The fallout from the Panama Papers – a massive trove of financial documents leaked to journalists around the world — continued Tuesday as the scandal claimed its first political victim.
Iceland’s embattled prime minister resigned over the leak of more than 11 million financial documents from the Panamanian law firm Mossack Fonseca that showed how the world’s rich and powerful use offshore accounts and shell companies to avoid paying taxes.
READ MORE: Iceland PM to resign after fallout
While offshore tax havens are not illegal, they can cost an investor’s host country billions in lost tax revenue.
In the case of Canada, federal and provincial governments estimate they lose $7.8 billion in tax revenues a year because of money stored offshore, according to the non-profit organization Canadians for Tax Fairness.
READ MORE: Panama Papers: Why should Canadians care?
Here’s a look at some of the you should know if you’re looking to start your own shell company.
Choose your jurisdiction
There are dozens of tax-haven jurisdictions around the world to choose from that include countries like Switzerland, or Luxembourg and many countries in the Caribbean like the British Virgin Islands.
READ MORE: ‘Panama Papers’ leak reveals how rich and famous hide their money
In the case of the Icelandic prime minister, the leaked documents alleged Gunnlaugsson and his wife set up a company called Wintris in the British Virgin Islands. He has denied any wrongdoing in the case.
Create a corporation
After you’ve found a destination it’s time to find an offshore investment adviser to help you set up the company or other entity.
“Law firms like this Panamian law firm will set up a shell company for you in one of the tax haven or secrecy jurisdictions,” said Dennis Howlett, the executive director of Canadians For Tax Fairness. “That can be done for as little as $1,000 to set up a company.”
Finding an agent
Often a shell company involves creating an “agent” or “nominee” to put their name on the company, says Howlett.
While not managing the company directly, their names will appear on all company documents.
READ MORE: Panama Papers: What you need to know about offshore accounts
Howlett says while shell companies can be used legitimately for things like transferring intellectual property, they are often used simply to avoid paying taxes.
“Often people who are doing this are doing it in order to hide money so they actually set up a string of companies and move money from one to the other and so on to make it even more difficult for revenue companies to trace it,” he said.
Each tax haven is special
Are you looking for a way to simply hide money from tax authorities or are you looking to lower the taxes your company pays?
Each tax haven specializes in a certain area.
“Netherlands, Ireland, Lichtenstein provide specific advantages for corporate use,” said Howlett. “The British Virgin Islands is one that individuals use to hide their money from the tax authorities, Panama is another one.”
They can also become havens for criminal activity. The investigation by the Washington based International Consortium of Investigative Journalists found a network of people with links to President Vladimir Putin, used corporations in the British Virgin Islands to hide and move billions of dollars.
*With files from the Associated Press
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