Quora Answer: How Do Tax Havens Work?

The following is my answer to a Quora question: “How do tax havens work?  How do the richest people in the country avoid paying taxes?” 

Tax havens refer to low tax jurisdictions that have a policy of actively encouraging foreign individuals or corporations to deposit funds into them through a regime of low tax for the wealthy, and laws that obfuscate the ownership of assets and deposits through various legal structures such as shell corporations and blind trusts.  While depositing funds and owning assets through a tax haven is not illegal, it creates suspicion since most of those funds are either from illegal activities, or more likely, their owners are guilty of tax avoidance. 

Wealthy people can afford financial consultants, private bankers and tax consultant.  They can afford to set up the requisite companies and trust structures to run their earning through since taxes on individual are before expenses, while taxes on other legal persons are after expenses.  These structures allow them to expense out costs to lower their tax liability, and limit their tax exposure.  They also know how to take advantage of tax breaks through those consultants.  The average person does not have access to that level of advice, or the funds to create those structures.