Offshore banking is favored as a tax haven of choice by many who either contemplate dodging taxes in their native country or expect to get away with paying a far less amount. As the name suggests, a tax haven is a means by which you create bank accounts in foreign countries where tax rates are low and sometimes taxes are not even levied.

Wealthy individuals and businesses often take advantage of this. The good part of this is that parts of the world who might not have enjoyed a very strong economic growth are helped by businesses establishing themselves in their countries. Different countries work in different ways regarding jurisdiction of taxes.There are different laws for different businesses and individual accounts. It is wise to check this before starting accounts and establishing businesses.

Most countries levy taxes on those who make their money within the country and their incomes from other global sources. Some people prefer to head out for countries with a lenient tax regime and save on their precious bucks. Some others establish businesses or legal bodies like offshore companies or foundations and offshore trusts. They then move these resources to these newly founded companies. These also entail that they do not have to show this income in their native countries.

According to the laws of United States of America, residents cannot evade or escape from paying tax, whether they have a local or global business or industry. It is compulsory for all American citizens to pay taxes. Thus many people give up their citizenship to take advantage of tax exemptions. However, the strict laws of America do not permit residents to exclude their income over and above $80,000 if they are living over seas. US citizens are allowed to set up offshore trusts and companies which can be used only to reduce tax.

There are many advantages for countries to set up tax havens. It is not compulsory for countries to charge as much tax as other industrialized countries. Many countries offer tax exemptions and tax incentives to companies and traders to set up their business in their country, so that they recruit local people which will solve the problem of unemployment. This helps to enhance the country's economy. New businesses increase the standard of living and help the locals to learn new skills. Thus these countries are no more in competition with large developed countries.

There are critics who cry foul at these tax havens, accusing them of encouraging people to evade taxes in their native lands. They also feel that these alluring tax havens also give rise to money laundering. However, all of these are not true as tax havens mitigate the emergence of black markets and sometimes brandish quite stringent money laundering laws.

It is a popular myth that all tax havens are tax-free, as some do levy taxes on incomes and property. There are however differences in tax laws in various countries. It is prudent to enquire about these laws when you are thinking of operating out of a tax haven. In fact, this is the right way to zero in on a tax haven that will be most suited to your needs.