Countries, which offer substantial tax benefits, are generally referred to as tax havens or fiscal havens. A “tax haven” is not a legal or scientific term. Whether a country is or is not a tax haven is, of course, in the eye of the observer. As compared to a 35% income tax in one country, a neighbouring country with 12% tax would pretty much qualify as a tax haven. At the same time, a country with zero income tax would cleary be a better tax haven than the one with just 10% tax.
The most traditional understanding of a tax haven is that it`s a country where one can register a business (an IBC or another type of corporation) which will remain completely tax-free in that country, for as long as it does not do business within the territory of that country. Some tax haven states have gone a step further. In some tax havens (for instance, BVI) corporate and income tax has been abolished for all businesses, regardless whether they are domestic or offshore. Of course, even in a tax haven country such businesses are supposed to pay some fixed annual government fees in lieu of tax.
A proper tax haven would usually have a whole bundle of laws, regulations and precedents aimed to attract international entrepreneurs and investors. Along the absence of tax on business profits, such attractions may also include extremely fast incorporation, simple registration procedures for IBC`s, no requirement to file financial accounts to the government, no personal data of shareholders and directors on public file, no minimum paid-up capital required, flexible corporate regulations, a developed financial system, exemption from exchange controls, simple accounting and book-keeping requirements.
Therefore a tax haven or an “offshore financial centre” (as is the more formal term) is generally a country that features an extremely appealing business environment, aimed at attracting international business.