ntries whose resident taxpayers use the haven. (2) Bank and commercial secrecy: the haven will usually have secrecy rules based upon either statutes, common law precedent, or administrative practice. (3) Lack of exchange controls: Tax havens usually have a dual currency system, distinguishing between residents and non-residents and between local and foreign currency. In this system, residents are subject to currency controls while non-residents are subject only to controls with respect to local currency. A company formed in a tax haven, beneficially owned by nonresidents and conducting most of its business outside the haven, is usually treated as a non-resident for exchange control purposes and its operations are not subject to the haven's exchange control regulations (as long as it is dealing in a foreign currency). (4) Disproportionately large financial sector: The typical haven encourages offshore banking business, distinguishing between resident and non-resident activity. Non-resident activity will usually be taxed more lightly, be free from exchange or other controls, and have no reserve requirements. (5) Modern communication facilities: the haven will have both modern physical transport (air and sea) and networks (post, telephone, cable, and telex). (6) The haven will usually be a party to only limited tax treaties, providing for little or no exchange of information. Other characteristics will usually include political and economic stability, favorable disposition towards foreign capital, and the availability of competent professional advisors (accountants and lawyers).
Three popular tax havens are the Cayman Islands, the Netherlands Antilles, and the Channel Islands. The Cayman Islands and the Netherlands Antilles have been among the most popular tax havens in the world and have attracted more U.S.-controlled or source assets than any other locations, save Bermuda and Switzerland (although in some categories of assets they hav...