There are many tax havens around the world. However, most of them are small and isolated islands which can quickly become boring to their residents despite the fact that such places often have a pleasant tropical climate. That is why some people who do not want to pay taxes prefer to live in floating tax havens, i.e. ships which constantly travel around the world.
Because the floating tax havens sail in international waters and stay in the national waters of individual countries for a short time (usually a couple of days), their passengers do not fall within the scope of the tax jurisdictions of the visited countries. Most countries require a person to reside on their territory for a certain time in order to become a tax resident. For example, under UK law, a person who spends less than 16 days per year in the UK is automatically considered to be a non-UK resident. For tax purposes, the territory of the UK includes waters within 12 nautical miles of the coastline. Please bear in mind, however, that the U.S. taxes its citizens no matter where they live.
There are two types of floating tax havens: residential ships (Section 2) and private yachts (Section 3). These two types of floating tax havens are discussed in more detail below. At the end of this article, concluding remarks are provided (see Section 4).
Residential ships
The idea of a floating residential tax haven has long intrigued rich people. In 1921, the New York Evening Telegram, a New York newspaper, mentioned a proposal to build a floating island. According to the newspaper, the parties who made the proposal “guaranteed” the patronage of half of the millionaires in America.
The World is a typical example of a floating tax haven. It is a private residential ship which constantly travels around the globe and stops at attractive coastal destinations. The ship has 165 luxury residences. The current residents come from 19 countries. The itinerary of The World for 2024 includes Singapore, the exotic islands of Southeast Asia, Maldives, Seychelles, West Africa, Morocco, the Mediterranean area, the United Kingdom, Iceland, Greenland, Canada, the United States, the Panama Canal, South America, and Antarctica.
It is worth mentioning that there is a current project to create a floating city called the Freedom Ship. The Freedom Ship will be a mile long and house 50,000 people. The floating city will be powered by solar panels and wave energy. According to the press, the Freedom Ship will be more affordable than The World. If you would like to see how the Freedom Ship will look, please visit http://freedomship.com/.
When purchasing an apartment on a residential ship, one needs to consider at least four factors, namely, (1) tourists’ access to the ship, (2) the annual residence fees, (3) the flag of the ship, and (4) the age of the ship.
In relation to the first factor, it should be noted that short-term tourists often consider a ship a place for partying and unlimited alcohol consumption. So, before investing a couple of millions in an apartment on a ship, one may want to ensure she could live there without being disturbed.
As for the second factor, the annual residence fees charged by the residential ships are significantly higher than similar fees charged by terra firma tax havens. This is because the residential ships need to cover the expenses for fuel and a large number of crew.
Concerning the third factor, under international maritime law, the registration of a ship brings the ship and the people on board under the exclusive jurisdiction of the country of registration (also known as “flag state”). This means that the flag state’s laws will apply to anyone on the ship. Consequently, if you want to avoid certain jurisdictions’ claws, you need to not sail under their flags.
The fourth factor is that a passenger ship’s life span is approximately 30 years. So, before buying an apartment in a residential ship, it is worth considering the ship’s age. Otherwise, your stay on the ship may be shorter than expected. While keeping a ship older than 30-40 years is theoretically possible, it may not be economically feasible because such a ship will need serious rebuilding.
In the future, some floating tax havens may acquire the status of countries to gain complete legal independence. Such independence will, for example, allow the floating tax havens to stay aside from any international agreements to exchange tax information. A largely self-sufficient ship may resist international political pressure and become the last place where one keeps her assets in complete privacy.
Private yachts
People who cannot afford an apartment on The World and other similar ships can establish their tax haven by purchasing a suitable yacht. A safe and comfortable ocean travel yacht can be found for under USD 200,000. The comfort provided by such a yacht may not be compared to the comfort provided by The World, but the yacht will probably have air-conditioning, a wet bar with an ice maker, a refrigerator, and a lot of space. Using your yacht to avoid taxes can be especially beneficial if the yacht sails mainly in places where countries are close to each other. Thus, you can spend, for example, two weeks in every country without paying much money to travel between the countries. Such places include the Caribbean region and Oceania. Of course, if you believe in superstitions, you may want to skip the Bermuda Triangle.
It should be added that if you do not reside in any country, you will not be entitled to use the advantages of double-tax treaties. Hence, you cannot reduce any withholding taxes you must pay.
Concluding remarks
To live in a tax haven does not necessarily mean staying in a condo with a seafront view and enjoying the growth of the coconuts on the nearby palms. Life in a tax haven may constantly travel from country to country. Whether your adventure will take place on a luxurious residential ship or a small boat depends on how much you want to spend.
BUT even if you live on a yacht there could be reasons…to have a fixed residential address, or maybe you want to organise your assets in a trust or foundation. You will not choose to have all your assets in gold bars on your yacht. Every situation is different, and everyone needs tailor-made solutions. Just contact us for creative but legal advice at [email protected]
