How South Dakota Came to Rival Other Tax Havens

When you think of South Dakota, you probably think of the Badlands, Mount Rushmore, and a place a road trip might take you. But it’s surprisingly, or unsurprisingly, one of the world’s top tax havens.

The Pandora Papers, released October 3, 2021, outed South Dakota as one of the world’s top tax retreats for the world’s so-called elite.

The 11.9 million papers contained 3 terabytes of data on how business moguls and some unscrupulous politicians go about protecting their wealth and assets.

South Dakota Deregulation

For decades, South Dakota has deregulated, particularly in the financial services sector. If you have a credit card, you may have noticed how the address is in Sioux Falls. The state has primarily focused on the financial sector to grow its economy and create jobs.

The loosening of regulations has turned a South Dakotan trust into a very powerful asset for anyone looking to shield their wealth from anyone with a legal claim.

Other tax havens don’t and can’t always do a good job of protecting assets from creditors, clients, or even ex-spouses.

South Dakota taxes

Moreover, you’re not subject to the various kinds of taxes:

  • income tax
  • capital gains tax
  • inheritance tax

South Dakota doesn’t have those.

On top of that, you don’t have to establish a physical residency in South Dakota to get all these tax benefits.

So, if you’ve accumulated a level of wealth, South Dakota can be a very attractive place to shield your assets from governments.

Even though many tax havens are in offshore locales, South Dakota isn’t with a thousand miles of any shore. And for US residents, you don’t have to worry about going foreign.

South Dakota’s tax haven status rivals the usuals…

South Dakota is now up there with the Cayman Islands, Panama, and Switzerland as a place for the ultra-wealthy – business people, world leaders, celebrities – to set us trusts and otherwise ‘shield wealth’ from tax authorities.

The Pandora Papers represented one of the biggest financial document leaks in history to show how wealth is protected globally, and how some can get away with dubious actions.

What isn’t surprising isn’t that this occurs – there will always be tax arbitrage – but the nature of how tax havens are changing.

Traditional tax shelters like Jersey and various Caribbean domiciles are now less popular relative to many US states like Wyoming, Nevada, Tennessee, Texas, and especially South Dakota.

More than 200 trusts located in the United States showed up in the Pandora Papers. 81 were domiciled in South Dakota.

In 2020, South Dakota’s trust industry held nearly $400 billion in anonymous, untraceable assets. That’s up nearly 4x since 2011.

And they’re largely not locals. Individuals in 40 countries outside the US were linked to them.

Some of them were links to companies or individuals accused of unlawful behavior overseas.

In sum

The US is an increasingly attractive place for US residents and internationals to protect wealth.

Though offshore havens have been criticized for years for their engagement in a race to the bottom on enabling wealth to go untaxed, the US is now second globally in financial secrecy.

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