Offshore: Tax Havens, Shell Companies, and the Panama Papers
The Million Dollar Question: According to the 2024 Global Tax Evasion Report, what is the estimated personal effective tax rate of the world’s billionaires — measured as a share of their wealth?
A) ~25% B) ~10% C) ~3% D) 0% to 0.5%
Read on for the answer.
Say the word “offshore” and most people picture the same thing: a suitcase of cash, a numbered account on a palm-fringed island, a dictator hiding stolen money. That picture isn’t wrong, exactly, but it is a tiny and unrepresentative corner of the real story. The far larger truth is duller and far more important — most of what happens offshore is perfectly legal, run by accountants and lawyers in glass office towers, and used by some of the most respectable companies and people in the world. The scandal, when you look closely, is rarely the law being broken. It is what the law allows.
This is a guide to that machinery. What “offshore” actually means, who uses it and why most of them aren’t criminals, how the structures work, what they cost, and what really changed after the Panama Papers blew the whole system open ten years ago this spring.
What it is
“Offshore,” in the sense that matters here, simply means holding your money, assets, or companies in a jurisdiction other than the one where you live or do business — almost always one chosen for low or zero taxes, strong financial secrecy, and light regulation. The “shore” is largely metaphorical. Some of the biggest havens are landlocked, and one of the most important is the U.S. state of Delaware.
The first and most crucial distinction in the entire subject is between two words that sound similar and are wildly different in the eyes of the law. Tax avoidance is arranging your affairs to legally minimize what you owe; it is what every accountant is paid to do. Tax evasion is illegally hiding income or assets you are legally required to declare; it is a crime. Offshore structures can serve either, and the same shell company can be a legitimate holding vehicle or a front for hidden money depending entirely on what’s disclosed to the authorities. This is the central, slippery fact of the whole topic, and it is the reason this companion to our piece on how wealth is structured and preserved through taxes needs its own post: once money crosses a border, the rules — and the secrecy — change.
The toolkit has a few standard parts. A tax haven is a jurisdiction that deliberately offers low taxes and high secrecy to attract foreign money — the British Virgin Islands, the Cayman Islands, Panama, Switzerland, Luxembourg, Singapore, and, increasingly, parts of the United States. A shell company is a legal entity that exists on paper but conducts no real business; its purpose is to hold assets or obscure who ultimately owns something. A trust or foundation is a legal arrangement that separates the formal ownership of assets from the person who benefits from them. Stack these together across a few jurisdictions and you can make the true owner of an asset genuinely difficult to find — which is the point.
Who uses it
The cast is much broader than the cartoon suggests, and it is worth being precise about it, because the most common assumption — that offshore equals criminal — is simply false.
By far the largest users by volume are multinational corporations, which route profits through low-tax jurisdictions as a matter of routine corporate strategy. By one estimate from the EU Tax Observatory, multinationals shifted around $1 trillion in profits to tax havens in 2022 — roughly 35 percent of all the profit they booked outside their home countries. This is mostly legal, done in the open, and signed off by major accounting firms.
Then there are wealthy individuals, the focus of this site. Some use offshore structures to evade taxes illegally; many more use them, lawfully, to hold international assets, protect against lawsuits, manage succession across borders, or simply keep their financial lives private. There are also ordinary cross-border businesses and investment funds for which a neutral offshore jurisdiction is just sensible plumbing — a Cayman fund pooling investors from forty countries isn’t hiding anything; it’s avoiding the nightmare of forty overlapping tax regimes. And yes, at the dark end, there are criminals, kleptocrats, and sanctions-dodgers for whom secrecy is the entire product.
The leaks of the last decade put names to the list. When the Panama Papers broke, the records named associates of dozens of national leaders and hundreds of public officials; the prime minister of Iceland resigned within days. Five years later, the Pandora Papers named 35 current and former world leaders, more than 330 politicians, and over 130 Forbes billionaires. But here is the essential caveat that the headlines often blurred: appearing in those files is not proof of wrongdoing. Owning an offshore company is legal. Many of the people named had done nothing illegal at all — which is exactly why the story is so uncomfortable.
Why they use it
Strip away the moralizing and the motives are rational, even mundane.
The first is tax minimization, the obvious one — paying less, legally where possible. The second is privacy and secrecy, the desire to keep holdings out of public view, which connects directly to why the wealthy value invisibility in general: an offshore structure can shield ownership from competitors, the press, ex-spouses, and would-be litigants. The third is asset protection — putting wealth beyond the easy reach of lawsuits, creditors, or an unstable home government, which is a genuine concern for someone whose home country has shaky courts or a habit of seizing private fortunes.
The fourth is cross-border neutrality: when investors and assets span many countries, a single neutral jurisdiction with predictable, business-friendly law is simply efficient, the financial equivalent of agreeing to meet on neutral ground. The fifth is succession and estate planning — structuring how wealth passes to the next generation across borders, often more flexibly than a home country’s inheritance laws allow.
These motives sort by scale. A household worth a few million might set up an offshore structure mainly for privacy or to hold a foreign vacation property. A person worth hundreds of millions is usually thinking about asset protection and succession. And a corporation or a fortune in the billions is operating at the level where the tax savings alone justify a permanent team of advisors — the level where the largest counted fortunes make offshore structuring a standing feature of how the money is managed, not a one-off.
How it works
The mechanics are more bureaucratic than glamorous, which is part of how they hide in plain sight.
The basic building block is the shell company in a haven jurisdiction. You — or more precisely, a law firm acting for you — register a company in, say, the British Virgin Islands. The company has no employees and no office beyond a registered agent’s address, but it can own things: a bank account, a yacht, a London townhouse, shares in other companies. Crucially, the public record may show only the law firm or a nominee director, not you. Your name need not appear anywhere a journalist or tax authority can easily see it.
The opacity deepens with layering. The BVI company is owned by a Panama foundation, which is administered by a trustee in Switzerland, which answers to a structure in another haven entirely. Each layer is legal on its own; together they form a chain that can take investigators years to unwind, if they ever do. This is precisely the kind of architecture the Panama Papers exposed — Mossack Fonseca, the firm at the center, had created more than 214,000 such offshore entities over its history.
The trust adds a different kind of magic: it legally separates ownership from control and benefit. Assets placed in a properly structured trust may no longer be “yours” for tax or liability purposes, even as you continue, in practice, to benefit from them. For corporations, the equivalent move is transfer pricing — shifting profits to low-tax subsidiaries by having the high-tax part of the company “pay” the low-tax part inflated prices for things like the use of a brand name or a patent.
And the jurisdictions themselves are not all sunny islands. Some of the world’s most effective secrecy is sold by U.S. states. Delaware, Nevada, and South Dakota have built quiet industries in corporate registration and trust services, with privacy protections that rival any Caribbean haven. The Pandora Papers were notable partly for how much of the action they found onshore, in America. The map of “offshore” does not match the map of palm trees.
What it costs
There are two very different price tags here: what it costs the user, and what it costs everyone else.
For the user, setting up offshore structures runs from the modest to the serious. A basic shell company can be registered for a few thousand dollars, with annual maintenance fees in the hundreds or low thousands. A genuinely robust setup — layered entities across multiple jurisdictions, professional trustees, specialist tax and legal counsel — runs into the tens or hundreds of thousands a year, and for a large fortune the advisory bill alone can reach into the millions. As with most things at this level, the structures are priced so that they only make sense above a certain amount of wealth; below it, the fees eat the savings.
For everyone else, the cost is measured in lost public revenue, and the numbers are staggering. The economist Gabriel Zucman estimated that around 8 percent of the world’s household financial wealth — roughly $7.6 trillion — sits in tax havens, with about three-quarters of it undeclared to any tax authority. That undeclared portion is money on which no tax is paid, a gap that falls on ordinary taxpayers to cover. Add the $1 trillion in corporate profits shifted offshore in a single year and you have a system that quietly redistributes the tax burden downward, from the largest fortunes and companies to everyone with a normal paycheck and a normal accountant.
Hidden costs and tradeoffs
The user’s price is not just the fees. Since the leaks, offshore carries risks it didn’t a generation ago.
The biggest is exposure. The Panama Papers were 11.5 million documents, 2.6 terabytes of data — at the time the largest leak in journalistic history — and they proved that even the most discreet offshore firm can be cracked open overnight. The Pandora Papers, 11.9 million documents, proved it again. For anyone using offshore structures to hide something, the calculation has permanently changed: secrecy is no longer guaranteed, and a leak can convert a private arrangement into a front-page humiliation in a single news cycle, whether or not anything illegal was done.
The second is compliance burden. The global crackdown after 2016 produced a thicket of reporting rules — the U.S. FATCA law, the international Common Reporting Standard — that require banks to report foreign account holders to their home tax authorities automatically. The era of simply opening a secret account and saying nothing is largely over for citizens of cooperating countries. Maintaining a compliant offshore structure now means an ongoing relationship with lawyers and accountants who keep it on the right side of an ever-tightening line.
The third is the thinness of that line. The distance between aggressive-but-legal avoidance and illegal evasion is often a matter of disclosure and interpretation, and it can shift under your feet as laws change. A structure that was legal when created can become a liability, and the penalties for getting it wrong — back taxes, fines, prosecution — are severe enough that the wealthiest users tend to be, paradoxically, among the most careful to stay technically legal. The reputational cost compounds the legal one: being named in a leak, even innocently, attaches a permanent asterisk to your name.
What people get wrong
A handful of misconceptions distort almost every conversation about this.
The first and most important is that offshore means illegal. It mostly doesn’t. The overwhelming majority of offshore activity — corporate profit-routing, fund domiciliation, legitimate asset holding — operates within the law. The genuine scandal exposed by the leaks was less that laws were broken and more that they so often weren’t: the system is built to be used exactly as it is being used. Conflating “offshore” with “crime” actually lets the legal machinery off the hook.
The second is that havens are all tiny islands. The cartoon of the Caribbean tax shelter is decades out of date. Some of the most powerful secrecy jurisdictions are large, rich, respectable countries and U.S. states — Switzerland, Luxembourg, the Netherlands, Delaware, South Dakota. The money does not need a beach.
The third is that the leaks ended offshore tax evasion. They didn’t, but something else largely did. According to the EU Tax Observatory, the automatic exchange of bank information between countries has cut offshore evasion by roughly a factor of three over the past decade — a genuine and underappreciated success. But that win was against the illegal part. Legal avoidance, the larger and more durable phenomenon, sailed right through, which is why the headline numbers on what the wealthy actually pay have barely moved.
The fourth is that the action is all hidden suitcases. It isn’t. The real money is not in secret cash but in legal structures, disclosed to authorities and signed off by professionals, that nonetheless drive the effective tax rate on the largest fortunes toward zero. This is the same lesson that runs through how the wealthy structure their taxes and borrow against assets at home: the most powerful tools are the legal ones, and they hide in the open.
Bottom line
The answer to the Million Dollar Question is D: the world’s billionaires pay an estimated personal effective tax rate of between 0 and 0.5 percent of their wealth, according to the 2024 Global Tax Evasion Report — close to 0.5 percent in the United States and near zero in France. Not 0.5 percent more than you, or 0.5 percent in some clever year. As a share of their actual wealth, a great many of the richest people on earth pay almost nothing.
That single number is the whole subject in miniature, and it explains why the suitcase-of-cash image is such a convenient distraction. The dramatic version of offshore — the leak, the resigning prime minister, the dictator’s hidden millions — is real but small. The version that actually moves the money is a quiet, lawful, professionally managed system of shell companies, trusts, and friendly jurisdictions that does most of its work in the daylight and breaks no laws at all. The Panama Papers were a thunderclap, and ten years on, automatic information sharing has genuinely shrunk the illegal corner. But the legal machinery is still humming.
That is why the debate has shifted from catching cheats to changing the rules themselves — most concretely, a proposed global minimum tax on billionaires of just 2 percent, which the EU Tax Observatory estimates could raise around $250 billion a year from the roughly 2,700 people who hold some $13 trillion in wealth. Whether that ever happens is a question of politics, not plumbing — and politics, as the next-door story on this site explains, is itself something the very wealthy have learned to shape. Offshore isn’t where the rich hide their money. It’s where the rules quietly bend to let them keep it.
Related reading: Taxes: How Wealth Is Structured and Preserved · Privacy: Why the Wealthy Value Invisibility · Billionaire Rankings: How Extreme Wealth Is Counted · Residency and Citizenship: Why the Wealthy Buy Options Across Borders · Politics: How Wealth Buys Access and Influence
