Personal Finance in Different Countries - Essay Example

Personal finance in different countries Number Outline I Introduction II Tax and tax havens III Migration and domicile IV Foreign residence Reference List Introduction Personal finance is one area in finance in which financial tools and techniques are utilized for effective use of individual funds. Simply put, this type of finance pertains to all decisions that will be helpful for the family and individual in making investments and savings as well as good personal budget. This is categorized into life insurance, personal budget, student loans, credit card debt and retirement planning. Tax and tax havens Tax havens contribute to growth development in the small potential countries. More so, in small states, land is considered very expensive. The low density in population that the country can accommodate will attract the household with high income (Gordon, 2002, p.15-31). The high-income affected households, in most cases will enjoy low income taxes. The small-scale size is also favored by the formation of social capitals, as well as the reliance of tourism, which is a major promotion to the small size countries. Individuals and the businesses that are residing in a tax haven can use the advantage of evading paying of the taxes back at their original home countries. The conditions of tax haven are not limited to individuals and businesses residing or operating away from the country for it to gain benefits from the policies that guide taxing. The small open economies have lower tax rates on the corporate sector. These small size countries are also on the verge of gaining political stability in their environments. This is geared towards development of the small states in terms of adequate infrastructure (Sparwasser 2007, p.12-14). Tax haven can be the key to erosion of the tax-based policies of the other countries. This is because; the pressure that tax systems undergo is the same in both corporate investment companies as well as personal investment. The logic behind it being that when the jurisdiction is applied on the least income or in some cases no tax on the income of a business or personal investment, then the most of the residents found in a non-haven state may channel all their investments into a tax haven. This essay will discuss the different views that authors have on tax havens. The first part of the essay will give the views of the nature of tax havens as being beneficial to the small states. The reasons as to why they are good to these states will be explained as well as their importance in the developmental strategy of these countries or states. Example will be given to support each point. The second part will give the disadvantages to tax havens. This will be demonstrated by examples that are from real life situations. The third section will describe the nature of tax havens that benefit the small states. In this part factors that determine the beneficial impact on the small states will be explained in details Every person who is considered an American resident is required to pay taxes in U.S whether the income is earned in the U.S or not. A person who is a non-resident of the United State of America will use “Pass through or Disregarded” This means that if a person is not an American resident he can avoid some taxes by taking up tax benefits such of transfer pricing. In the case of U.K, non-residents have tax havens until seven years are over when they start remitting their taxes. People, who have lived in U.K for 17 years in a period of 20 years, do pay inheritance tax because they are deemed domicile in the United Kingdom. UK interested in the well-being of its citizens formulates policies necessary in enriching residents more than foreigners. Due to a tax burden caused by foreigners, government usually, raise the tax rates of local capital. In order to ensure good governance, UK has formulated programs through which citizens can are informed on different political issues. There are high levels of inconsistency in the fact that tax havens are well governed. Most individual argue that, tax havens are mainly used by investors for hiding assets. In addition, investors use tax haven to evade taxes, avoid financial commitments, and launder funds(HT tax Ltd, 2011). Through tax havens, small states have been able to accumulate capital , compete favourably with other nations and formulate improved tax laws. In addition tax havens help in fostering economic growth. It is due to this that several directors have adviced Britain not to do away with tax havens, and instead find means through which they can emulate them. Even though tax havens faced different challenges in 2008, they are determined to work harder in ensuruing that economic growth is enhanced. UK interested in becoming tax havens should ensure that they understand the nature of tax havens. In addition they should be able to promote financial openness in order to curb corruption. Migration and domicile The United States of America has a different system of treating foreigners living in their country as compared to the United Kingdom. Each state in the U.S. has separate laws governing migration and domicile. A person has to comply with the domicile laws of a state in order to be allowed to live in that state. A person living in the U.S, whether American citizen or a green card holder, is assumed to be domicile in the U.S and is required to make all tax returns as required by the law. In USA, non-residents are given temporary working permit to obtain employment in the country. Because it is temporary, there is a prescribed time limit since the local workforce may already fill the required specialty occupation. New graduates or new additions to the job market may need to find work and they could do so if the positions are being vacated. A visa is issued with a three-year stay. This can be extended up to six years. If the six-year maximum stay has been used up, the foreign worker has to remain outside of the U.S. for a period of one year before being allowed to seek employment again with an American company. Some special cases though allow for longer periods of stay (Pastor & Alva, 2004, p. 97). Foreign workers are more likely to stay and become a permanent resident so that he would have the same advantages that are only reserved for the nations citizens. An employer can attest that the persons skills and qualifications are very necessary for the success of the organization. The workers status then can be adjusted from being temporary to permanent resident after the proper documents are filed and the fees are paid. According to Pastor and Alva (2004), this makes the worker visa similar to a probationary immigrant program. This provision of the program has gotten a lot of criticism from many quarters since employers can choose to sponsor their foreign employees to become permanent residents. When the application is approved, the opportunity for the local workforce to obtain the job would be gone. In addition, the H-1B work visa allows the worker to bring his family to live with him during the time he is employed in the country. The spouse, however, cannot obtain work unless she obtained her own H-1B visa. The children though can attend public or private schools in the United States during the period when their parents are holders of H-1B work visa (Pastor & Alva, 2004, p. 97). These features are very helpful especially when the labor need is great or the competition for the same talent is high. Foreign residence A person can move from U.S or from U.K and settle in a different country away from home. Moving away from U.S or U.K does not in any way guarantee the person is not a resident of the country. A person moving from the United Kingdom to a different country will be assumed a resident of the United Kingdom until a time when the person takes up full time employment in a foreign country starts business in a different country and stays there. This person will need to prove that he has a full time employment by way of employment contract, a work permit allowing him to work in that country, a diary showing how he spend his time and a copy of a certain form that is required to be filled. The other rule is that one should not have stayed in U.K for 91 days otherwise you will be assumed a U.K resident. The aim of these rules is to ensure that individuals do not run away from UK without paying taxes while making regular visits to the U.K. In the case of the United States of America, all Americans are assumed American residents even if they go out and work as expatiates so long as the person intends to come back to the United State of America. It should be noted that residency is defined as having substantial presence in the United States of America regardless of citizenry. This means that a person is considered a resident of America if he has stayed for more than 192 days of a year. Reference List Gordon, R. A., & Starchild, A. 2002. Tax havens and their use by United States taxpayers. New York, Books for Business HT tax Ltd. 2011. ‘Frequently asked questions- US Tax’. HT tax Ltd: US and UK tax services. [Accessed 20 March 2012] Pastor, M., & Alva, S. (2004). Guest workers and the new transnationalism: Possibilities and realities in an age of repression. Social Justice, 31, 91-113. Sparwasser, P. 2007. Development-Guideline of eBusiness considering international accounting and taxation aspects. München, GRIN Verlag GmbH. .[Accessed 20 March 2012] Tax haven USA. 2011. ‘The United States as an Offshore Tax Haven’ [online] 1 January. Available at: [Accessed 20 March 2012] Read More