Many nations have created geographically distinct areas with special features designed to attract foreign investment. In deciding where to locate various operations, businesses today must investigate the benefits and incentives offered by a plethora of special economic zones (SEZs) throughout the world. The business location decision involves a comparison of many alternative sites, each with its own set of incentives. Many small nations have put in place minimal corporate tax rates as a way of gaining some revenue by attracting head office functions, particularly those tasks related to finance. This government revenue may be only a very small percentage of a corporation’s international profit; nevertheless, it may form a significant portion of the tax haven’s income. Many businesses make their international location decisions so as to accumulate their taxable profits in tax havens. Apart from these zero-tax regimes, countries impose a wide range of corporate profit tax rates. A business can often find a country with a tax rate lower than both the country where it was incorporated and the country where it wishes to invest. By funneling profits to a zero-tax or even a lower tax jurisdiction, a business is able to minimize its aggregate tax payments. Although recent international agreements have sought to limit these practices, opportunities are still available for tax minimization. Tax havens, as well as SEZs, can play an important role in business location decisions.
