Some countries may offer a company a specific type of incentive that allows them to avoid corporate income taxes. What is this called?

The term "tax holiday" accurately describes a specific type of incentive offered by some countries that allows a company to temporarily avoid corporate income taxes. This fiscal strategy is often implemented to attract foreign investment, stimulate economic development, or encourage businesses to establish operations in certain regions. During the tax holiday period, companies benefit from a complete or partial exemption from taxes, thereby enhancing their cash flow and profitability.

Tax holidays can vary in duration and scope, and they are designed to make a location more appealing for business ventures. This mechanism serves a dual purpose: it boosts foreign direct investment while also providing economic stimulus to the local economy. By attracting businesses through tax incentives, countries hope to generate employment and increase overall economic activity.

The other options involve different concepts: a tax hike refers to an increase in taxes, a tax break signifies any reduction in tax liability, and a tax incentive is a broader term encompassing various tax reductions or credits that encourage certain business behaviors. However, the specific nature of a tax holiday focuses on the complete suspension of tax obligations for a set period, making it the most precise answer in this context.