INTRODUCTION

A tax haven is a state, country, or territory where, on a national level,

certain taxes are levied at a very low rate or not at all.
It also refers to countries which have a system of financial secrecy in place.
Financial secrecy can be used by foreign individuals to circumvent certain taxes
(such as inheritance tax on money, and income tax of the interest on the money
you have on your bank account). Because the requirement of paying taxes on these
funds cannot be transmitted, as the funds themselves are invisible to the country
the individual is from, such taxes can be avoided. Earnings from income generated
from real estate (i.e. by renting houses you own abroad) can also be eliminated this
way. Despite this occasional abuse, the countries themselves stand in their right to
have a system of financial secrecy in place, and it is up to the individual to fill in
the required paperwork (i.e. double taxation forms). If the proper double taxation
forms are filled in, and taxes are paid, companies can avoid much taxes, even if
they hence pay their taxes legally. This is because the tax rates on income can be
much lower than the tax rate in their own country. Some taxes (such as inheritance
tax on the real estate, VAT on the initial purchase price of the real estate -
aka Transfer tax-, annual immovable property taxes, and municipal real estate
taxes) can not be avoided or reduced, as these are levied by the country the real
estate you own is in, and hence need to be paid just the same as any other resident
of that country. The only thing that can be done is picking a country that has the
smallest rates on these taxes (or even no such taxes at all) before you buy any real
estate.
According to other definitions, the central feature of a haven is that its laws and
other measures can be used to evade or avoid the tax laws or regulations of other
jurisdictions. In its December 2008 report on the use of tax havens by American
corporations,the U.S. Government Accountability Office was unable to find a
satisfactory definition of a tax haven but regarded the following characteristics as
indicative of it: nil or nominal taxes; lack of effective exchange of tax
information with foreign tax authorities; lack of transparency in the operation of
legislative, legal or administrative provisions; no requirement for a substantive
local presence; and self-promotion as an offshore financial center.