Imaam Ibn Baz was asked the question (mp3):

In relation to the Islamic lands, in most of them, there are practices of shirk, and there are constructions (tombs) where there are graves of the righteous, so the point in this topic is whether these lands are labelled Islamic or labelled non-Islamic?

To which he replied:

This is based upon observation (of these lands), when the symbols of kufr predominate, it is a land of kufr, and when the symbols of Islam predominate then it is a land of Islam, in accordance with what is apparent (outwardly) and the predominant (situation) therein. In accordance with what predominates, whatever predominates ... when Islam and prayer and other such symbols of Islam predominate, then it is a land of Islam, even if the ruler is a disbeliever.

Translated by Abu Iyaad (@abuiyaadsp).

Note: The Takfiri Kharijites declare the lands of Islaam as lands of Kufr because the ruler is sinful or falls into major sins or does not rule entirely by what Allaah has revealed or because major sins are found in that land (alcohol, usury) without them having been declared lawful as a matter of belief.