use tax loopholes that others do not. According to the Tax Justice Network, tax havens “fuel inequality, foster corruption and undermine democracy.” 

• Instability: According to the International Monetary Fund (IMF), as a tax haven’s primary purpose is to facilitate tax avoidance, this activity results in little investment in tangible assets, making the tax haven business highly volatile. 

More pressure has been placed on tax havens to curb their activity and reduce incentives they offer over the last few years, including from the US and European Union (EU), as well as advocacy groups.

Following the publication of the Panama Papers – a collection of documents disclosing how the superrich used tax havens to conceal their wealth, escape public scrutiny, and avoid paying taxes – this pressure intensified.

Tax havens are slowly reforming. The OECD’s Global Forum monitors their transparency and compliance with international standards. Non-compliant countries may face sanctions or reputational damage.

For example, some Caribbean jurisdictions require their banks to adopt more transparent practices to meet standards set by the Global Forum.

Who benefits from tax havens? 

While many disagree with the use of tax havens, they are beneficial to those who use them. 

Those who benefit include:

• Wealthy individuals: Those who use tax havens can enjoy a lower or no tax liability.

• Corporations: Companies that use tax havens also enjoy lower tax rates. For example, Apple chooses to base some operations in uses Ireland reportedly to save up to $65 billion in taxes, according to the Corporate Finance Institute (CFI).

What countries are tax havens? 

Tax havens can be found everywhere, with well-known tax havens including: 

The British Virgin Islands 

The BVI has 39,000 residents but is home to around 400,000 companies and holds approximately $1.4 trillion in assets, according to information platform Mondaq.

Offshore businesses registered in the BVI are generally exempt from corporate income tax, capital gains tax, or VAT. 

BVI international companies also pay no income tax or capital gains.

As the territory has few tax treaties with other nations, the financial privacy of bank account holders is largely protected.

Cayman Islands 

Alongside no corporate tax, the Cayman Islands does not impose direct taxes on residents, including property, income, and payroll taxes, making it popular with both individuals and businesses alike.

Fortune 500 companies, including Pepsi, Marriott, and Wells Fargo have subsidiaries in the Cayman Islands, according to WPR.  

Bermuda  

Bermuda in the North Atlantic is a well-known tax haven for companies worldwide. 

According to PWC, it does not impose taxes on profits, income, dividends, or capital gains, has no limits on profit accumulation, and does not require dividend distribution. 

From January 2025, Bermuda introduced 15% corporate income tax for businesses that are part of multinational enterprise groups with annual revenue of at least €750 million.

Switzerland 

Switzerland has low taxation for both foreign businesses and individuals.  

According to the Swiss Federal Department of Finance, foreign nationals who are living in Switzerland but are not employed there can choose to be taxed under a lump-sum system. Tax is based on their deeming living expenses instead of their income and wealth.

The Swiss government also offers significant tax breaks to companies that hold 10% shares of other corporations. 

It’s worth stressing that while the wealthy can take advantage of the country’s low tax rates, its financial privacy laws have been weakened due to pressures from both the US and EU.  

Luxembourg 

On paper, Luxembourg is one of the richest countries in the world in 2025, with a gross domestic product (GDP) of over £152,000 per capita, according to Global Finance. 

However, this doesn’t mean everyone feels rich, as it’s skewed by the mega profits of a few big organisations.

It is also one of the most well-known tax havens in the world, with its favourable low tax rates and impenetrable tax secrecy, making it home to many US Fortune 500 companies and individuals looking to reduce their tax liability.  

Can you legally retire to a tax haven? 

As they are predominantly countries and territories with their own laws, tax havens are legal, meaning you can move to a tax haven if you wish. 

However, the specific actions and laws of both the tax haven and the UK will determine the legality of how you use them.  

It’s worth noting that while you can move to a tax haven, you will still have to pay UK tax if you’re classed as a UK resident – for example, if you visit the UK for more than 183 days in a tax year.

Despite moving abroad, you could still end up owing tax in the UK, which could make your move more expensive than anticipated.

You’ll also continue to owe tax on any assets, UK income or pensions based in the UK, even if you move to foreign shores.  

Get financial advice 

Navigating the intricate world of international tax law and offshore jurisdictions is fraught with complexity.

Therefore, it's wise to seek expert advice to make informed decisions tailored to your unique circumstances and long-term goals.

A qualified financial adviser, particularly one specialising in expatriate finance, can provide invaluable guidance on the specific rules of both the UK and your chosen country.

They will help you create a legal and compliant financial strategy, ensuring you fully understand residency requirements, the implications of tax treaties, and how to manage any remaining UK-based income or assets.

Getting professional guidance isn't just about optimising your finances; it's crucial for avoiding unexpected tax bills and ensuring you successfully and legally achieve your retirement objectives.