US Tax Haven: South Dakota, Delaware and the World's Largest Financial Centres Fact-Checked
Say ‘tax haven’ and people think of palm trees and letterbox companies. Yet the Financial Secrecy Index has ranked the United States first for years, ahead of Switzerland. So is the US tax haven a reality? Partly. We check the popular figures on South Dakota, Delaware and the major financial centres, correct the exaggerations and show what entrepreneurs from Germany, Austria and Switzerland can actually use.
- ✛South Dakota: the state’s trust companies held about USD 906 billion at the end of 2025 – a record, but far from the often-quoted ‘5.5 to 7 trillion’.
- ✛Switzerland is still bigger: in cross-border private banking, Hong Kong and Switzerland lead with about USD 2.9 trillion each. The US reaches about USD 1.6 trillion (BCG, 2026).
- ✛FATCA without CRS: the US does not take part in CRS. Germany does receive limited data back under the FATCA agreement, and US entities with accounts in CRS countries are often reported together with their beneficial owners.
- ✛Secrecy is not a tax benefit: for German residents, trust and LLC income remains taxable – including the reporting duty under Section 138 of the German Fiscal Code.
- ✛Delaware: more than two-thirds of Fortune 500 companies are incorporated there. The reason is corporate law, not a tax privilege for foreigners.
- ✛Usable for SMEs: a US LLC, diversified banking and a suitable residence – but only with proper declaration.
US tax haven: what is true about the claim
The term tax haven mixes two things: low taxes and high confidentiality. The US is not a low-tax country for its own citizens. For foreign investors, however, it offers an environment that is in many respects more discreet than today’s Switzerland.
In the Financial Secrecy Index (update of 3 June 2025), the Tax Justice Network again ranks the US first. By this calculation, the US supplies about 25% of the world’s offshore financial services. Switzerland, Singapore, Hong Kong and Luxembourg follow. The index measures secrecy weighted by market size. It does not say that taxes are evaded in the US, but that large sums sit in a framework with little transparency.
The core message of the popular claim is therefore correct: the most important wealth centres are in industrialised countries, not on Caribbean islands. Many of the details circulating about it, however, do not survive scrutiny.
South Dakota: what is behind the trust boom
Sioux Falls, with about 200,000 inhabitants South Dakota’s largest city, is indeed a centre of the US trust industry. According to the state Division of Banking, the 114 trust companies licensed there held about USD 906 billion at the end of 2025, 11% more than a year earlier. Since 2018 assets have grown by roughly USD 100 billion a year.
The reasons are legal:
- ✛Unlimited duration: South Dakota abolished the Rule Against Perpetuities for personal property in 1983 and entirely in 1997. Trusts can therefore last for any number of generations (dynasty trusts).
- ✛No state income tax: neither on personal income nor on trust income. Federal taxes still apply.
- ✛Self-settled asset protection trusts (since 2005): existing creditors can only challenge transfers within 2 years (or 6 months after discovery). US bankruptcy law, by contrast, has a 10-year look-back.
- ✛Confidentiality: court proceedings involving trusts can be sealed on request.
- ✛Directed trusts: administration, investment and distribution can be split among different persons, so the family can keep control over investments.
Where the popular claims exaggerate
| Claim | Facts |
|---|---|
| ‘5.5 to 7 trillion USD in dynasty trusts’ | About USD 906 billion at the end of 2025 across all the state’s trust companies, not just dynasty trusts |
| ‘More than all Swiss offshore private banking’ | Wrong. Switzerland books about USD 2.9 trillion in cross-border private wealth (BCG 2026), more than three times as much |
| ‘Plus 2 trillion in bank assets such as Citibank’ | Citibank N.A. has had its legal main office in Sioux Falls since the 1980s. The balance sheet is only legally assigned there; no wealth sits ‘on the prairie’ |
| ‘Completely free of inheritance tax’ | Only free of state estate tax. The 40% federal estate tax still applies (2026 exemption: USD 15 million per person for US persons, often only USD 60,000 on US assets for foreigners) |
| ‘Untouchable after 2 years’ | Only against challenges under state law. Federal law, tax authorities and proceedings in other countries are not covered |
Because of fees (typically 0.2 to 0.75% a year plus legal and investment costs), a South Dakota trust usually only makes sense from a double-digit million fortune. For German residents, German tax consequences come on top – more on this below.
FATCA without CRS: is the US a black hole?
Through FATCA, the US has required banks worldwide since 2014 to report accounts of US persons to the IRS. The US does not, however, take part in the OECD’s automatic exchange of information (Common Reporting Standard, CRS), in which more than 100 jurisdictions participate. This is the true core of the US tax haven claim.
It is not quite that one-sided, though:
- ✛Reciprocity, but limited: Germany has a reciprocal FATCA agreement with the US (Model 1). Through it, the US provides data on accounts of German residents, mainly on interest and US dividends. Balances and the persons behind entities are generally not reported.
- ✛CRS rule for non-participants: if a US entity that qualifies as an investment entity holds an account with a bank in a CRS country (e.g. Switzerland, Singapore, Liechtenstein), the bank treats it as a passive entity and reports its controlling persons to their country of residence.
- ✛Company registers: since March 2025, US companies have been exempt from reporting beneficial owners to FinCEN. This increases discretion but does not change the owners’ tax obligations.
In practice, an account held directly with a US bank is not automatically reported under CRS. However, many US banks now open accounts for non-residents only on a limited basis. And the tax liability in your country of residence exists regardless of whether data flows. Our list of countries for offshore accounts without CRS shows which countries outside CRS are even an option.
Division of labour among financial centres: who does what?
The claim of a clear division of labour among financial centres is broadly correct. The figures circulating, however, are often outdated or mix different measures (market capitalisation, assets under management, fund volumes). The overview below uses only current, comparable sources:
| Financial centre | USD trillion | Profile |
|---|---|---|
| Hong Kong | 2.9 | Number 1 for the first time, driven by capital from China |
| Switzerland | 2.9 | Classic wealth manager for Europe, the Middle East and Latin America |
| Singapore | 2.1 | Asia’s most diversified centre, strong family office scene |
| USA | 1.6 | Mainly Latin America, trusts and capital market access |
| United Kingdom | 1.0 | London as a trading hub |
| UAE | 0.7 | Fastest growth, DIFC and ADGM with common-law courts |
| Luxembourg | 0.6 | EU private banking and fund centre |
| Cayman Islands | 0.5 | Fund vehicles rather than private banking |
Engine rooms: London and New York
London is the world’s largest foreign exchange centre with 38% of daily turnover of USD 9.6 trillion and handles 50% of OTC interest rate derivatives trading, the US 24% (BIS Triennial Survey 2025). New York hosts the two largest stock exchanges, NYSE and Nasdaq. The City of London has a historic special administration, but it is not a separate tax territory. Ordinary UK tax law applies.
Fund vaults: Cayman and Luxembourg
At the end of 2025, 12,876 mutual funds and 17,722 private funds were registered with the Cayman regulator CIMA, about 30,600 in total. According to the 2026 ALFI-Broadridge study, Luxembourg holds about 42% of the global cross-border fund market of EUR 8.5 trillion. Both are tax-neutral at fund level. Tax is levied on the investor.
Legal certainty: Delaware, Singapore, Dubai
Delaware had about 2.29 million entities in 2025, including 1.65 million LLCs. More than two-thirds of Fortune 500 companies and nearly 70% of US IPOs in 2025 chose Delaware. The reasons are the specialised business court (Court of Chancery) and predictable case law. Since 2024, however, some large corporations have moved to Texas or Nevada. Singapore managed S$6.7 trillion at the end of 2025, about 76% of it from abroad. Read more in our article on Singapore taxes.
What this means for entrepreneurs from Germany, Austria and Switzerland
The popular message is: ‘Use the same tools as the big players.’ That is partly possible – but with clear limits. What matters is not where the wealth sits, but where you live.
| Tool | Realistic? | Tax consequence for German residents |
|---|---|---|
| South Dakota dynasty trust | Only sensible from many millions | Contributions can trigger gift tax (often tax class III), income is attributed under Section 15 AStG |
| US LLC (Delaware, Wyoming, Florida) | Yes, low formation and running costs | Transparent: profits are attributed to the owner in Germany. Form 5472 required in the US |
| Account in Singapore, Switzerland or Luxembourg | Yes, with minimum deposits and KYC | Full CRS reporting to the tax office of residence |
| Residence in a territorial or non-dom country | Yes, with a genuine move | Check exit tax and extended limited tax liability |
The ‘tax-free’ US LLC is a misunderstanding. A single-member LLC is tax-transparent in the US and pays no federal tax there if it has no US business. But the owner pays tax on the profits in their country of residence. If you live in Germany, you pay tax in Germany. Our articles on US corporation, LLC and LP, Form 5472 and the permanent representative explain the details.
In addition, German taxpayers must report under Section 138 of the Fiscal Code if they control a company outside the EU or hold a certain stake in it. The lack of US CRS reporting does not protect you from obligations; it shifts the responsibility to you.
The real lesson: spread your flags sensibly
The big players do not use a single trick but distribute functions: residence, company, bank and custody sit in different, suitable jurisdictions. This is the idea of flag theory. For entrepreneurs this means:
- 1Residence first: without changing your tax residence, every structure remains taxable at home. Consider countries with territorial taxation or special regimes.
- 2Company according to business model: a US LLC suits international online businesses without US substance, not every activity. Our US company formation checks this in advance.
- 3Diversify banking: accounts in two or three jurisdictions protect against outages and account freezes. Our bank account service helps, for example with a US bank account.
- 4Design privacy legally: discretion towards third parties, yes; opacity towards your own tax authority, no. More in our article on the EU asset register.
Want to set up your company, banking and residence internationally – with proper declaration?
Review my structure →Conclusion: the US tax haven exists – but not for everyone
The US is indeed one of the most important centres for international wealth, and it plays by its own rules in the automatic exchange of information. But the US tax haven is above all a haven of confidentiality and legal protection – not of tax freedom for foreigners resident in Europe.
With over USD 900 billion, South Dakota is a growing but not a dominant trust centre. Switzerland has not been ‘overtaken’ but shares the top spot with Hong Kong. Anyone wanting to use the tools of the big players starts with residence and plans company and banking around it. Our tax optimisation service is available for an individual assessment.
Frequently asked questions
Is the US really the world's largest tax haven?
In the Tax Justice Network’s 2025 Financial Secrecy Index, the US ranks first, ahead of Switzerland. The index measures financial secrecy, however, not tax rates. For US citizens the US is not a low-tax country.
How much wealth is held in South Dakota?
South Dakota’s trust companies held about USD 906 billion at the end of 2025 (Division of Banking). The often-quoted 5.5 to 7 trillion USD is not supported.
Why does the US not take part in CRS?
The US relies on its own FATCA law and bilateral agreements. With Germany there is a reciprocal agreement, but the US provides considerably less data than it receives.
Can a German resident use a South Dakota trust tax-free?
No. For German residents, the income is attributed under Section 15 AStG, and contributions can trigger gift tax. Such a trust mainly makes sense for very large fortunes and with advice on both sides of the Atlantic.
Is a US LLC tax-free?
A single-member LLC usually pays no US federal tax if it has no US business. But the owner pays tax on the profits in their country of residence. It only becomes tax-free in combination with a suitable residence.
Has Hong Kong overtaken Switzerland as the largest wealth centre?
According to the BCG Global Wealth Report 2026, Hong Kong ranked first for cross-border private wealth in 2025 with about USD 2.9 trillion, just ahead of Switzerland, which also books about USD 2.9 trillion.
International structure – legal and robust
We combine residence, company and banking into a structure that holds up in a tax audit. From the US LLC to the account outside the EU.
This article is a general analysis and does not replace individual tax or legal advice. Regulations change; the information reflects the status at the date of publication.