Dictionary

 

Dictionary

 Administrative Office
 An administrative office is frequently located in a country other than that of the headquarters office, the parent company or a country of operation. The role of such an administrative office may be to co-ordinate international or regional activities, to provide particular services (such as management analysis, financial or other related services) or to perform a given function (such as marketing). A number of otherwise high tax jurisdictions (such as the United Kingdom, France, Belgium and Denmark) grant special tax treatment in order to attract the administrative offices of multinationals.
Adverse trustee
One who has a substantial, beneficial interest in the trust assets as well as the income or benefits derived from the trust. A trustee that is related to the creator by birth, marriage or in an employer/employee relationship
Affiliate
A person, organization or establishment associated with another as a subordinate, subsidiary, or member.
Alternate Director
A person appointed to represent and vote on behalf of a director of a company when he is absent from a meeting of directors.
Annuitant
The beneficiary or beneficiaries (in a last-to-die arrangement) of an annuity who receives a stream of payments pursuant to the terms of the annuity contract
Annuity
A tax sheltering vehicle. An unsecured contract between the company and the annuitants). Funds that may grow deferred-free and are used to provide for one’s later years. All income taxes are deferred until maturing of the annuity. Capital gains and income accumulate tax deferred resulting in a stream of payments made to the annuitant during his or her lifetime under the annuity agreement. Taxes are paid on the income, interest earned and the capital gains but only to the extent as and when they are received. Currently, there is no annual limit on purchases, but there is no tax credit for purchases. An annuity is not an insurance policy.
Anti-Avoidance Measures
The object of anti-avoidance measures, insofar as they relate to low tax jurisdictions, is to prevent the avoidance or reduction of tax through the displacement of one or more connecting factors (i.e. the basis of tax liability) from the taxing jurisdiction concerned to a low tax jurisdiction jurisdiction. Anti-avoidance measures may be of general application or may refer to specific low tax jurisdictions. Any measures usually appear in domestic tax systems; they may however be imposed by tax treaties.
Apostille
It is a French word which means a certification. It is commonly refer to the legalisation of a document for international use under the terms of the 1961 Hague Convention Abolishing the Requirement for Legalisation for Foreign Public Documents. A document which has been certified with a conformant apostille is accepted for legal use in all the nations that have signed the Hague Convention. It is comparable (but not identical) to an attestation by a notary public in common law systems. In countries which are not signatories to the 1961 convention and do not recognize the apostille, a foreign public document must be legalised by a consular officer of the country from which the document is issued.
Articles of Association
A document describing the purpose, place and regulation of the business. It must contain: 1) the Corporation’s name; 2) its registered address; 3) its objects and aims; 4) its capitalization; 5) a statement that the company is a limited liability organization.
Articles of Incorporation
A document, filed by a corporation’s founders, describing the purpose, place of business, and other details of a corporation, also called charter
Asset Management
The management of a portfolio of investments.
Asset manager
A person appointed by a written contract between the IBC or the exempt company or the APT and that person to direct the investment program. It can be a fully discretionary amount or limitations can be imposed by the contract under the terms of the APT or by the officers of the IBC. Fees to the asset manager can be based on performance achieved, trading commissions or a percentage of the valuation of the funds under management.
Asset Protection
Protecting your belongings against lawsuits and judgments.
Asset Protection Trust
A special form of irrevocable trust, usually settled offshore for the principal purposes of preserving and protecting all or part of the beneficiary wealth offshore against creditors or other claimants. Title to the asset is transferred to a person or corporate named the trustee or trust company respectively. Generally used for asset protection it usually will be tax neutral. Its ultimate function is to provide for the beneficiaries of the APT.
Auditors
A competent, objective, and unbiased person or persons who perform an evaluation of an organization, system, process, or product. The purpose is to verify that the subject of the audit was completed or operates according to approved and accepted standards, statutes, regulations, or practices. It also evaluates controls to determine if conformance will continue. One is authorized to examine annual company accounts and verify its correctness.
Authority
Generally refers to the ability to make laws, independent of the power to enforce them, or the ability to permit something. It usually implies power, control and jurisdiction. An authority can also be a government agency set up with a particular competence and is able to deal with all matters within its charter.
Bank of International Settlements (BIS)
A consortium of Banks, controlled by the Basel Committee of the G-10 nations’ Central Banks, it sets standards for capital adequacy among the member central banks.
Bank Secrecy
In most countries one of the terms of the relationship between banker and customer is that the banker will keep the customer’s affairs secret. Staff members are normally required to sign a declaration of secrecy in regards of the business of the banks. Where numbered accounts are used their purpose is to limit the number of persons who know the identity of the client. In certain countries (e.g. Switzerland and the Cayman Islands) specific legislation makes breaches of bank secrecy subject to criminal law sanctions. However, in all legal systems (including Switzerland) there are specific cases where the duty of secrecy of a banker is discharged, e.g. where fraud, money laundering and narcotics are involved. The exchange of information clause contained in most tax treaties may enable the tax administration of one treaty country to obtain information concerning bank accounts which its residents have in the other country.
Banking
A considerable volume of international banking takes place offshore and many of the world’s major banks have banking and trust company operations in one or more low tax jurisdictions. Most low tax jurisdictions have enacted legislative provisions and set up administrative authorities whose function is to control banking and trust company activities.
Basle Practices
A committee of central banks setting standards for conducting their business resulting in minimum standards, preventative money laundering measures etc.
Bearer Bond
A bond issued in bearer form rather than being registered in a specific owner’s name. Ownership is determined by possession.
Bearer Shares
Shares in the capital of a company which are transferable by delivery of the certificate. They do not display a shareholder’s name but instead grant ownership rights to any individual who is in actual physical possession of the certificate(s) Unlike registered shares, which are transferred by an instrument of transfer and display the shareholder’s name on the actual share certificate, the name of the holder is not registered in the books of the company.
Beneficial Owner
Person who is the ultimate beneficiary of a company or trust
Beneficiary
The person(s), company, trust or estate named by the grantor, settlor or creator to receive the benefit’s of a trust in due course upon conditions, which the grantor established by way of a trust deed. An exception would be the fully discretionary trust. The beneficiary could be a charity, foundation and/or person(s) which or who are characterised by “classes” in terms of their order of entitlement.
Board of Directors
The company’s “cabinet” – as specified in the Articles of Association – is supposed to make decisions on the issues that are too specific for the general meeting to discuss but which are beyond the day-to-day responsibility of the company management.
Board of Trustees
A board acting as trustees to a trust. This board is in full control of the trust affairs. The board of trustees will manage the trust affairs based on the rights and responsibilities granted to them by the settlor’s trust deed.
Bond
In finance and economics, a bond is a debt instrument that obligates the issuer to pay to the bondholder the principal (the original amount of the loan) plus interest. Thus, a bond is essentially an I.O.U. (I owe you contract) issued by a private or governmental corporation. The corporation “borrows” the face amount of the bond from its buyer, pays interest on that debt while it is outstanding, and then “redeems” the bond by paying back the debt. A mortgage is a bond with a lien on a real estate.
British Commonwealth of Nations
The 54 member states, with year of admission:
Antigua and Barbuda (1981), Australia (1931) (1), Bahamas (1973), Bangladesh (1972), Barbados (1966), Belize (1981), Botswana (1966), Brunei (1984) (2), Britain (1931), Cameroon (1995), Canada (1931) (1), Cyprus (1961), Dominica (1978), Fiji Islands (1997) (3), Gambia (1965), Ghana (1957), Grenada (1974), Guyana (1966), India (1947), Jamaica (1962), Kenya (1963), Kiribati (1979), Lesotho (1966, Malawi (1964), Malaysia (1957), Maldives (1982), Malta (1964), Mauritius (1968), Mozambique (1995), Namibia (1990), Nauru (1968) (4), New Zealand (1931) (1), Nigeria (1960) (5), Pakistan (1989) (6), Papua New Guinea (1975), St Kitts and Nevis (1983), St Lucia (1979), St Vincent and Grenadines (1979), Samoa (1970), Seychelles (1976), Sierra Leone (1961), Singapore (1965), Solomon Islands (1978), South Africa (1994) (7), Sri Lanka (1948), Swaziland (1968), Tanzania (1961), Tonga (1970) (2), Trinidad and Tobago (1962), Tuvalu (1978), Uganda (1982), Vanuatu (1980), Zambia (1964) and Zimbabwe (1980).
(1): Independence given legal effect by the Statute of Westminster 1931. (2): Brunei and Tonga had been sovereign states in treaty relationship with Britain. (3): Fiji left 1987; but rejoined in 1997. It changed its name to ‘Fiji Islands’ in 1998. (4): Nauru was first a Mandate, then a Trust territory. (5): Membership suspended 1995. (6): Left 1992, rejoined 1989. (7): Left 1961, rejoined 1994.
Bye-Laws or By-Laws (also Articles of Association)
Articles of Association of a company (in certain jurisdictions).
Captive Bank
Bank intended to provide services to the promoter and associates of the promoter, usually an international group of companies.
Captive Insurance Company
Insurance company established by a company or international group to provide insurance (or reinsurance) for the promoter and associates of the promoter.
Certificate of Incorporation
Certificate issued to companies who have complied with all the statutory requirements for registration.
Charter
see Memorandum of Association.
Commercial Holding Company
A commercial company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors Considering the tax implications of individual or business decisions throughout the year, usually with the goal of minimizing the tax liability
Common Trust Fund
A trust that operates by the process of pooling funds from a number of participants in the trust, who as beneficiaries under the trust, share in the income or other gains derived from the acquisition, holding, management or disposal of assets acquired for the trust.
Companies Act- or Ordinance
Legislation enacted by a tax haven to facilitate and regulate for the incorporation, registration and operation of international business companies (IBC’s). More commonly found in The Caribbean tax havens i.e. the Bahamas or the BVI.
Controlled Foreign Corporation (CFC)
A legislative concept used for anti tax avoidance legislation in high tax jurisdictions. An offshore company, which, because of ownership or control lies within the high tax jurisdiction, will be deemed to be resident in the high tax jurisdiction, i.e. in the U.S. such an offshore entity may be treated by the IRS as a U.S. tax reporting entity. IRC 951 and 957 collectively define the CFC as one in which a U.S. person owns 10 percent or more of a foreign corporation or in which 50 percent- or more of the total voting stock is owned by U.S. shareholders collectively or 10 percent or more of the voting control is owned by U.S. persons.
Corporation (Corp.)
The basic existence of a corporation usually derives from two documents: the Articles of Association and the Certificate of Incorporation.
Creator, Settlor or Grantor
A person who creates/settles a trust
Cross-border-tax-planning Equity
The name given to the whole area of the legal system in countries following the English common law tradition that resolves disputes between persons by resort to principles of fairness and justness.
Custodian
A bank, financial institution or other entity that has the responsibility to manage or administer the custody or other safekeeping of assets for other persons or institutions.
Custodian trustee
A trustee that holds the trusts assets in his or her name, i.e. under common law it is the norm for a trustee to hold the trust assets in his or her name. In the civil law countries i.e. Liechtenstein the trust holds the underlying assets in its own right
Debenture
An unsecured bond backed only by the general credit of the issuing corporation.
Declaration of trust
A document creating a trust. For ultimate anonymity, a trust may be created in certain jurisdictions by a trustee or a trust company without the settlor either being identified or being a signatory to the declaration. In contrast settlor and trustees sign a trust deed.
Discretionary Trust
A highly flexible arrangement in which the beneficiary has no fixed interest in any part of the income of the trust or its assets except perhaps at the termination of the trust. The Trustees usually hold the property and income for a broad class of beneficiaries to whom they distribute the assets at their discretion. However, the Trustees may be guided by an informal memorandum written by the settlor which outlines his wishes but has no legal status. One advantage of this arrangement is that benefits can be varied according to changes in circumstances with little difficulty. Another is that the beneficiary has a somewhat nebulous hope of receiving anything and therefore it is difficult for any creditors to find an interest to which to attach a liability.
Dividend
Discretionary payment by a corporation to its shareholders, usually in the form of cash, stock, or other property.
Domicile
The place where an individual has his permanent home, or to which he intends to return, or in some cases the country of origin. In other jurisdictions the place where an individual has a long established residence or in relation to a company, where it is incorporated.
Dot Com Company
Company engaged in developing and implementing software solutions aimed at a public offering of the more successful technologies.
Double taxation Treaty
The treaties of Double taxation are bilateral agreements or international conventions, signed between two countries to guarantee that the companies or persons having these activities or taxable assets in both signatory countries will pay taxes only once. Some countries’ tax system embezzle these legal dispositions at its advantage by sometimes estimating in a unilateral way that the other country’s taxation rate is too low to completely relieve the tax-payer from the due tax, and by making him acquit a ‘complement’. It is best not to trust these kinds of treaties.
Due Diligence Documentation
In finance, the term can refer to the activities of pension or investment fund managers in keeping track of the operations, solvency, and trustworthiness of the managers of a corporation in which their fund is invested, or those of the managers of an acquiring corporation toward a target corporation.
Emigration
Emigration to a low tax jurisdiction or to a country offering special retirement incentives may serve to break totally or in part the link between a taxpayer and the high tax jurisdiction from which he is emigrating. Normally, it is the change in the place of residence which is material; however, in other cases a change in domicile or even citizenship (in the case of the United States) may be necessary. Anti-avoidance provisions or exchange controls may delay or render extremely difficult the coming into effect of the fiscal advantages of the act of emigration.
Employment Company
Many companies use Offshore Companies to recruit expat staff working on assignments throughout the world. This generally simplifies the administration of payroll and travel expenses, reduces the exchange problems which may exist in certain countries, and reduces the employee’s tax liabilities.
Escrow
When a contract or an asset such as money is placed with a third party until certain conditions are met, it is said to be held in escrow. Parties that are in dispute over the ownership of asset may agree to place the asset in escrow until an arbitrator has had time to decide who the rightful owner is.
European Union (EU)
Member countries: Spain, Italy, Ireland, Netherlands, Luxembourg, United Kingdom, Austria, Germany, Finland, Portugal, France, Sweden, Belgium, Denmark and Greece.
Exempt Company
A company exempted from tax or from compliance with specified regulations of the country in which it is established.
Exempt Trust
A trust established in a country where the Government issues a guarantee that the trust income and property will not be taxed for a specified number of years no matter what laws are subsequently passed relating to income, inheritance, estate duty, or capital gains taxes.
Family holding trust
A trust specifically created and managed to hold a family’s assets consisting or real and/or personal property and/or investment portfolios. Such trusts usually own underlying companies to hold assets thus limiting the associated risk to the individual assets.
Family limited partnership (FLP)
A limited partnership created for family estate planning and some asset protection. It is family controlled by the general partners. A highly appreciated asset is transferred into the FLP to achieve a capital gains tax reduction. Usually, the parents are the general partners holding a 1 or 2 percent interest. The other family members are the limited partners holding the balance of the interest in the partnership.
Fiduciary
See Trustee.
Finance
Studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects.
Flag of Convenience
The flag of a ship is the flag of the country of its registration. The term “flag of convenience” refers to the flag of a country (in particular Liberia and Panama) which is chosen for ship registration in order to achieve fiscal benefits (no income tax being levied by such countries on international shipping operations) and other non-tax advantages relating to lower labour costs and manning scales, officer and crew requirements, trade union practices, etc. Ownership of the ship is normally vested in a company incorporated in the country of the flag. In addition to Liberia and Panama, the following countries offer or are preparing incentives to offer flag of convenience facilities: the Cayman Islands, Costa Rica, Cyprus, Gibraltar, Haiti, Honduras, Hong Kong, Malta, Morocco, the Netherlands Antilles, Madeira, Singapore and Vanuatu.
Flight capital
Money that flows offshore without the owner ever intending its return due to ever increasing taxes.
Foreign Bank Accounts (U.S.)
Every United States resident, partnership, corporation, estate or trust must advise the United States Treasury of any financial interest in or signature authority over a foreign bank, securities or other financial account in a foreign country and must report that relationship each calendar year by filing Form 90-22.1 with the Treasury Department on or before June 30 of the succeeding year. This report must be at the following address: United States Treasury Department, P.O. Box 28309, Central Station, Washington, DC 20005. A “foreign country” includes all geographical areas located outside the United States, Guam, Puerto Rico, and the U.S. Virgin Islands.
Foreign Corporation
A corporation organized under the laws of a foreign country and whose parent company in the home country may participate in any percentage of shares of the affiliate corporation.
Foreign Investor In Real Property Tax Act of 1980 (FIRFTA) US only
Under FIRPTA and the US Economic Recovery Act Of 1981, unless an exemption is granted by the IRS, upon the sale of real property owned by an offshore (foreign) person, the agency / attorney or escrow officer handling the transaction is required to withhold capital gains taxes at the closing of the sale transaction. Unless withheld and submitted to the IRS, the party handling the sale transaction is personally liable for the taxes.
Forfeiting
Buying without recourse of obligations, usually trade drafts or promissory notes, arising from international transactions. The buyer of the obligations explicitly foregoes his legal right to a claim upon any previous owner of the debt when endorsing “without recourse.” The seller of forfeitable trade drafts or promissory notes usually is an exporter who has taken the obligations in full or part payment for goods supplied and who wishes to pass on all risks and responsibility for collection of the debt to the forfeiting financier and receive immediate cash.
Free Zones
Free zones are designated areas which receive special treatment through their exclusion from the area to which the country’s normal customs rules apply. A free port is one at which imports may be landed without paying customs duties. The system of free zones or free ports favours export processing, transhipments and the entrepot trade since there is no need to pay and then reclaim customs duties. Though free zones are often part of a tax incentive package in what would otherwise be a high tax jurisdiction, they may also be found in low tax jurisdictions, e.g. Freeport in the Bahamas.
Hedge Fund
A flexible investment fund for a limited number of large investors (the minimum investment is typically US$1 million). Hedge funds use almost all investment techniques, including those forbidden to mutual funds, such as short-selling and heavy leveraging.
High net worth Person/Individual
Jargon used in the investment world for an Individual with more than $1,000,000 in liquid assets to manage.
Holding Company
A company whose activity is limited to holding and managing investments or property but not having ordinary commercial or trading activities. The requirements to achieve holding company status vary in different countries (in particular Liechtenstein, Luxembourg, Nauru and the Netherlands).
Holding Company (Luxembourg)
A Luxembourg holding company is exempt from all forms of Luxembourg taxation but its activities are restricted to the holding of shares and certain other investments. In particular the company may not advance funds to its shareholders, invest in commodities or futures or carry out any sort of commercial or industrial activity. The company may only hold property in so far as it is necessary for its own use but could, for example, own the shares of a property investment company. This type of company is specifically excluded from the tax treaties signed by Luxembourg except the treaty signed by China.
I.B.C. (International Business Corporation)
A company exempted from tax or from compliance with specified regulations of the jurisdiction in which it is established but not allowed to trade or own real estate there.
I.B.I.T.
International Business and Investment Trust.
I.F.C.
International Finance Companies.
Incomplete/Imperfect Gift
Equity will not perfect an imperfect gift. Where the settlor does not transfer the property to the trustee the trust is not constituted. Common law rules that the settlor has to do all in his power to transfer the gift in order to create a valid trust.
Incorporation
The process by which a business receives a state charter, allowing it to become a corporation
Incorporation Haven
An incorporation haven is a country, such as Liberia and Marshall Islands, which has no infrastructure of local attorneys or accountants. It is simply in the business of registering corporations and ships. There are no other services offered and hardly anybody ever goes there. The registration of new companies is carried out by representative offices in New York, Zurich, Hong Kong, Tokyo, Rotterdam and Piraeus, in the case of Liberia and Marshall Islands.
Independent trustee
A trustee who is independent of the settlor. Independence is generally defined as not being related to the settlor by blood, through marriage, by adoption or in an employer/employee relationship.
Inheritance Tax
A tax imposed on the privilege of inheriting something, paid by the recipient.
Intellectual property
Ownership conferring right to possess, use or dispose of products created by human ingenuity, including patents, trademarks and copyrights.
Inter-Company Pricing
Low tax jurisdictions may be used for the purpose of inter-company pricing in a number of ways. In the first place, a manufacturing company located in a high tax jurisdiction could effect sales to a related company in a low tax jurisdiction jurisdiction at cost or at prices involving a very small profit margin; the low tax jurisdiction company could then in turn sell the goods to one or more related marketing companies in high tax jurisdictions at high prices which would produce a low profit in the hands of the latter company or companies. A variation of this technique would involve selling to unrelated marketing companies at arm’s length prices, the primary object of the exercise still being achieved since the manufacturing company would have avoided taxation on the real profits that would otherwise have accrued to it. Secondly, raw materials or goods or components manufactured at a very low cost abroad, could be purchased by a company and then sold to a related company in a high tax jurisdiction at high prices which would give the latter company a substantially lower profit than if purchases had been effected directly. Often inter-company pricing takes place by companies merely passing invoices without the subject matter of the sale actually being transferred to or by the intermediary company.
INTERFIPOL International Financial Police
The tax Crime counterpart to INTERPOL.
International Business Corporation (IBC)
In addition to its everyday usage, this term has a special meaning in the legislation of Antigua, Bahamas, Barbados, Grenada and St. Vincent and refers to companies registered in a foreign country that can conduct business anywhere in the world, except for the country it is registered in. An IBC also requires a minimum of only one Director instead of multiple director requirements. The Director may also serve as the Shareholder.
International Business Corporation IBC (Channel Islands and the Isle of Man)
Like the international IBC, the IBC found in this region is designed for foreign companies and individuals to the jurisdiction in which it is registered, providing a maximum of privacy, combined with a comprehensive freedom from local taxation. An IBC pays every year filing fees and domiciliary fees in order to remain registered. This company has a special form of tax rate, designed to defeat the controlled foreign company legislation of the neighbouring larger countries. This type of company will pay taxes on local, as well as international revenue at a very competitive tax rate.
International Business Corporation IBC (International)
IBC stands for International Business Corporation. It is a company designed for foreign companies and individuals to the jurisdiction in which it is registered, providing a maximum of privacy, combined with a comprehensive freedom from local taxation. An IBC pays governmental fees and domiciliary fees each year in order to remain registered. In some jurisdictions an additional tax-exempt charge payable. Such charges are denoted in the e-offshore list for every jurisdiction. An IBC is like any other company subject to local law.
International Financial Centres
The term “International Financial Centre” which is occasionally used – incorrectly – as a synonym for “low tax jurisdictions”, refers more correctly to centres such as London, Luxembourg, Paris, Singapore and Zurich. One of the important requirements of a successful international financial centre is that international financial business transacted there should not be subject to inconvenient controls or withholding taxes.
International Tax Planning
The object of international tax planning is to determine, from the tax point of view, whether or not to embark on a project; and, if it is embarked upon or has already been commenced, then to minimize or defer the imposition of the tax burden falling on taxable persons and events and to do so lawfully, in the attainment of the desired business and other objectives, while taking into consideration all relevant tax factors with particular regard to the danger of double taxation and the advantages which may be derived from the inter-relationship of two or more tax systems, and in the light of the material non-tax factors. The role of low tax jurisdictions in international tax planning lies in the possibility of situating a taxable person or a taxable event in a low tax jurisdiction with a view to displacing the connecting factor with a high tax jurisdiction and thus permitting a modification in the incidence of tax.
Investing
An item of value purchased for income or capital appreciation
Investment Bank
A financial institution that arranges the initial issuance of stocks and bonds and advises companies about acquisitions and divestitures.
Investment Company
Firm that invests the pooled funds of retail investors for a fee. By aggregating the funds of a large number of small investors into a specific investments (in line with the objectives of the investors), an investment company gives individual investors access to a wider range of securities than the investors themselves would have been able to access. Also, individual investors should be able to save on trading costs since the investment company is able to gain economies of scale in operations. There are two types of investment companies: open-end (mutual funds) and closed-end (investment trusts), also called investment fund.
Investment Holding Company
A company organized in a low tax jurisdiction country by an investor which purchases and subsequently handles for him his personal investment portfolio through the anonymity of a nominee company. Consideration for the purchase is the establishment on the investment company’s books of a debt to the investor equivalent to the value of the investments transferred whereby the income generated from the investment holding company’s assets are not taxable.
Investment Incentive
Investment incentives are incentives of various kinds which are granted in order to attract local or foreign investment capital to certain activities (e.g. exports, technological development) or particular areas (e.g. backward regions or designated areas as part of a decentralization policy). Such incentives may be of various types, e.g. grants, interest-free loans, factory sites, exemption from exchange restrictions, and are frequently granted as a package together with tax incentives.
Joint Venture
A type of business partnership involving joint management and the sharing of risks and profits as between two or more enterprises based in different countries.
Jurisdiction
The geographical area over which a court or government body has the power and right to exercise authority
Letter of wishes
Guidance and a request by the Settlor to the trustee having no binding powers over the trustee. There may be multiple letters. They must be carefully drafted to avoid creating problems with the settlor or true settlor In the case of a grantor trust becoming a co-trustee, the trustee cannot be a “pawn” of the settlor or there is basis for the argument that there never was a complete renouncement of the assets. Sometimes referred to as a side letter.
Licensing
Technology which can be the subject-matter of licensing covers all forms of industrial enterprise. It embraces industrial property which may be protected by patents, trade marks, etc. As well as technology which cannot be patented. Industrial enterprises frequently exploit their technology by transferring it to licensing companies in low tax jurisdictions so that royalties and other sums may be received by the licensing company from related companies or third parties thus reducing the total tax burden. The anti-avoidance provisions of most developed countries have limited the use of low tax jurisdictions for this purpose.
Limited Liability Company (LLC)
A hybrid between the partnership and the corporation (originates from the German GmbH created by law in 1892). This type of company can be found in the UK, the Channel Islands, the Isle of Man and many Caribbean jurisdictions. The important characteristic is that the liability of the shareholder is limited up to the amount of their capital contribution.
Limited Liability Partnership LLP
A form of the LLC favoured and used for professional associations, such as accountants and attorneys. The benefits are that it protects the general partners usually the one funding the operation from liability. It is tax transparent and therefore used as a tax-planning tool for US tax resident persons or entities.
Low tax jurisdiction
The term low tax jurisdiction is generally used to refer to a jurisdiction: 1) where there are no relevant taxes; 2) where taxes are levied only on internal taxable events, but not at all, or at low tax rates, on profits from foreign sources; or 3) where special tax privileges are granted to certain types of taxable persons or events. Such special tax privileges may be accorded by the domestic internal tax system or may derive from a combination of domestic and treaty provisions. (Where tax benefits are part of an economic development programme the term tax incentives is usually used). Simply stated, a low tax jurisdiction is any country whose laws, regulations, traditions, and, in some cases, treaty arrangements make it possible for one to reduce his over all burden. The low tax jurisdictions of the world broadly may be classified into six separate categories: 1) non-tax jurisdictions (e.g., Anguilla, Bahamas, Bermuda, Cayman Islands, Nevis, St. Vincent, Turks and Caicos, and Vanuatu); 2) countries taxing only local income (e.g., Costa Rica, Liberia, Panama, Gibraltar and Hong Kong); 3) low-low tax jurisdictions with treaty benefits (e.g., the Netherlands, the Netherlands Antilles, British Virgin Islands, Luxembourg and Singapore); 4) countries offering special privileges (e.g., Channel Islands and the Isle of Man); 5) low tax jurisdictions for individuals (e.g., Andorra), 6) low tax jurisdictions for International Business Companies (e.g., Antigua, Barbados, Grenada, Jamaica and Montserrat).
Management and Control
In certain legal systems which follow the former United Kingdom law in this regard, a company is treated as being resident in the country in which its management and control is exercised, and not in the country of its place of registration or incorporation. The criterion of residence may be of relevance in international arrangements in involving low tax jurisdictions, and can be material from both the fiscal and the exchange control points of view.
Mavera injunction
A court Injunction preventing the trustee for a trust from transferring trust assets pending the outcome of a lawsuit.
Memorandum of Association
See Articles of Association.
Minute Book
Used for writing minutes in.
Minutes
Official record of a corporate meeting. Usually a brief summary of proceedings of a meeting/assembly/committee.
Money Laundering
Money-laundering occurs when criminals seek to make illegally obtained funds look legitimate by funnelling them through a string of banks and businesses until the money’s origin is obscured.
Mutual Assistance Agreement
A contract agreement between two or more nations in which the fiscal Governments are empowered to take preference over the civil rights of each others’ citizens in ascertaining and collecting crime-related proceeds or tax liability.
Mutual Fund
Investment Company usually formed in a low tax jurisdiction and issuing shares to the public.
Mutual Legal Assistance Treaty (MLAT)
An agreement among the U.S. and many Caribbean countries for the exchange of information for the enforcement of criminal laws. U.S. tax evasion is excluded as not being a crime to the offshore countries. The British Virgin Islands have not executed this Treaty.
Net Liquid Assets
A firm’s liquid financial assets minus its current liabilities
Nominee Director
Someone who acts on your behalf as a director of the company. In some jurisdictions the nominee director can also be another offshore company.
Nominee Shareholders
These are either legal entities or natural persons, depending on the considered jurisdictions that substitute you for the opening of your company. This enables you not to appear in the Public Registers and thus avoid that anyone knew you are controlling the company.
Non-Resident Company
A company treated by the jurisdiction in which it is incorporated as non-resident for tax purposes or exchange control purposes or both.
Non-tax jurisdiction
Term used by certain financial writers to refer to low tax jurisdictions where there are no relevant taxes.
O.E.C.D.
Organisation for Economic Co-operation and Development.
Offshore
Offshore means non-resident and applies for companies as well as individuals. Those countries which give non-residents special tax treatment or total exclusion from local tax liability on funds and assets they hold in that country or via an entity in that country provide “offshore services”, that is services for private people or legal entities which are not resident in that country for tax purposes. For example the US, the UK, Austria etc. are commonly not known as offshore centre, however they do provide offshore services to non-residents.
Offshore Centre
Countries and jurisdictions most commonly small islands, with little to no resources for revenue, specialising in the provision of financial services. These centers specialise and focus on offering to non-residents more favorable tax environments than that enjoyed in their home territory on international trading activities and/ or investments via that country. Other beneficial features of offshore centre may include banking secrecy, privacy, various types of discretionary services and other favorable aspects of the legal environment.
Offshore Company
A company incorporated in a country where there is little government control and/or low tax rates
Offshore Finance Company:
A company organized in a foreign country, almost always in a low tax jurisdiction country, which handles such financing services as arranging foreign loans in Eurocurrency markets and floating bonds or other forms of indebtedness abroad in United States dollars or other hard currencies. Generally the offshore finance company is created to handle the financing requirements of its parent or related companies but is used occasionally to handle the financing needs of the parent company’s distributors or agents overseas.
Offshore Fund
A mutual fund offering its shares to resident outside the country in which it is incorporated.
Offshore Holding Company
A company organized in a foreign country which controls one or more affiliate companies and which manages, administers or services its affiliate companies usually located outside the country in which the parent company is incorporated.
Offshore Investor
An investor who is a user of a foreign base company in an offshore centre and who may move in and out of his investment freely.
Offshore Trading Company
A company organized in a foreign country to buy goods from an exporter in one or more other foreign countries and to sell these same goods to importers in other foreign countries. The documents are processed by the offshore trading company and all managerial, administrative and day-to-day financial transactions are handled by it. The goods are shipped from the seller in one country to the buyer in the other country without ever being shipped or landed in the country where the offshore trading company is located.
Onshore
Onshore is defined as the country in which a private person, a company or any other legal entity is resident for tax purposes.
Outsourcing
The delegation of non-core operations or jobs from internal production to an external entity (such as a subcontractor) that specializes in that operation. Outsourcing is a business decision that is often made to focus on core competences.
Parent Company
A company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors, also called holding company
Partnerships
A partnership often offers useful features for the purposes of an overall tax plan. In certain jurisdictions, a partnership may have corporate attributes and resemble a company. However, even where a partnership does not have corporate attributes, requirements relating to formations and registration the nationality and/or residence of partners, limited liability, restrictions on activities, should be examined in the context of the general law governing local partnerships.
Permanent Establishment
Legal concept applied by a country in order to tax commercial activities realised in its territory by a company or person incorporated or resident outside the jurisdiction. The expression is commonly used in double taxation agreements and is defined in the O.E.C.D. model agreement, although in practice there is no consistent definition adopted either in double taxation agreements or in jurisdictions which recognise the concept under their general tax laws.
PLC Public Limited Company
A UK public limited company (also exists in the Channel Islands)
POA
Power of attorney.
Portfolios
A collection of investments held by an institution or a private individual, holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.
Pre-filing notice, US only
Mailed by the IRS to parties (tax payers] who are believed to be participating in fraudulent trust programs. The notice requests that the receiver seek professional counsel before filing their next tax return..
Private Banking
The providing of banking services to very wealthy individuals and families. Many financial services firms require a person or family to have a certain minimum net worth to qualify for private banking services.
Private Trustee Company
A company incorporated in certain offshore jurisdictions, such as Bermuda, to act as a trustee for a limited class or group of trusts. Private trustee companies are not permitted to offer trustee services to the public generally.
Probate
The legal process for the distribution of the estate of a decedent
Property Holding Company
There can be significant tax advantages to owning real property and land by an offshore company, including the legal avoidance of capital gains, inheritance tax, and property transfer taxes. It can also facilitate sales in that the property can be transferred simply by handing over the title to the individual owner, thereby reducing legal and other administrative costs.
Protector
A person appointed by the settlor to oversee the trust on behalf of the beneficiaries. In many jurisdictions, local trust laws define the concept of the trust protector. The protector usually has veto power over the trustee with respect to discretionary matters but no say with respect to issues unequivocally covered in the trust deed. Trust decisions are the trustee’s alone. In some cases the protector has the power to remove a trustee and appoint other trustees.
Public Investment Company
Certain offshore jurisdictions with appropriate appropriate regulations are competent for establishment and marketing of united investment plans because the elementary investments can be intended to maximise tax benefits.
Representative Office
A subsidiary of a foreign company in China which is not allowed to issue invoices and trade.
Resident Director
Some jurisdictions require directors to be the person who live in that country.
Royalty
All amounts received for the privilege of using intangibles such as patents, copyrights, secret processes and formulae, as well as amounts received for the privilege of exploiting mineral, oil and gas deposits.
S.E.C.
Securities and Exchange Commission, United States federal organisation which supervises information provided by companies whose shares are offered to or dealt in by the public.
Screen Company
A company incorporated in a country which charges a nil or low rate of tax on receipts or distributions of interest, dividends or royalties received from another country, taking advantage of a favourable double taxation agreement between two countries which reduces the tax withheld at source in the country in which the income arises.
Settle
To create or establish an offshore trust. Done by the settlor {UK and Channel Island term) or the grantor (U.S. and IRS term).
Settlor
The person who creates a trust.
Share of Stock
Represents ownership in a corporation. There exist several different types (common and preferred) and classes of shares with different privileges and rights, such as registered shares (with or without par value), preference shares, (non-)redeemable shares, shares with or without voting rights and bearer shares etc.
Shareholder
One who owns shares of stock in a corporation or mutual fund. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the board of directors also called stockholder.
Shelf Company
A company that previously has been organized with designated capital and registration cost paid and is placed on an inactive basis, with annual registration, capital and stamp duty fees currently paid but shares held in bearer form and the directors and officers substituted at the time the company is taken off the shelf and becomes active.
Shield Company
A tool for tax avoidance and gives you the anonymity
Shipping Company
Owing to the innate mobility of the shipping industry it is common for ship owners and operators to have recourse to low tax jurisdictions. Frequently the ownership, operation, administration and registration are situated in carefully chosen (and often different) jurisdictions in order to keep global tax burdens at a low level.
Special Economic Zone (SEZ)
A Special Economic Zone (SEZ) is a geographical region that has economic laws different from a country’s typical economic laws. Usually the goal is an increase in foreign investment. Typically they are regions designated for economic development oriented toward inward FDI and exports, Special Economic Zones have been established in several countries, including the People’s Republic of China, India, Kazakhstan, the Philippines and Russia. North Korea has also attempted this to a degree.
Stepping-Stone Country
A country in which a screen company is incorporated.
Sterling Area
The area in which the pound sterling is legal tender, namely the Scheduled Territories. In general, the United Kingdom does not impose restrictions on exchange transactions or payments and receipts between residents of the United Kingdom and residents of the Scheduled Territories. Exchange control applies mainly to transactions with residents of countries outside the Scheduled Territories.
Stockholders’ Annual Meeting
The parliaments “ultimate authority”: 1) approves annual accounts of both profit and loss and the company’s assets and liabilities; 2) makes policy decisions on future business actions; 3) personnel decisions (president, secretary and treasurer – to be retained or replaced – the same goes for whether to retain or replace the auditors and directors; 4) constitutional issues: should the Articles of Association be modified or changed?; should quorum requirements be changed? – etc.
Subpart F Income
The section of the American tax law of 1962 containing anti-low tax jurisdiction measures in relation to specified companies known as “controlled foreign corporations”.
Subsidiary
A company for which a majority of the voting stock is owned by a holding company
Substantial Holding Company
A particular type of holding company established in the Netherlands exempted from tax on income from investments under specified conditions.
Tax Avoidance
Lawful agreement, or re-arrangement, of the affairs of an individual or company intended to avoid liability to tax.
Tax Deduction
An expense subtracted from adjusted gross income when calculating taxable income, such as for state and local taxes paid, charitable gifts, and certain types of interest payments, also called deduction.
Tax Evasion
Fraudulent or illegal arrangements made with the intention of evading tax, e.g. by failure to make full disclosure to the revenue authorities.
Tax Exempt Company (as found in the Channel Islands and the Isle of Man)
This is a company designed for companies and individuals who are foreign to the jurisdiction in which it is registered, providing a maximum of privacy, combined with comprehensive freedoms from local taxation. Tax Exempt companies (often referred to simply as Exempt Companies) pay a tax-exempt fee each year. This fee is a fixed annual fee exempting the company from further tax liabilities in the jurisdiction in which it is registered. It also has to pay annual filing fees (governmental fees) and domiciliary fees (service provider’s fees) in order to remain registered. The relevant tax-exempt fee for the relevant jurisdiction is denoted in the e-offshore list for every jurisdiction.
Tax Exemption
Not subject to taxation.
Tax Holiday
Exemption from taxation for a designated period of time.
Tax Incentives
The term Tax Incentives is used when tax benefits are part of an economic development programme. Most tax incentive measures fall into one or more of the following categories: tax exemption (tax holiday); deduction from the taxable base; reduction in the rate of tax; tax deferment.
Tax Loophole
An unintended benefit permitted under the tax laws of a country when previously the Government unknowingly approved legislation that encourages a tax-payer to take advantage of a tax reduction or exemption which the legislators had foreseen.
Tax Minimization
The minimization of tax liability by lawful methods.
Tax Planning
Strategy of minimizing tax liability for an individual or company by analyzing the tax implications of various options throughout a tax year. Also see International Tax Planning.
Tax Shelters
The term “tax shelters” is sometimes employed to refer to those jurisdictions where taxes are levied only on internal taxable events, but not at all, or at very low rates, on profits from foreign sources. In domestic tax law the term applies to a variety of devices which allow taxpayers to deduct certain artificial losses, i.e. losses which are not really economic losses but represent losses which are available as deductions under the current tax laws. These artificial losses may be offset not only against income from the investment out of which they arise, but also against the taxpayers other income, usually from his regular business or professional activity.
Tax Sparing
The sphere of application of a tax incentive may be extended by way of a tax sparing clause in a treaty between a capital importing country and a capital exporting country. Such clauses allow residents of the capital exporting country a credit against domestic tax for profits or gains derived in the developing country in respect of which all or specified taxes are subject to exemption or reduction in the latter country. Normally tax treaties are not concluded between high tax jurisdictions and low tax jurisdictions. In line with this approach certain tax treaties specifically exclude from their scope entities which benefit from specially favoured tax treatment (e.g. the exclusion of Luxembourg holding companies from the provisions of tax treaties concluded with Luxembourg). However, certain colonies or former colonies of the United Kingdom and the Netherlands benefit from extensions (with or without modification) of treaties concluded respectively by the United Kingdom and the Netherlands. The existence of such treaty links may be of considerable value with regard to low tax jurisdiction operations taking place in jurisdictions such as the British Virgin Islands and the Netherlands Antilles.
Tax Treaties
Tax treaties are international agreements or conventions concluded with the object of eliminating double taxation by the contracting states. International double taxation may be loosely defined as the imposition of comparable taxes in two (or more) states on the same taxpayer in respect of the same subject matter and for identical or overlapping periods. The most harmful effects of double taxation are on the exchange of goods and services and on the movement of capital and persons.
Tax-Loss Company
A company that has accumulated losses which are not allowed for income tax purposes but may be attractive to another company so that a takeover or merger of the company suffering a loss will place the latter on a profitable basis. In this way the losses are used to reduce or eliminate the tax liability of the resulting company when it subsequently shows profits.
Trade Barrier
A government regulation that restricts global trade
Trading Company
Import/Export and general trading activities are one of the most popular uses of Offshore Companies. The Offshore Company would take orders from the supplier and have the goods delivered directly to the customer. The Offshore Company invoices the customer directly. The profits arising from the difference in the selling/purchase prices are accumulated in the tax free Offshore Company.
Trust
The trust concept has been developed over the centuries, and has now become one of the most effective tax and estate planning techniques available today. The word “trust” refers to the duty or aggregate accumulation of obligations that a person (known as the settlor) rest upon a person described as a trustee by transferring his assets to this third party. The responsibilities are in relation to property held by him or under his control. The trustee is obliged to administer the trust property in the manner lawfully prescribed by the trust instrument (Trust or Settlement Deed, Declaration of Trust), or in the absence of specific provision, in accordance with equitable principles or statute law. The administration will thus be in such a manner that the consequential benefits and advantages accrue, not to the trustee, but to the beneficiary (ies). There are three basic types of trust: 1) an Interest in Possession’s trust allows for a particular beneficiary, often the settlor, to have a distinct right to income from part of the trust’s capital assets; 2) An Accumulation and Maintenance trust allows for income to accumulate until a class of beneficiaries reach a certain age; 3) A Discretionary trust vests discretion with the trustees to decide how both income and capital are distributed. It is also possible to appoint an individual who is known as the protector. The protector’s main function is to ensure that the trustees administers and manages the trust assets in accordance with the trust deed and he is often vested with the power to appoint and remove trustees. A trust does not have shares.
Trust Deed (Settlement Deed, Declaration of Trust or Trust Instrument)
The document that lays down the foundations of how the trustees are to administer and manage the trust assets and how they are to distribute and dispose of trust assets during the lifetime of the trust.
Trust Services
A large number of banks located in low tax jurisdictions offer trust services. In addition there are trust companies specifically offering trust services. Most low tax jurisdictions have enacted legislative provisions and set up administrative authorities to control the activities of such banks and trust companies. Services offered by banks and trust companies normally include a fairly wide range of trusteeship, management and related services. The trusteeship services involve not merely acting as trustee of settlements, but many other services such as acting as trustee for debenture holders or as custodian trustee for pension funds, attending to statutory requirements and the maintenance of financial records. Often nominee shareholders, directors and other officers are furnished. Investment services are normally provided.
Trustee
A person totally independent of the settlor who has a fiduciary responsibility to the beneficiaries to manage the assets of the trust at the best of his or her ability. The trustee reporting requirements shall be defined at the outset in a fiduciary contract and should include how often, to whom, how to respond to instructions or inquiries, investment strategies, fees (flat and/or percentage of the valuation of the trust estate) anticipated future increases in fees, hourly rates for consulting services, etc.
VAT
Value Added Tax.
Vintage Company
See Shelf Company.
WFOE
The Wholly Foreign Owned Enterprise or ‘WFOE’ is a common investment vehicle for China-based business. The unique feature of a WFOE is that involvement of a Chinese investor is not required unlike most other investment vehicles. This can give greater control over the business venture in China and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.
Withholding Tax
Tax required to be deducted at source by companies paying interest, dividends or royalties, but which may in certain circumstances be reclaimed by the recipient or be reduced under a double taxation agreement/tax treaty.
World Trade Organization (WTO)
An international agency which encourages trade between member nations administers global trade agreements and resolves disputes when they arise.
Yacht Owning Company
Particular offshore jurisdictions may be fitted for having a yacht. The reason is that they will permit the boat to fly under their own nation flag. This is the case of the British offshore jurisdictions where the boats have the right to use the flag of Red Ensign (A particular flag for British Boat).