Have you ever looked at your payslip and thought, ‘ m y God! I’d be rich if I didn’t have to pay taxes’? Well if you don’t pay your taxes, that’s tax evasion and that’s a crime, but there are ways to avoid having taxes to pay in the first place.

First of all, taxes do serve an important purpose. They pay for schools, roads and salaries for police officers, nurses, doctors and teachers, among other things. That’s why not paying your taxes is a crime. For many of us, the phrases “tax avoidance” and “tax evasion” sound pretty the same; however, the devil is in the details because whereas tax avoidance is legal, tax evasion isn’t.

Tax avoidance is the use of legal methods to minimise the amount of income tax owed by an individual or a business. What’s interesting about tax avoidance is that it’s pretty easy to do and you’ve probably already done it. Do you currently contribute to a pension plan? On top of pension plans generally being tax-exempt, contributions made to an approved superannuation fund or an approved retirement scheme are deducted before income tax is applied. Are you someone who regularly donates to charity? Making donations to a registered charitable organisation can also be deducted from your salary before taxes. Tax avoidance is the art of tax planning; taking advantage of as many legitimate tax deductions and tax credits as possible.

The country that you pay taxes in will determine the tax deductions that are available to you. In Saint Lucia, you can get tax deductions for contributions to an approved registered homeownership savings plan (RHOSP) and life insurance premiums. In Trinidad, a tax deduction is available for tertiary education expenses. There’s also a tax credit available to venture capital investors. In Barbados, your contributions to a registered trade union are also tax-deductible.

Depending on where you live in the Caribbean, you may be able to benefit from the Caricom Double Taxation Agreement. According to this agreement, the income of Caricom nationals is subject to taxation in the country where that income is earned. For example, if you’re a Jamaican national working in Trinidad, your income is taxable in Trinidad. This is especially beneficial to Caricom nationals who are working in another Caricom country with a lower tax regime than their home country, and the best part is, you’re only paying taxes in your host country. You won’t be paying double taxes to both your home country and host country.

Tax havens

On a larger scale, we see businesses benefiting from this agreement through the use of tax havens. Tax havens, also known as offshore financial centres, are countries that offer very low or no taxes. In the Caribbean, St Lucia’s tax regime has made it a popular site for international business companies (IBCs); that is, companies that are established in tax havens and are controlled by non-residents. IBCs incorporated before January 2019 were able to choose between exemption from income tax or to pay income tax at a rate of one per cent. As a signatory to the Double Taxation Agreement, these businesses would only be subject to St Lucian tax laws. Can you imagine registering your business and only having to pay one per cent in taxes and you can’t be taxed anywhere else? Sounds like a sweet deal, right? PROVEN, Sygnus and First Rock are some of the listed companies in Jamaica that are registered in St Lucia and have taken advantage of this.

I also looked into this when I was incorporating Kalilah Reynolds Media (KRM) last year. I figured, if this is how the rich people do it, I want to be like them. However, there were a couple of reasons this didn’t quite make sense for KRM. The biggest one was that I missed the boat. Changes to St Lucia’s tax laws came into effect just last month, July 1, 2021. IBCs incorporated after January 2019 are no longer able to opt to be tax-exempt or pay taxes at one per cent. Instead, all IBCs will be deemed resident companies and subject to income tax at a rate of 30 per cent on income earned in St Lucia. However, that specific amendment won’t pose a problem for companies that don’t have operations there. There’s a lot more to that, and we definitely need to have a deeper conversation on the changes to St Lucia’s IBC laws, but I just raised it to point out that this is one of the ways that businesses have legally avoided taxes.

Shell companies

People are also able to make use of tax havens by setting up shell companies. A shell company is a body corporate created in a tax haven. Unlike an IBC that will provide goods or services to a country although it is registered in another country, a shell company only exists on paper with no employees, no office and providing no goods or services. They are known as shell companies because similar to an empty shell, there’s nothing inside. A shell company can have different uses, which may constitute tax avoidance or tax evasion.

In 2016, it made headlines when it came to light that many Jamaican politicians had registered companies in St Lucia, most notably, then leader of the Opposition and current Prime Minister Andrew Holness. Many questions were being asked about Holness’s house being constructed in Beverly Hills, St Andrew. It was revealed that a company called ADMAT Incorporated, registered in St Lucia, had purchased the property in 2011. ADMAT is named after Holness’s sons, Adam and Matthew. Attorney-at-law Patrick Bailey, who had signed the transfer documents as a witness, said at the time that ADMAT was set up as a trust for the Holness’ boys. He also made the point that Holness was not attempting to evade taxes. “Remember the law says you can avoid taxes. It is illegal to evade taxes, but it is quite lawful to avoid taxes, which is a different thing,” said Bailey in an interview on Nationwide News Network about the issue on February 16, 2016.

Individuals or businesses may use shell companies to purchase or transfer assets, which legally would belong to the company and not its stakeholders. It would also be the responsibility of the company to pay any taxes on those assets. Owning a shell company is not inherently illegal, but it depends on what the company is used for. Buying property through a shell company and lowering your personal tax liability isn’t a crime; however, using that shell company to hide assets and evade taxes is.

Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax liability. Tax evasion can take many forms, such as not paying your taxes or underpaying your taxes by lying about your income. For example, if you have a very lucrative side hustle that meets the tax threshold but you haven’t reported that income and haven’t paid taxes on it, you’re committing tax evasion, which is a crime.

Legal grey area

Recently, cryptocurrency has been considered as a potential avenue for tax evasion. A largely unregulated sector, for many countries, cryptocurrency is still a legal grey area, especially in determining whether it should incur taxes in the first place. Furthermore, most governments don’t have a system to keep track of who owns cryptocurrency or how much income has been earned from it, and let’s face it, there aren’t many people willing to report their crypto income just to pay taxes on it.

OK, so let’s get this straight. Tax avoidance is reducing how much taxes you owe and tax evasion is having taxes to pay and not paying them. Sounds pretty simple right? Well not exactly. In real life it gets complicated because the same methods used to avoid taxes can also be used to evade them. If you’re unsure, it’s best to consult a licensed financial advisor or tax consultant.