How do tax havens like the Cayman Islands actually benefit from having zero corporate taxes?

I actually used to work in international banking, so I can shed some light on this! The Cayman Islands doesn't need to charge corporate taxes because they make their money in other ways that are just as lucrative. First, they charge significant registration fees and annual renewal fees for companies incorporating there. With over 100,000 companies, these fees add up to millions in government revenue. Think $400-1200 per company per year minimum. Second, they have a robust financial services industry that employs thousands of locals - lawyers, accountants, bankers, compliance officers, etc. These professionals all pay for housing, food, services, etc., which drives the local economy. Third, the banking sector pays licensing fees, and there are duties on imported goods since it's an island that needs to import almost everything. The Cayman government is actually quite clever - they've created a system where they can generate substantial revenue without technically having "taxes" that would drive away the very businesses that fuel their economy.

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The big benefit for Cayman is that their entire economy is built around financial services. Here's where their money actually comes from: 1. Banking license fees - very expensive 2. Incorporation fees - hundreds of millions annually 3. Work permits for all the financial professionals 4. Import duties (super high because everything comes in by boat/plane) 5. Tourism boosted by business travelers visiting their offshore accounts Plus the financial industry creates high-paying jobs for locals in support roles, legal services, compliance, etc. The whole economy is structured around not having direct taxation. And I should add - raising taxes would be economic suicide for them. Those companies would just move to the next tax haven immediately. The competition between tax havens keeps them from coordinating on taxes like you suggested.

Just a historical perspective - the Cayman Islands developed this model over decades. They didn't just wake up one day and decide to be a tax haven. It evolved as British banking interests looked for Caribbean outposts with stable government and British legal systems. The whole offshore model is WAY more sophisticated than just "no taxes." It's about banking secrecy, legal structures that allow for asset protection, and a whole ecosystem of professional services. The Caymans actually have pretty robust anti-money laundering laws now because they want legitimate business, not sketchy stuff that brings international pressure. The modern offshore industry is about legal tax minimization, not tax evasion or hiding money from authorities. Most of the actual illegal tax haven activity has moved to more obscure jurisdictions with less oversight.