The OECD – Organisation for Economic Co-operation and Development (to make it clear, these are the guys who think high and uniform taxes are good for everyone) describes the tax haven as a jurisdiction which actively makes itself available for the avoidance of taxes which would otherwise be paid in a higher tax jurisdiction. The term “tax avoidance” should be noted, because there are ways of avoiding taxes without breaking the law, while the opposite term is “tax evasion” – which is in general classified as a crime.
Offshore, in its broadest sense of the term, basically means a jurisdiction other than your own. The country next door can be offshore for you. Offshore is anything that is not “onshore”, meaning – not at home.
In a more practical background offshore usually means a country or territory which offer specific benefits or incentives to foreigners. The most understandable ones are tax concessions. These come in various forms. It may be a complete tax exemption for all international business operated by non-residents (Belize or Seychelles International Business Companies), an ultra-low income tax for international businesses (Seychelles Special License Companies, which pay 1.5% tax), a complete exemption from income and capital gains taxation for all companies, despite of their ownership or country of operation (British Virgin Islands), local no-tax or low-tax liability on all investment income regardless of the residence of the investor (Bahamas, Cayman Islands); local tax exemption for non-residents of that jurisdiction (Gibraltar, Channel Islands); tax holidays for certain types of investment (Portugal, Netherlands Antilles, Iceland); favorable tax treatment through treaties and agreements with the investor´s home country (Cyprus, Barbados, Netherlands, USA).
In addition, some foreign countries may appear to offer better legal protection from creditors and other potential litigants who might attempt to seize an individual`s wealth. This is the second key aspect why offshore jurisdictions are so popular – asset protection. It may even have nothing to do with tax, although usually both are intertwined. It`s just safer to be offshore. The access to the corporate or banking information held by offshore service providers is strictly limited by laws and international agreements. No private parties and very limited amount of Government Authorities only from specific countries and only for specific purposes (tax and criminal investigation) can obtain some of the restricted information. Additionally, the Belize International Business Companies Act contains specific provisions against confiscation that put the offshore assets out of reach of any creditors as well as Government Authorities even if the information of such assets becomes known to them.