What is a tax haven and why are they legal?

The money coming from tax heavens need not be illegal money. Most of the foreign invetments coming to India is indirectly routed through one of such tax heavens.

are nations that offer your citizens and businesses lower taxation than you do - the term is a pejorative (negative phrase) used in by those who wish to tax more and thereby enhance their political power.Tax havens are legal because individual nations have . It is not illegal for one nation to offer lower tax rates to people who either or both wish to do business there, or even emigrate there.Of course, such is hated by the of other nations who tax their citizens and businesses more - such competition potentially erodes their tax base and thus the power of those politicians to spend other people's money on their political clients. So they label such nations & places as "" and loudly decry their existence.See also

A "tax haven" is a somewhat pejorative term for a jurisdiction that assess low or no taxes.  (According to Wikipedia (https://en.wikipedia.org/wiki/Tax_haven), it can also refer to countries that have a system of "financial secrecy" in place, but I'm leaving that aside for the moment, as that's typically viewed as troublesome because some people use them to avoid taxes illegally.  Under the first definition, such avoidance is perfectly legal). Taxes are assessed at numerous levels by governments around the world.  Just in the U.S., for example, income is taxed at the federal level, by most states, and by many municipalities and localities.  Sales taxes are assessed on commercial transactions by states and localities, property taxes are assessed by towns and counties, businesses pay corporate taxes, excise taxes are assessed on tobacco and alcohol, and there are many, many, more. But - and here's the key point - those taxes are not uniform in every jurisdiction.  Florida, for example, famously does not assess an income tax.  So is it a tax haven?  And why is that legal? Answers:  arguably yes - see the point above about the term being pejorative - and it's legal because the sovereign government of the state of Florida has decided not to enact such a policy.  No one is qualified to overrule the state's government on that point as long as its decisions have followed appropriate procedures under the state's Constitution and laws and that it has not violated any precepts of federal law. The same principle applies to international tax havens - again, as long as those locales are not being used to illegally hide one's income according to the law's of one's home country.  If I were a megabillionaire, for example, I might hypothetically consider diversifying my portfolio by investing some of my spare ducats in Swiss government bonds if I knew that, say, the Swiss government doesn't tax those bonds highly or at all.  Sidebar:  I have no idea how the Swiss tax income realized from their governmental bonds, assuming they even issue governmental debt in any significant amount.  This is merely a hypothetical. As long as I'm fulfilling my obligations to the IRS in full and not otherwise violating U.S. law, they have no right to tell me that I can't invest in those Swiss bonds in order to take advantage of more favorable tax treatment than alternatives. Now then.  Where this gets much stickier and more complicated is when dealing with corporate tax.  Countries frequently alter their corporate tax rates and exemptions in order to attract investment - after all, a corporate headquarters theoretically brings in jobs, right?  And companies can move countries much more easily than people can.  Certain countries around the globe have attempted to attract corporate investment by lowering their corporate tax rates, or by otherwise enticing business investment, and multinational companies are legendarily experts at finding those countries and taking as much legal advantage of them as possible.  (Witness Apple and Google and the infamous https://en.wikipedia.org/wiki/Double_Irish_arrangement).  There's nothing illegal about Ireland attempting to stimulate corporate investment there by enticing companies with attractive tax policies.  But, of course, just as higher-tax states complain about people maintaining residences in Florida to take advantage of low taxes there, so do higher-tax countries complain about Ireland and other countries that have so successfully sought out investment. There's a lot more depth to this subject, particularly as it involves the second definition above that I haven't discussed.  But the general principles - that governing jurisdictions retain the authority to set tax policy within their boundaries, and that people are generally allowed to do what they want with their money as long as they comply with applicable law - mean that it's not a policy problem with a clear-cut solution.

Let's be clear, that the United States is a tax haven, and the Unites States is "legal". Why is the United States a tax haven? Or more importantly, for whom is the United States a tax haven? The United States does not tax the investment (capital) gains of non-resident foreigners investing in the United States. Why? To attract foreign investment into the US stock markets. Attracting foreign capital and business is the same reason any other jurisdiction may be a "tax haven" for certain use cases. Example, the Cayman Islands is a tax neutral jurisdiction, allowing it to be an intermediary in international transactions, adding Delaware-like jurisprudence without adding an additional tax burden. The idea there are places you put yourself or your assets and don't pay taxes is a myth. Tax Havens are a myth. International tax planning is incredibly complicated. Jurisdictions use their tax laws, regulations and jurisprudence to attract and not impede business and capital.

OK, I think it is simple to offer two translations. 1 A place where there is low or no tax. This means that you can invest your money and not see much of it go into that state's coffers. 2 A place where the tax man can't find your money. Banking secrecy or non-reporting means your cash is invisible. The first one is possible tax avoidance / evasion. The second is probably tax evasion. Either way you are stepping a line between unethical and illegal. Money launderers will often have their funds flowing through banks in such jurisdictions.