What is Direct Tax Incentives

During the last quarter century, a remarkable global growth was experienced in Foreign Direct Investment (FDI), especially the developing countries, considered FDIs as an important factor in overall economic development strategies. The developing countries aim to attract foreign capital to strengthen their local economy, increase market opportunities, and provide better services to the society. For this purpose, these nations implement various types of tax incentives. Although there are several studies on the effectiveness of tax incentives in FDI, the issue has not been tackled with respect to developing countries. The present study scrutinized the effectiveness of corporate tax incentives in developing countries based on FDI. In conclusion, it could be suggested that tax incentives may be effective in increasing FDI; however, in this group of countries with low level of investments and complex laws in taxation and other fields and could not cope with innovations, red tape and poor governance, it is also important to develop the organizational infrastructure for investments.