Tax havens are countries (usually small) which introduce special tax legislation to permit individuals and transnational business enterprises to establish a base for financial operations involving the transfer of funds to and from other countries. It is to the advantage of corporations to establish their nominal headquarters in such countries so that, in the consolidation of their international accounts, the maximum income is declared in relation to the tax haven operations where the tax is minimal. In addition to the feature of no, or nominal taxes, tax haven countries usually offer political stability, good international communications, and financial, legal and other professional services. Thus they are centres of financial activity free of exchange controls. Abuse of tax havens permits some enterprises to bypass tax treaty safeguards between two countries. Tax haven countries may also have more flexible laws regarding corporate organization and financial controls. When abused, these give rise to promotional and investment schemes that may be inadequately managed, or on occasion, to schemes of a fraudulent nature.
In 1993 documentation was available on 218 tax havens in the world.
Tax havens play an important role in the development and operation of transnational corporations. They have provided a favourable basis for the development of an entirely new concept of investment in the form of offshore funds.