http://siliconisle.com/taxes.html
Anguilla is a small society in the Caribbean with a successful tourism economy. The growth-oriented tax system is based on consumption, not income, and rewards productive behavior. Anguilla has a government, so it has taxes, but it doesn't have a sales tax, VAT, GST, income tax, profits tax, capital gains tax, or inheritance tax.
Those who use the services, pay the taxes on them. When you buy something that is imported into Anguilla, and most things are imported, the price includes import duties. Duties are a type of consumption tax, like a sales tax. Anguilla collects about 25% duty at the border on most items (actually 5% on food and computers to 30% on beer and cigarettes). Anguilla also has yearly license fees for businesses and professions, plus work permit fees for foreign workers. The property tax is only on improvements, not land, and the rate is very small.
In many countries, there is also a universal "Value Added Tax" that applies to every sale of goods or services in the economy. VAT turns each electrician and gardener into either an unpaid government bookkeeper/tax collector, or into a tax cheat in the underground economy. Currently, there is a 7% GST in Canada and 10%-40% VAT in Europe, and it is imposed in addition to heavy income taxes. Anguilla does not currently have a VAT.
The system for raising revenues in Anguilla is relatively eco-friendly in that the consumption of non-renewable resources is taxed fairly heavily. Those who use the roads pay a heavy annual vehicle licencing fee, and an annual driving license fee. Those who consume gasoline pay the import duty on gasoline, and those who buy cars pay a a heavy import tax for them.
Taxes in Anguilla are on consumption, not productivity. When you buy land, you pay a 5% stamp tax, 17.5% if you are not a "belonger" (local citizen). Those who use the airport pay a $20 departure tax and those who use the less expensive ferry service pay a lesser tax, only $2. There is a 10% tax on hotel rooms, but a night at Lloyds Guest House for $65 per night only collects $6.50 tax, while staying in an $800 suite at Cap Juluca adds $80 to the bill. (All figures on are in US dollars, tax rates are 2003.)
Instead of deducting half of family income from paychecks for income taxes, surcharges, and social security taxes, Anguilla collects only a 5% social security tax (plus 5% from the employer, and the maximum is $186/month combined).
There are no taxes on savings and investment. This encourages people to save and invest. Many Anguillians, even those with very modest incomes, manage to save impressive amounts. Others, of course, do not save.
Instead of punishing those who build a successful business by taxing away half their capital gains when they sell, Anguilla rewards hard work, boosts savings, and encourages growth of the economy. The result? The country has gone from poverty to regional prosperity in one generation.
And there is no inheritance tax in Anguilla. Family land is the most important thing in Anguilla and inheritance tax that had to be paid in cash would eliminate passing down land to your children.
Anguilla employs both the US dollar and the EC dollar in local commerce, without exchange controls. By having the most rational currency regulations in the OECS (Organization of Eastern Caribbean States), Anguilla has more foreign currency deposits than any other OECS state. Banks use the normal "know your customer" rules to avoid money laundering.
Compared to many countries, the USA is considered tax efficient and it uses that to attract foreigners. Many creative and productive Europeans, Asians and Latin Americans make personal choices to create their businesses in Silicon Valley or Miami instead of Paris or Berlin ("Go West, Young Frenchman", Business Week, March 9, 1998: "A torrent of talent is leaving France"). Even more foreigners use the excellent financial services of the United States and the Internet makes this easier still. From Anguilla you can open an account at a discount broker in the USA, and have full investing services over the Internet, all provided by a US firm. Or if you open an account at Dollarbank while visiting the USA, you can do all your banking over the Internet. If it is okay for the USA to use it's low tax rates to attract most of the brain power of the world, why does it call what Anguilla does "harmful tax competition"?
You can think of Anguilla as a laboratory experiment in alternative tax policies. Tax policy in Anguilla isn't perfect, but it works. Anguilla, along with Hong Kong, New Zealand, and Chile, have shown that small places can prosper despite serious handicaps. In the 30 years since Anguilla separated from St.Kitts/Nevis, Anguilla's people have built a successful, productive economy, and now attract guest workers from neighboring islands. And these other islands have tax systems of the European/US model that sap the growth of new small business and protect the large, entrenched firm with its political connections and lawyers.
Anguilla has a simple, straight-forward tax system without loopholes, tax lawyers, or strangling paperwork, which favours traditional ethics of hard work and saving for one's future and the future of one's children.
