Global Policy Forum

By Judith Larner and Patrick Collinson

So you are rich enough and desperate enough to become a tax exile. But where should you head for? There are now 70 tax havens across the globe, and many are far from glamorous.

Probably the world's most provincially unfashionable is Norderfriedrichskoog on the North Sea coast of Germany's Schleswig Holstein state. It is a tiny village with 30 thatched cottages, 50 inhabitants and no pub or hotel. Its tax-free status comes from a decree issued by a local duke 300 years ago freeing residents from "tithes and other tributes" in return for building a dyke to keep the sea out. According to the Offshore Financial Review, farmers in the village (dubbed "Little Monaco" by locals) began renting out barns and cowsheds to some of the biggest names in Germany industry, such as Deutsche Bank, Eli Lilly, Unilever, Lufthansa and power giant E.On. But the cowshed companies' years of milking the German tax system may soon be over, with government moves afoot to close the village's tax loophole.

For Brits who want to make hay but don't fancy sharing it with Farmer Fritz and his herd, the Channel Islands and Monaco are the most popular tax havens. Steve Travis of financial advisers the Fry Group, says before hot-footing into tax exile it's important to consider whether you are pension rich or capital rich. He explains: "If you retire with a big pension, you need to go to a country which has a double tax agreement with the UK. This means you pay taxes at the local rate. In Cyprus, for example, tax on pensions is around 5% as opposed to the UK's 40%." He points out some of the most popular tax havens, such as the Isle of Man and the Channel Isles, do not have tax agreements covering pensions.

For people with large amounts of cash, a place where there is no capital gains tax is the better option. "Andorra, Switzerland or Monaco for example" says Travis. Monaco is tiny - just two square kilometres - but its warm climate and luxurious lifestyle, as well as its favourable tax regime, have attracted some of the richest people in Europe. The country has no income, wealth or capital gains tax and limited inheritance tax. Residency requirements ensure the riff-raff is kept away. To apply for a resident's card you must have accommodation and prove adequate resources, roughly in the region of 250,000 pounds. "This sounds like a lot of money," says Peter Brigham of Monaco-based accountants Moores Stephens & Co, "but it's no more than the equity a lot of people have in their house in London." Those already seduced by the principality's cosmopolitan atmosphere include racing driver David Coulthard and former Beatle Ringo Starr.

The Isle of Man may not have the glamourous cachet of Monaco but it's proximity to the UK makes it a popular choice with the British. It's not in fact part of the UK but a self governing territory within the British Commonwealth. The Island has its own taxation system and has long been a low tax area enjoying total independence from the UK on matters of direct taxation. It has low corporate and personal tax and no capital transfer or inheritance tax. Travis says it may not be everyone's first choice of haven, but it has its own appeal. "People who live there say they feel very safe," he explains. "You can buy a nice house with a garden and play lots of golf. Of course, it's a small island and people could go stir crazy so a lot of them travel. You go there in the winter months and there is hardly anyone around."

Since the early seventies, the calm shores of the Emerald Isle have attracted writers, artists and musicians who benefit from Ireland's zero-tax status for these professions. Less-talented individuals may also be drawn by Ireland's double tax agreement with the UK. Ireland also makes a distinction between "domicile" and 'residency' for tax purposes. A British citizen living in Ireland will be UK domiciled and only taxed on income coming into the country.

Hotly tipped to be the most fashionable tax haven of the decade, Campione d'Italia, combines the efficiency of the Swiss with the lifestyle of the Italians. On the shores of Lake Lugano, this semi independent community is economically dependent on Switzerland, but is actually on Italian soil and governed by Italian law. It has moderate income tax and no inheritance tax, gift tax or VAT. Although part of Italy, Campione does not belong to the European Union and the local currency is the Swiss franc. Owning accommodation is a requirement for residency in Campione. Unfortunately property prices are extremely high, putting the city out of the reach of many. A modest two bedroom apartment costs around 170,000 pounds. But with Milan just one hour away and numerous recreational facilities close by, it could be earmarked for that big lottery win.