In the world of offshore banking and providing of offshore structures, there is a lot of words and definitions used to describe different terms within this area.
With this in mind and to better understand these terms, we therefore provide an alfabethical glossary for;
Banking And Financial Services Glossary
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A
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Account balance
The balance in an account at the beginning of each business day; includes all deposits and withdrawals that were posted from the previous night, whether or not funds have been collected. See also Glossary term, "collected balance."
Account statement
A printed or online statement of all the debit and credit transactions on an account for a given statement cycle.
Active account
A bank account in which there are recent transactions.
AER
Annual earnings rate on an investment.
Annual percentage yield (APY)
A percentage rate reflecting the total amount of interest paid on a deposit account (checking, savings, CDs, IRAs), based on the interest rate and the effect of interest compounding for one year.
APR
The annual percentage rate of interest, usually on a loan or mortgage, usually displayed in brackets and representing the true cost of the loan or mortgage as it shows any additional payments beyond the interest rate.
Automated Clearing House (ACH)
A nationwide electronic funds transfer network that enables participating financial institutions to distribute electronic credit and debit entries to bank accounts and to settle such entries.
Automatic Funds Transfer
An arrangement that moves funds from one account to another automatically on a pre-arranged schedule; for example, every payday or once a month.
Automatic payment
An arrangement that authorizes payments to be deducted automatically from a bank account (usually a checking account) to pay bills (such as insurance payments, rent, mortgage or loan payments). Payments are usually scheduled to be made on a certain day of the month.
Available balance
The amount of money in an account that is available for immediate use.
Average daily balance
The average amount in a deposit account that equals the sum of the daily account balances during an accounting period, usually a monthly statement cycle, divided by the number of days in the period. Can sometimes be used to calculate whether a service charge applies or to qualify for special services. See also Glossary term, "minimum daily balance."
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Banking Secrecy (or Banking privacy)
A legal principle under which banks and financial institutions are allowed to protect personal information about their customers, through the use of numbered bank accounts or otherwise. Effective bank secrecy is better achieved in certain countries, such as Panama, Belize, Switzerland or in other tax havens, where offshore banks and financial institutions adhere to voluntary or statutory levels of privacy.
Bank Statements
This is a statement from the bank giving details of transactions in the relevant account. It can be requested at any intervals required, usually monthly.
Bear Market
A bear is somebody who believes that the market is falling and a bear market is a falling market. See bull market for the opposite.
Bill Payments
An option of online banking in which clients are able to automatically transfer funds from an account to a billing institution. This can be set up to submit the payment on a schedule.
Bounced Check
When the bank has not enough funds in the relevant account or the account holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return the cheque to the account holder. The beneficiary of the cheque will have not been paid. This normally incurs a fee from the bank.
Bonds
These are securities which pay interest at specified intervals and the principle amount of the loan is paid at maturity.
Bull Market
A bull is somebody who believes that the market is rising and a bull market is a rising market. See bear market for the opposite.
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Cancelled check
A check that has been paid. A cancelled check may generally be used as proof of payment.
Cashier's check
A check drawn on and issued by a bank. It does not usually bounce because its face amount is paid to the bank when it is issued and the bank then assumes the obligation.
Certificate of Deposit (CD)
A time deposit that is payable at the end of a specified term. CDs generally pay a fixed interest rate and generally offer a higher interest rate than other types of deposit accounts. Terms can range from a few monts to several years. If an early withdrawal from the CD prior to the end of the term is permitted, a penalty is usually assessed.
Certified Documents
These are photocopies of original documents that have been signed by a professional i.e. a solicitor, accountant, teacher, doctor or bank official. The professional also states, on the document, "original seen" since they must be able to verify that these are genuine copies and therefore have to have seen the original, they also date the document and put their full name, profession and their address.
Certified check
A check for which the bank guarantees payment.
Charges
This is the money paid to the bank for services rendered. Charges include overdraft fees, charges for bouncing cheques, interest on overdraft and any charges that a business account might normally incur.
Check Book
A small, bound booklet of checks. A check is a piece of paper produced by your bank with your account number, sort-code and check number printed on it. The account number distinguishes your account from anyone elses.
Check Clearing
This is the process of getting the money from the check-writer's account into the check receiver's account.
Checking account
A type of deposit account, sometimes interest bearing, which enables customers to place funds and withdraw their available funds on demand, typically by writing a check.
Check Card
A plastic card issued by eBan24 that customers can use anywhere Visa debit cards are accepted. A Check Card can also be used at ATMs so there is no need to carry both a Check Card and an ATM card. Also referred to as a debit card.
Chip and PIN
A Chip is a small electronic insert placed into a check or credit card. The PIN is a four digit personal identification number which is used with the card by the card-holder.
Clearing Bank
This is a bank that can clear funds between banks. For general purposes, this is any institution which we know of as a bank or as a provider of banking services.
Combined balance
Any combination of balances from linked accounts, such as savings, checking, and CDs. Can be used to meet the balance required to waive the monthly fee on some checking accounts.
Compound Interest
The process by which a deposit or asset can, not only earn interest, but also build continually on the new sums with additional interest. For example, if you have $500 deposited, and gain 2% interest ($10), the next cycle will see that you gain 2% interest but now on the new sum, which is $510. Your sum thereafter would be $520.20, and so on and so forth. The more frequently interest is compounded, the higher the effective yield.
Credit
A financial term that refers to an increase in a deposit account balance (such as a deposit made to the account). See also Glossary term, "debit."
Credit card
A plastic card issued to an individual for the purpose of purchasing goods and services using credit; a credit limit is established for each card holder.
Credit rating
This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual's credit history, the details of which are available from specialist organizations.
Credit scoring
This is the process of assessing an individual's credit-worthiness. The process involves taking information from an individual on an application form (for example when applying for a store card) and weighting the answers given. Certain responses will attract higher scores than others and the total score will determine whether or nor the organization wants to do business with the individual, or if they represent too high a credit risk.
Credit-worthiness
This is the judgement of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organisation but not by another. Much depends on whether an organization is involved with high risk customers or not.
Check enclosure
A service where the bank returns the checks with the account statement.
Custodial account
An account created for the benefit of a minor with an adult as the custodian.
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Debit
A financial term that refers to a decrease in a deposit account balance, such as a check posted to the account. See also Glossary term, "credit."
Debit card
A plastic card issued by a bank which, in the case of eBan24 cards, customers can use anywhere Visa debit cards are accepted. Because the money is deducted directly from a designated checking account, there are no finance charges. A debit card can also be used at ATMs so there is no need to carry both a debit card and an ATM card. See also Glossary term, "Check Card."
Deposit
Money added into a customer's account at a financial institution.
Direct debit
An amount of money taken from a bank account, set up by the recipient and can vary in amount and exact time that it is taken from an account. Mortgages are usually direct debits.
Direct deposit
With direct deposit, your recurring deposits are made electronically into your checking, savings or money market account. Deposits can include salary, pension, Social Security and Supplemental Security Income (SSI) benefits, or other regular monthly income.
Disclosure
Information pertaining to the account services, fees and regulatory requirements.
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Electronic Funds Transfer (EFT)
Any transfer of funds initiated by electronic means, such as an electronic terminal, telephone, computer, ATM or magnetic tape.
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Float
The amount of time represented by checks that are in transit between the date they are deposited to an account and the date they are paid. The time between deposit and payment of the check is referred to as the float.
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High Yield
Investments with high rates of return.
High-yield savings accounts
High-yield savings accounts don't have the check-writing feature.
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Identity Theft
This is when criminals use an innocent person's details to open or use an account to carry out financial transactions. It is very easy to do with an individual's personal details, which is why shredding confidential information is so important.
Identity Verification
This is often used by financial institutions to verify the customer and usually takes the form of a pass-word and the answer to an obscure personal question such as the customer's mother's maiden-name.
Inactive account
A bank account in which there have not been any transactions for an extended period of time. In some cases (no activity within the period specified by state law, generally at least three years), the law requires a bank to turn the account over to the state as unclaimed property.
Interest bearing
An account that earns interest is an interest bearing account.
Interest rate
The rate paid on an interest-bearing account, such as savings, CDs and some checking accounts; also, the rate charged on a loan or line of credit. Different types of accounts and loans pay or charge different rates of interest.
Individual Retirement Account (IRA)
An investment account where an individual can contribute a specified amount of his or her income each year, intended to be set aside for retirement. The contribution is usually deducted before taxes and is therefore not reported as taxable income and remains so until retirement. One’s income is usually lower at retirement, so lower taxes are usually imposed once the funds are withdrawn. Depending on the amount of contributions during working years, one may also put themselves in a lower tax-bracket.
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Joint account
Any account owned by two or more people.
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Linked account
Any account linked to another account at the same financial institution so that funds may be transferred electronically between accounts, and, in some cases, the combined balance may be used to help meet the balance required to waive a monthly service charge on one of the accounts.
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Minimum daily balance
The lowest end-of-day balance in an account during a statement cycle. It is often required to be kept in an account each day to earn interest, avoid a service charge or qualify for special services. See also Glossary term, "average daily balance."
Money Laundering
This is when money gained from crime is put into a bank so that it can be accessed safely by the criminals and terrorists. It makes the proceeds of illegal activities easier to get to.
Money Market Account (MMA)
A type of savings deposit account intended for larger deposits, that offer competitive interest rates. Many MMA’s place a restriction on the number of transactions that can occur in this account throughout the year, as well as requiring a minimum balance.
Money order
A financial instrument, issued by a bank or other institution, allowing the individual named on the order to receive a specified amount of cash on demand. Often used by people who do not have checking accounts.
Monthly maintenance fee
The fee charged to maintain a particular account, such as a personal or corporate account.
Mortgage
A mortgage is the transfer of an interest in property (or the equivalent in law - a charge) to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.
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Non-Bank ATM
An ATM or cash machine that does not prominently display a bank’s name or logo. Fees generally apply to cash withdrawals at non-bank ATM
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Offshore financial centre
Usually a low-tax, lightly regulated jurisdiction which specializes in providing the corporate and commercial infrastructure to facilitate the use of that jurisdiction for the formation of offshore companies and for the investment of offshore funds.
Offshore banking
Relates to the banking and financial industry in offshore centres. It is located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include greater privacy (see also bank secrecy), a principle born with the 1934 Swiss Banking Act), low or no taxation (i.e. tax havens), easy access to deposits (at least in terms of regulation) and protection against local political or financial instability.
Offshore company
The term offshore company may refer to either a company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre (sometimes known as a non-resident company) or any company (resident or otherwise) incorporated in an offshore financial centre.
Typically the requirements for company registration under the relevant provision for non-resident status (as in the former of the two options above) will be pursuant to some or all of the following criteria. It must be incorporated from outside the jurisdiction in question, must not trade within the jurisdiction in question and/or must meet nominal tax expenses levied by the jurisdiction in question. Some jurisdictions are more favorable than others. Please confer to an eBan24 specialist in such matters.
Offshore investment
The keeping of money in a jurisdiction other than one's country of residence. Offshore jurisdictions are a commonly accepted solution to reducing excessive tax burdens levied in most countries to both large and small scale investors alike. Selected offshore domiciles are superficially viewed by some as havens used to conceal or protect illegally acquired money from law enforcement in the investor's country. Although this may occasionally be the case, legitimate investors also take advantage of higher rates of return or lower rates of tax on that return offered by operating via such domiciles. The advantage to this is that such operations are both legal and less costly than the solutions offered in the investor's country - or "onshore". Locations favored by investors for low rates of tax are known as offshore financial centers or (sometimes) tax havens.
Offshore solutions are accessible to anyone who can meet the minimum investment amount or pay the obligatory fees required to open such an entity.
Tax is the driving force behind 'offshore' activity. Due to offshore solutions investors are able to conduct investment activities in a profitable fashion. Often, taxes levied by an investor's home country are critical to the profitability of any given investment. Using offshore domiciled special purpose vehicles an investor may reduce this burden allowing the investor to achieve greater profitability overall.
Another reason why 'offshore' investment is superior to 'onshore' investment is because it is less regulated, and the behavior of the offshore investment provider, whether he be a banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated environment.
Offshore trust
Simply a conventional trust that is formed under the laws of an offshore jurisdiction. Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring (or 'settling') assets (the 'trust property') on the trustees to manage for the benefit of a person or class or persons (the 'beneficiaries').
However, a number of offshore jurisdictions have modified their laws to make their jurisdictions more attractive to settlors forming offshore structures as trusts.
Online banking
A service that allows an account holder to obtain account information and manage certain banking transactions, including bill payment through a personal computer.
Original Interest Rate
Rate assigned when the CD account is opened. The Original Interest Rate is listed on your CD account receipt and statement.
Overdraft
This is when a person has a minus figure in their account. It can be authorized (agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the account holder represents too great a risk to lend to in this way or because the account holder has not asked for an overdraft facility).
Overdraft protection
A service that allows a checking account to be linked to another account that helps provide protection against returned items or overdrafts. When your checking account does not have sufficient available funds to cover a check, funds are automatically transferred from the available balance in the linked account to cover the check. Choices can include using a credit card or a line of credit account as the linked account to provide protection.
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Payee
The person who receives a payment. This often applies to cheques. If you receive a cheque you are the payee and the person or company who wrote the cheque is the payer.
Payer
The person who makes a payment. This often applies to cheques. If you write a cheque you are the payer and the recipient of the cheque is the payee.
Personal identification number (PIN)
Personal Identification Numbers (PINs) are numbers that customers use with their ATM or Check Card to access their accounts via ATMs or to make purchases with their Check Card. These numbers should always be kept confidential.
Phishing
This is when a criminal uses the internet to try to fraudulently obtain details of peoples accounts so that they can use these accounts themselves, usually to take money out of.
Principal
1. The amount owed or still owed on a loan, sans interest. 2. The original amount invested, without any earnings. 3. The face value of a bond. 4. The main party to a transaction that is acting at his/her own risk 5. The owner of a private company.
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Rate of Return / Annual Return
Percent of your invested amount that you earn each year.
Repayment mortgage
This is a mortgage where the sum borrowed is paid off by the end of the mortgage term. It involves monthly repayments which consist of the interest on the loan plus some of the capital borrowed.
Returned Item
When you do not have enough available funds in your account (including any overdraft protection transfer from another account) to cover a check, the bank may decide not to pay the check and to return it to the payee. A returned item fee may be charged to your account. See your account agreement for additional information.
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Savings account
An account where deposited funds are intended to stay for a short term period, with slow turnover. Savings accounts offer lower interest rates than market rates and funds cannot be withdrawn by check writing.
Security for Loans
Where large loans are required the lending institution often needs to have a guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.
Standing Order
A regular payment made out of a current account which is of a set amount and is originated by the account holder.
Stop payment
When you ask a bank not to pay a check or payment like a wire transfer you have written or authorized. Stop payments are generally placed on lost or stolen checks or on checks related to disputed purchases. Stop payment orders generally expire after 6 months and a fee usually applies.
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Time deposit or CD
An account for a fixed term with the understanding that the funds will remain on deposit until the end of the term. Penalties for early withdrawals may apply.
Transfer
A movement of funds from one account to another.
Travelers check
Check issued by a financial institution which functions as cash but is protected against loss or theft. Useful when traveling. Also referred to as traveler's checks.
Trust
An arrangement whereby property (including real, tangible and intangible) is managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a settlor (or feoffor to uses), who entrusts some or all of their property to people of their choice (the trustees or feoffee to uses). The trustees hold legal title to the trust property (or trust corpus), but they are obliged to hold the property for the benefit of one or more individuals or organizations (the beneficiary, cestui que use, or cestui que trust), usually specified by the settlor, who hold equitable title. The trustees owe a fiduciary duty to the beneficiaries, who are the "beneficial" owners of the trust property.
The trust is governed by the terms of the trust document, which is usually written and occasionally set out in deed form. It is also governed by local law. The trustee is obliged to administer the trust in accordance with both the terms of the trust document and the governing law
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Uncollected funds
Refers to items deposited in an account that have not yet been collected, or paid, by the bank on which they were drawn.
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Variable rate
An interest rate that may fluctuate during the term of a loan, line of credit or deposit account. Sometimes the rate changes based on changes in an index rate, such as the prime rate or other prescribed criteria. Sometimes the bank changes the rate at its discretion.
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Wire transfer
An electronic payment service for transferring funds by wire.
Withdrawal
To take money out of an account.
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Administrative Offices
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 Greece) grant special tax treatment in order to attract the administrative offices of multinationals. In the case of Monaco which has been particularly successful in this regard, not only may the administrative office benefit from favored tax treatment, but its employees resident in Monaco would not be subject to tax there.
Adverse trustee
One who has a substantial, beneficial interest in the trust assets as well 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.
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.
Anstalt
Establishment, a legal entity without shares established in Liechtenstein, with some features of a trust but with corporate personality. Does not have shares.
Apostille
Certificate of Good Standing in connection with corporations according to the Convention of The Hague of October 05, 1961.
Anti-Avoidance Measures
The object of anti-avoidance measures, insofar as they relate to tax havens, 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 tax haven jurisdiction.
Anti-avoidance measures may be of general application or may refer to specific tax havens. Any measures usually appear in domestic tax systems; they may however be imposed by tax treaties.
Arbitrage
A form of hedged investment meant to capture slight differences in the prices of two related securities.
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 Trust (APT)
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.
ATM (Automatic Teller Machine; Cash Dispenser)
Used for cash withdrawals with your credit card or debit card at over 900,000 ATMs worldwide.
Auditors
The last body needed in connection with a corporation: required to inspect the company’s bookkeeping and verify the correctness of annual accounts. Usually not employees or directors of the corporation but an outside firm.
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Back-to-Back Loan
Back-to-Back loans are matching deposit arrangements. They may be used in order to solve a financing or exchange control problem. However, in the case of certain tax havens, the function of back-to-back loans is to reduce the taxable base subject to withholding taxes on interest payments, by interposing an intermediary subsidiary company between the source of the income and the recipient. For example, an intermediary company located in the Netherlands or the Netherlands Antilles may be interposed so as to take advantage of a favorable tax treaty. In such cases the authorities usually require a certain spread or "turn" on the rates so as to create a small profit which is subject to tax locally.
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.
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 tax havens.
Most tax haven jurisdictions have enacted legislative provisions and set up administrative authorities whose function it is to control banking and trust company activities.
Banking Passport
A banking passport is simply that you create a "new person" with another nationality and a full set of ID, a separate "legal entity" through a second passport (or third) in a name of your choice.
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 as regards 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.
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 rigths 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
A person to whom a trust's proceeds are distributed.
Besloten Vennootschap met Beperkte aansprakelijkheid (BV)
Dutch limited company for small commercial enterprise, not required to publish accounts; used as a Substantial Holding Company.
Big Brother
Your (un)friendly local government watching over your shoulder.
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.
Bonds
A bond certificate is simply an IOU. It certifies that you have loaned money to a government or corporation and describes the terms of the loan. Only corporations can issue stocks, but bonds can be issued by corporations or governments.
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.
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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.
Cedula
National ID in Spanish speaking countries.
Certificate of Incorporation
Certificate issued to companies who have complied with all the statutory requirements for registration.
Charter
= Memorandum of Association.
CID
Custom ID card.
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.
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.
Corporate Officers
Another "cabinetlike" institution, sometime part of the Board of Directors: president, secretary and treasurer etc. These individuals have the right to represent the company to third parties, to negotiate and make commitments in its name.
Corporation (Corp.)
The basic existence of a corporation usually derives from two documents: the Articles of Association and the Certificate of Incorporation.
Corporation Tax Company
A company incorporated in Controlled Foreign jurisdiction, but not trading in that jurisdiction and thereby designated as non-resident for tax purposes; liable only to low fixed annual rate of tax.
Countertrade
Similar to barter, countertrade is a form of exchange in which an exporter in one country accepts raw materials, equipment and technology from an importer in another country as payment for finished products. This type of trading is practiced especially by Communist countries but is gaining in use by China and in developing countries of South America and Africa. Countertrade also is a way to avoid reliance on tax haven operations for trading companies established in no-tax or low-tax countries so as to reduce burdensome taxes on profits. Countertrade arrangements may consist of counter purchase, reverse countertrade, buyback arrangements, switch transactions or swap deals.
Countervailing Duty
A duty that is imposed by a country on imported goods to counting a subsidy that has been granted to the goods by the exporting country.
Country of Origin
The country from which goods originate. Where quotas are in operation it is important that goods are marked clearly with their country of origin to keep imports within their quota.
Coupon
A detachable part of a bearer bond. The coupon gives its holder the right to the interest payments that are due on the bond.
Cuba Clause
The so-called "Cuba Clause" allows the situs and proper law of a trust to be transferred from one jurisdiction to another.
Currency
The denomination of the notes and coins in circulation in an economy. The UK currency is the pound sterling; the US currency is the dollar; the new European currency is the euro.
Currency Swaps
A transaction involving the exchange of cash flows and principal in one currency for those in another with an agreement to reverse the principal swap at a future date.
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 it’s own right.
Customs duty
A tax imposed on imported goods.
Customs Union
An alliance of a number of countries that agree to remove customs and excise controls on goods and services that pass among them.
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Debenture
An unsecured bond backed only by the general credit of the issuing corporation.
Debit, Credit Card
Almost as tricky to get these days as the good old "credit, credit card", a debit card is directly tied to a bank account. Whatever charges the user runs up are debited to the bank account, and monthly statements do not carry a remittance slip. The same account may have a checkbook tied to it as well. Credit as such, however, is not extended since you are not allowed to use the card if the balance on the bank account wanders into the red.
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.
Data Mining
The use of sophisticated computer programs to search systematically through a large database. Such programs are particularly useful to marketing departments which want to identify a subset of a large population (all the males in Arkansas, for instance, whose birthdays are next Monday).
Data Warehousing
The process of organizing the storage of large quantities of electronic data in such a way that it best meets the needs of the organization to whom It belongs.
Data Protection
The right of individuals to have access to information about themselves that is held by other parties, such as financial institutions, credit-rating agencies or government offices. Individuals usually have to submit a formal request to gain access to the information. Such rights are established in many countries by so-called data protection legislation.
Debriefing
A management practice in which an employee describes their experience (with, say, a potential overseas customer) to others within their organization. The idea is that everyone should learn from the experience of each individual. This is at the heart of a learning organization.
Deelnemingsvrijstelling
Substantial Holding Company (in the Netherlands).
Deemed-Paid Credit
An offset against an income tax payable to the country of the parent corporation for income taxes paid by the foreign subsidiary in the foreign country on the earnings and profits out of which the dividend is distributed. The deemed-paid credit is also known as an indirect credit and is computed according to a specific formula as designated by the income tax laws of the country in which the offset is taken.
Derivatives
Financial contracts whose values are based on, or derived from, the price of an underlying financial asset or price - for example, a stock or an interest rate.
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.
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.
Dormant Company
A company that is not currently trading. It has a registered name, directors, articles of association, and so on. But it has no turnover.
Double Taxation Agreement (or Double Tax Treaty)
Agreement between two countries intended to relieve persons who would otherwise be subject to tax in both countries from being taxed twice in respect of the same transactions or events.
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Echelon
Almost all phone calls in the world are routinely scanned for "suspicious words" by various governmental agencies' computers.
You have probably heard of Echelon, the international surveillance system setup by U.S.A.'s NSA (Nation Security Agency) in close collaboration with their counterparts in Canada, Great Britain, Australia and New Zealand that listens in on all telephone conversations in the world and scans your faxes, e-mails for "suspicious words", such as 'drugs', 'terrorist' 'bombs', 'money laundering', 'offshore', 'tax havens', etc. etc. - and even your private ATM transactions.
And there are others, and more to come!. The European Union is planning its own EU Phone, Fax & Internet Surveillance System. In Germany, all international calls are already automatically scanned by the Bundes-Nachrichten-Dienst. Even Austria is following suit. Big Brother is indeed listing in on you EVERYWHERE - whether you have something to "hide" or not!
Also, visit EPIC (Electronic Privacy Information Center) whose web site contains tons and tons of useful privacy information and tools!
ECU
European Currency Unit.
EDC
Electronic Debit Card.
Edge Act Corporation
A United States corporation organized for the purpose of engaging in international or foreign banking or other financial operations. It may be engaged in banking or other financial operations. It may be engaged in banking or financial operations in a dependency or similar possession of the United States, either directly or through an agency, ownership, or control of local institutions in foreign countries, or in such dependencies or in insular possessions.
Emigration
Emigration to a tax haven 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.
Euro
The European Currency Union. Member countries: Spain, Italy, Ireland, Netherlands, Luxembourg, Austria, Germany, Finland, Portugal, France and Belgium.
Eurobonds
Eurobonds are long-term loans issued in terms of the United States dollars or other currencies or in terms of composite units of account. They may take the form of loans, debentures or convertible debentures and are issued at a fixed rate of interest. Eurobonds are normally issued in countries where interest payments are not subject to withholding tax. Major issues are frequently handled by international underwriting syndicates.
Eurocurrency/-dollar
Eurocurrencies are currencies held outside the country of origin by non-residents of that country and made available to the Eurocurrency market for lending. The market originally developed in Eurodollars, but other currencies, e.g. Deutschemarks, Swiss francs and Yen, now form a major part of the market. The market is not subject to exchange controls or other restrictions, although investors and borrowers may be so subject in their own countries.
European Union (EU)
The community of powerful European countries set up in 1957 by the Treaty of Rome and fired by the desire of its founders to avoid yet another pan-European war. Member countries: Spain, Italy, Ireland, Netherlands, Luxembourg, United Kingdom, Austria, Germany, Finland, Portugal, France, Sweden, Belgium, Denmark and Greece. The members of the EU are gradually bringing their economic and monetary affairs closer and closer together. They were joined by Denmark, Ireland and the UK in 1973, Greece in 1981, Portugal and Spain in 1989, and Austria, Finland and Sweden in 1995.
Exchange Control
Regulations whereby a country controls transactions in foreign currencies or securities. In some jurisdictions (e.g. Australia, Japan and the United Kingdom) the regulations may render a contract void unless prior consent is obtained.
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.
Exequatur
Recognition of a country's consul by a foreign government.
Expatriation
The removal of one’s legal residence or citizenship from one country to another. Expatriates from Third World countries enter OECD countries to search for better income opportunities than they can pursue at home. Expatriates from OECD countries search for better capital preservation opportunities than they can pursue at home.
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FATF
G-7's Financial Action Task Force set up in 1989.
FDIC
Federal Deposit Insurance Corporation: a U.S. government-sponsored corporation that insures accounts in national banks and other qualified institutions.
FIAT Money
FIAT money is paper money that is created out of nothing and without any work - usually by banks or central banks. Visit The Foundation for the Advancement of Monetary Education's website for in-depth and authoritative information FAME.
Fiduciary Account
An amount typically deposited with a Swiss Bank which will redeposit the sum with a third party bank outside Switzerland in its own name (to eliminate Swiss withholding tax on interest).
FINCEN
America's Financial Crimes Enforcement Network.
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.
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 favors export processing, transshipment 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 tax havens, e.g. Colon Free Zone in Panama or Freeport in the Bahamas.
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G-7
Group of Seven: U. S. A., Canada, Italy, Japan, United Kingdom, Germany & France.
G-8
The G-7, plus Russia.
GmbH
German private limited company without shares.
Gilt
Security issued and guaranteed by the Government.
Globalization
A strategy in which companies aim to sell their products and services all around the world. Driven by the convergence of consumer tastes from Tvilisi to Timbuctoo, globalization presents companies with opportunities for achieving economies of scale.
Grandfather Clause
A clause in an agreement (especially in the GATT) which allows the parties to the agreement to exempt certain things that were in existence in their own laws before the agreement was reached.
GSM
Global System for Mobile Communications or GSM is the digital transmission technique widely adopted in Europe and supported in North America for PCS. GSM uses 900 MHz and 1800 MHz in Europe. In North America, GSM uses the 1900 MHz.
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Hard Currency
A currency that does not normally depreciate (that is, loose its value) against other currencies over time. It is sufficiently sound so that it is generally accepted internationally at face value. For this reason hard currencies the US dollar, the D-mark and the Swiss franc are favoured for denominating international trade. The Euro is widely expected to become a hard currency to rival the dollar.
The term hard currency is a carry-over from the days when sound currency was freely convertible into hard metal, i.e. gold.
Headquarters Company
A company organized in a foreign country, usually a tax haven, which exclusively services its affiliate companies through managing or administering activities. It does not buy or sell products and does not involve itself in financing activities as may be practiced by offshore holding companies. A headquarters company is a fixed installation belonging to a foreign enterprise or an international company having its registered office in a specific foreign country selected because its laws permit it to act for the sole benefit of one or more companies in a group for the purpose of performing management control, servicing or coordination functions, usually in a specified geographical area. The headquarters company generally is allowed a tax deduction by granting permission to base its taxation on a national profit amounting to approximately 5% to 8% of the total operating expenses incurred in the particular country where it is organized to operate as a headquarters company. In some countries, i.e., the Philippines, there is no taxation on income and expenses are not used as any base of computation. In other countries, i.e., France, the headquarters company may be either an incorporated company of the host country or a branch of an international company.
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).
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I.B.C. (International Business Corporation)
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.
IMF (International Monetary Fund)
Aims to promote international monetary cooperation and currency stabilization and expansion of international trade. The IMF was designed to enable to enable member countries to borrow from each other in order to iron out irregularities in their exchange rates and reserves. Countries are required to meet strict economic and financial conditions if they want to become borrowers.
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 the tax haven clientele never 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.
Intellectual Property
Ownership conferring right to possess, use or dispose of products created by human ingenuity, including patents, trademarks and copyrights.
Inter-Company Pricing
Tax havens 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 tax haven jurisdiction at cost or at prices involving a very small profit margin; the tax haven 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.
International Financial Centers
The term "International Financial Center" which is occasionally used - incorrectly - as a synonym for "tax havens", refers more correctly to centers such as London, Luxembourg, Paris, Singapore and Zurich. One of the important requirements of a successful international financial center 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 tax havens in international tax planning lies in the possibility of situating a taxable person or a taxable event in a tax haven with a view to displacing the connecting factor with a high tax jurisdiction and thus permitting a modification in the incidence of tax.
INTERFIPOL (International Financial Police)
A slang synonym for the Convention on Mutual Assistance in Tax Matters drafted by the Organization For Economic and Cooperation Development designed to facilitate exchange of information between the twelve member countries of the O.E.C.D but not yet approved by at least five of the participants. However, because some of the activities are believed to go beyond the normal borders of the competent authorities of various countries, particularly in seeking records and collection payments, some international tax specialists have given it this name as in their opinion it alludes to Interpol (international fiscal police).
Investment Bank
A financial institution that arranges the initial issuance of stocks and bonds and offers companies about acquisitions and divestitures.
Investment Holding Company
A company organized in a tax haven 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 linds 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.
I.R.C.
Inland Revenue Commissioners (United Kingdom tax authority).
I.R.S.
Internal Revenue Service (United States tax authority).
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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. When the capital of the partnership is known as a joint venture.
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Laissez Faire
French for let it happen, an expression used to refer to a particular sort of free-market economics in which government interference with pure market forces is kept to a minimum.
Letter Box Company
A corporation set up in a tax haven with nothing more than a mailing address to take advantage of tax provisions. Severely criticized in many quarters as an evasive measure, the company whose existence is little more than a name-plate has been outlawed in Monaco but is allowed to function in many other havens.
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 tax havens 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 tax havens 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).
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Maildrop Company
A fully-legal commercial enterprise using a stable physical address as a delivery destination for letters or parcels on behalf of fee-paying clients who don’t live on the premises. Mail can be held or forwarded at the client’s request. Some maildrops provide similar services for faxes as well. Very useful for receiving confidential information which you don’t want delivered to your home address without prior notification.
Maildrops and Serviced Offices
Mail forwarding service combined with serviced business offices: Business centers particularly suit companies setting-up branch office(s) overseas. They prefer to establish themselves before signing a lease, though some companies that arrive intending to use a business center for a few months end up staying with them for years - for the sake of convenience, the comfort of clean modern offices with a prestigious address, without the hassle of maintenance and other problems associated with a lease, becomes too difficult to give up.
Telephone services range from a basic message-taking service to the most up-to-date call diversion system. One business center offers a diversion service called "The London Office". This was designed with the telecommunications company so that your own 171-telephone number is instantly diverted to a chosen number anywhere in the world, and a programmed announcement saying "This is a call from your London office" pre-warns whoever answers the telephone. Of course you pay for the second leg of the call. The telephone services available from "The London Office" link with another service called "The Virtual Office". This is a package offering clients the flexibility to work from anywhere they choose; local telephone numbers are logged onto a computer system for call diversion. The package includes use of the business center's address, use of meeting rooms and secretarial services.
In most serviced office centers clients can buy services à la carte in order to suit their particular needs. For example, you can rent conference rooms by the hour so as to have an office for, for example in London, when the need arises. The main attraction of the serviced office facility is that the client has the option to walk away when his license expires. Business centers take the operational headaches out of renting office space and of clients having to employ their own staff, which leaves them free to focus their efforts entirely on the success of their business.
Management and Control:
In certain legal systems (e.g. Ireland) 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 tax havens, and can be material from both the fiscal and the exchange control points of view.
M.L.A.T.
Mutual Legal Assistance Treaty created by the U.S. in the hope of accessing foreign records.
Money Laundering
Money-laundering occurs when criminals seek to make illegally obtained funds look legitimate by funneling them through a string of banks and businesses until the money's origin is obscured.
Money Trail
The 'fingerprint' most money transactions leave.
MTCN Number
The Money Transfer Control Number given in connection with a Western Union money transfer.
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 tax haven and issuing shares to the public.
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Naamlose Vennootschap (NV)
Limited company in the Netherlands used as a Substantial Holding Company, required to publish its accounts.
Nominee Director
Someone who acts on your behalf as a ‘front’ director of the company. In some jurisdictions the nominee director can also be another offshore 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-tariff barrier
A barrier to trade other than a tariff imposed directly on an import at its point of entry. Non-tariff barriers include things like safety regulations which only domestic firms satisfy; distribution systems that discriminate against imports; and government regulations that demand services (like finance) be supplied by known individuals.
No-Tax Haven
Term used by certain financial writers to refer to tax havens where there are no relevant taxes.
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O.E.C.D.
Organization for Economic Co-operation and Development.
Offshore
Any country other than your own.
Offshore Banking
By popular usage, the establishment and operation of US or foreign banks in such offshore tax havens as the Bahamas and the Cayman Islands.
Offshore Banking Unit (OBU)
A bank in an offshore financial center, not allowed to conduct business in the domestic market but only with other OBU’s or with foreign persons.
Offshore Booking Centers
An offshore financial center used by international banks as a location for "shell branches" to book certain deposits and loans. Such offshore bookings are often utilized to avoid regulatory restrictions and taxes.
Offshore Center
A financial center used as a foreign base for overseas operations where the investor may move in and out of his investment freely and which fits the needs of the user.
Offshore Centers
Countries and jurisdictions, most commonly small islands with little to no resources for revenue, specializing in the provision of financial services. These centers specialize 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 centres may include banking secrecy, privacy, various types of discretionary services and other favorable aspects of the legal environment.
Offshore Dollars
Also known as euro dollars, offshore dollars consist of dollar deposits in any location outside the United States, including Europe.
Offshore Finance Company
A company organized in a foreign country, almost always in a tax haven 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 persons resident outside the country in which it is incorporated.
Offshore Group of banking Supervisors (OGBS)
Established in October 1980 at the instigation of the Basle Committee on Banking Supervision with which the Group maintains close contact. The primary objective of OGBS is to promote the effective supervision of banks in their jurisdictions and to further international cooperation in the supervision between the Offshore Banking Supervisors and between them and basle Committee member nations and other banking supervisors. Current OGBS members are: Aruba, Bahamas, Bahrain, Barbados, Bermuda, Cayman Islands, Cyprus, Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Lebanon, Malta, Mauritius, Netherlands antilles, Panama, Singapore and Vanuatu.
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 Investment Center (Or Jurisdiction)
A financial center used as a foreign base for overseas operations where the investor may move in and out of his investment freely and which fits the needs of the user. Large amounts of financial assets or foreign currencies may be sold without delay at low cost as compared with other types of financial centers. An offshore investment center is also used as a base for such international activities as export-import trading, commodity transactions, mutual and other investment funds, exchange and securities hedging, futures trading for options, calls and puts, and patent and trademark licensing. Once referred to exclusively as the traditional "tax haven," the title given to this type of offshore operation (offshore investment center or jurisdiction) is now also universally accepted in order to strengthen its image in the worldwide business community.
Offshore Investor
An investor who is a user of a foreign base company in an offshore center and who may move in and out of his investment freely.
Offshore Profit Centers
Branches of major international banks and multinational corporations, which are established in low tax financial jurisdictions to lower taxes for the business entity as a whole. The resulting high- and low- (or non-) taxed profits are blended to enhance the overall return to the shareholders.
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.
Offshore Web Hosting
Hosting a web site in a different jurisdiction than your home country jurisdiction. The web site does not need to be in the same country the IBC is incorporated.
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Paper Trail
The Inevitable trail that most transactions leave tracing back to its originator.
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 realized 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 recognize the concept under their general tax laws.
Personen- und Gesellschaftsrecht
Law applicable to individuals and corporate bodies in Liechtenstein.
Petrodollar
United States dollars obtained by oil exporting countries.
Portal
Internet general-purpose starting point.
Protector
An individual appointed by the settlor of a trust to ensure that the trustee(s) 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.
PLC - Public Limited Company
A UK public limited company (also exists in the Channel Islands).
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Ready-Made Company
Also called 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.
Real Estate
Withholding and other taxes are frequently imposed on rental income deriving from the holding of real estate in a foreign country; similarly, capital gains taxes may be imposed on the profits flowing from the sale of property. However, in exceptional cases, the provisions of a tax treaty may be of considerable value in minimizing the total tax burden, e.g. the treaty between the Netherlands Antilles and the United States.
Ownership of real estate by individuals may also result in liability to death duties and similar taxes in the country in which the real estate is situated, irrespective of the residence or domicile of the individual owner. For this reason it is common to hold foreign real estate through a tax haven or other company.
Real Time
Occuring in the present, with special reference to computer systems that take little or no time to perform computations; that is, they carry out instructions almost instantaneously. Really useful in fighter planes.
Registered Agent
A registered agent is the person or entity designated in the articles of incorporation to receive service of process and other important notices from the state. A corporation must maintain a registered agent at all times or risk forfeiture of the corporate charter.
Registered Company
A company that is registered with the authorities of the country in which it is established. In most countries it is illegal to operate as a company without being registered.
Registered Office
The registered office is the place where the registered agent can be found. It may be the corporate office, or it may be the office of the corporation's attorney.
Resident Company
A company treated by the jurisdiction in which it is incorporated or in which it conducts commercial activities as resident for tax purposes or exchange control purposes or both.
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Scheduled Territories
Since June 1972, the United Kingdom, the Channel Islands, the Isle of Man, the Republic of Ireland and Gibraltar.
Schengen Treaty
A number of European countries have signed an agreement called the Schengen Treaty which states that if a person secures a visa from one member country, they may use a Schengen Visa to enter all other member countries. Current member countries include: Belgium, France, Germany, Greece, Luxembourg, The Netherlands, Portugal and Spain. Austria and Italy have also agreed to become members in the future.
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 favorable double taxation agreement between two countries which reduces the tax withheld at source in the country in which the income arises.
S.E.C.
Securities and Exchange Commission, United States federal organization which supervises information provided by companies whose shares are offered to or dealt in by the public.
Secured Credit Card
Here, there are two accounts: a frozen bank account the funds in which act as a guarantee for the card - and the actual credit card account. Statements are mailed only in the months when something is charged to the account, unless the balance for the preceding month has yet to be paid off in full. But you are still obliged to make a minimum monthly payment of pre-determined per cent of the outstanding balance within a couple of weeks from receiving your statement.
Settlor
The person who creates a trust.
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.
Shipping
Owing to the innate mobility of the shipping industry it is common for ship owners and operators to have recourse to tax havens. 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.
Smurfing
Breaking large sums of money into small deposits through anonymous bank accounts and offshore "shell" companies into order to dodge banks to report these transactions.
Social Engineering
Posing as someone else to obtain the information you need.
Sociedades Gestoras de Participatoes Sociais (SGPS)
Madeira holding company specifically designed to take advantage of European Union Directive 90/435.
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.
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".
Substantial Holding Company
A particular type of holding company established in the Netherlands exempted from tax on income from investments under specified conditions.
Substantial Transformation of Property
Purchases of personal property by a foreign subsidiary of a United States parent corporation in which the goods are substantially transformed prior to sale and thus are treated as having been manufactured, produced or constructed by the selling corporation. Generally when the conversion costs representing direct labor and factor burden are 20% or more of the cost of goods sold, these will constitute the manufacture, production, or construction of property needed in order to qualify for non-Subpart F income (that is no taxed currently inthe United States) and the sale of the product is treated as manufacturing income since it passes the "substantial manufacture" test.
Suffix
The name/abbreviation of letters after the company name to denote limited liability, for example: Limited, Corporation, Incorporated, Société Anonyme (France), Société par actions (France), Sociedad Anonima, Sociedade Anonima, Stiftung (Liechtenstein), Limitada, Aktiengesellschaft (Germany), Naamloze Vennootschap (The Netherlands), Aktieselskab (Denmark), Sociedad Berhad Anonima (Western Samoa), Berhad (Labuan), Sociedad Anónima de Inversión (Uruguay), AG (Germany), ApS, A/S (Denmark), BV (The Netherlands), Corp., Est. (Liechtenstein), GmbH (Germany), Inc., KFT (Hungary), LDA, LLC, Ltd., PLC (United Kingdom), RT (Hungary), S.A., S.A.R.L. (France), S.A.F.I. (Uruguay).
S.W.I.F.T.
Society for Worldwide Interbank Financial Telecommunications.
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Tax Avoidance
Lawful agreement, or re-arrangement, of the affairs of an individual or company intended to avoid liability to tax.
Tax Clearance Certificates
A certificate issued by an Income Tax Department confirming that an individual departing from a country has fulfilled all his income tax obligations and has no arrears. The certificate must be shown to customs and emigration authorities upon departure from the specific country.
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
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 domicillary 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 Haven
The term Tax Haven 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 program the term tax incentives is usually used).
Simply stated, a tax haven 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 tax havens of the world broadly may be classified into six separate categories: 1) no-tax havens (e.g., Anguilla, Bahamas, Bermuda, Cayman Islands, Nevis, Turks and Caicos, St. Vincent and Vanuatu); 2) countries taxing only local income (e.g., Belize, Costa Rica, Liberia, Panama, Gibraltar and Hong Kong); 3) low-tax havens 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) tax havens for individuals (e.g., Andorra, Sark, Campione d’Italia and Monaco; 6) tax havens for International Business Companies (e.g., Antigua, Barbados, Grenada, Jamaica and Montserrat).
Tax Incentives
The term Tax Incentives is used when tax benefits are part of an economic development program. 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-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.
Tax Planning
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 economize 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 taxpayer's 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 tax havens. In line with this approach certain tax treaties specifically exclude from their scope entities which benefit from specially favored 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 tax haven 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.
The 10% Rule:
The portion of dividend income and other items of undistributed foreign base company income exempt from current taxation under the United States Internal Revenue Code if for the taxable year such income items amount to less than 10% of the total gross income of the controlled foreign corporation. In other words, the controlled foreign corporation is treated as having no foreign base company income. The 10% rule is also i known as The 10-70 Rule because, if foreign-base company income is more than 70%, then all the company's income is treated as foreign base company income. Until the Tax Reduction Act of 1975, effective as of January 1, 1976, this was known as The 30% Rule or The 30-70 Rule, because 30% was the designated excluded amount instead of 10%. Under the 1986 Tax Reform Act, the interest level was reduced to 5% so that the so-called 10% rule became the 5% rule in name and practice and the 5-70% rule refers to a foreign base company having income amounting to more than 70%.
Transnational
A company which straddle national boundaries. A transnational company is not a multinational. The latter’s business operations work independently of each other. The many different and far-flung operations of a transnational are inextricably linked with each other.
Treuhänderschaft
A Liechtenstein form of a trust.
Treuunternehmung
Another Liechtenstein form of registered trust, designed to undertake commercial activities.
Trust
A trust is the relationship which arises whenever a person or corporate entity, called a trustee, is compelled in equity to hold property (whether real or personal, and whether by legal or equitable title) for the benefit of some other persons who are termed Beneficiaries, or for a lawful purpose in such a way that the real benefit of the property accrues to the Beneficiaries of the Trust. A trust must have a settlor or a person who establishes the trust to take over the ownership of assets. The trustee is an individual or corporation to which legal ownership of the assets is transferred. A trustee must supervise, manage, invest and distribute the assets in accordance with the trust deed. The trust deed states the terms and conditions under which the trustee operates. A beneficiary is the intended owner of the assets placed in the trust. The protector is a guardian who ensures that trustees carry out the wishes of the settlor.
· The Testamentary Trust: A trust created by the Grantor/Settlors at death by will. This is a type of trust which does not avoid probate, since the assets used to fund the trust are controlled by the will which is administered by the probate court. These types of trusts may sometimes be subject to ongoing jurisdiction of the probate court.
· Inter Vivos Trust: Also known as living trust or loving trust, the Inter Vivos Trust is created during the Grantor's life and is generally revocable during his or her lifetime. Living trusts have numerous advantages over testamentary trusts in that they can avoid the delay and expense of dealing with the probate court and lawyers; solve the disability or potential guardianship problems of the Grantor as he or she becomes elderly; maximize available tax planning; avoid forced heirship laws; and provide for flexible methods of distributing assets to beneficiaries as and when intended. Many estate and trust professionals recommend living trusts to hold all assets during life.
· Life Insurance Trust: This is a form of living trust that holds the ownership of insurance policies and provides for the distribution of the insurance proceeds on the death of the insured/grantor. This type of planning is particularly popular in the United States, as insurance is one of the single most useful wealth transfer devices permitted under United States estate tax law.
· Charitable Trust: Either a living trust or testamentary trust, the charitable trust has charities as its beneficiary. A charitable reminder trust which allows current income tax benefits to be obtained in the form of charitable deductions - with the property ultimately going to charity free of estate tax – benefits those with substantial wealth. A charitable lead trust (CLT) is a vehicle for passing wealth to subsequent generations while also satisfying the donors' philanthropic interests and not only providing for immediate charitable income tax deduction but also requiring the grantor to report all income realized by the CLT on his or her annual personal income tax return. The grantor is not permitted an income tax deduction for the current value of the lead interest.
· Protective Trust: The Protective Trust provides specific provisions, either inter vivos or testamentary, whereby the Settlor ensures protection of the property for beneficiaries who may be incompetent, improvident, or about to be divorced. It should be noted that a protector trust cannot benefit the grantor with immunity from his own creditors. However, a grantor can settle a trust to protect a beneficiary from claims of the beneficiary's creditors and even from claims in a divorce.
· Discretionary Trust: This popular type of trust provides powers to a trustee that allows the trustee to decide which beneficiary, or who among a class of beneficiaries, may be given distributions of the trust assets. The essence of a discretionary trust is that a beneficiary has no right to claim any part of the income or even principal. The trustee is given the flexibility to ay the beneficiary or apply trust assets for his benefit as the trustee thinks fit. Discretionary trusts are particularly useful in protective trusts. It should be noted that under the English Trustees Act of 1925, Section 33, a protective trust can be created expressly by creating a determinable life estate followed by a discretionary trust.
· Accumulation Trust: This trust has provisions that require the trustee to accumulate income until some later date when it is distributed. This trust provision, in combination with protective trust provisions, enables the trust mechanism to be the most efficient and effective estate planning device for minor children, incompetent beneficiaries, or beneficiaries who may be exposed to financial risks or litigation.
· Irrevocable Trust: A trust which may not be changed, amended, or revoked, is the Irrevocable Trust. The terms of this trust are permanent. This type of trust should be used only under special circumstances, such as with a life insurance trust (in the United States), and when dealing with situations where completed gifts are required. Generally, irrevocable trusts cannot be used for living or inter vivos trusts situations. Trusts which can be terminated by the Grantor are Revocable Trusts.
· Grantor Trust: A trust where, because of the application of United States Income Tax Law, all the income earned by the trust is taxed to the Grantor wether or not distributed. This is a tax classification rather than a traditional trust classification by usage.
· Express Trust: An Express Trust exists when the Trust Deed stipulates how the assets are to be managed and when and how capital and income are distributed, although it may be difficult for surpluses to avoid tax claims from the home country. Other tax classifications which have become part of the trust lexicon are Qualified Domestic Trusts (Q-Dot), Qualified Subchapter-S Trusts (QSST), and Qualified Terminable Interest Property (Q-Tip).
· Purpose Trust: Designed for a specific, reasonable and plausible purpose, it does not name any individual as a predetermined beneficiary. Instead, by undertaking commercial activity or holding assets in a purpose trust, a company or individual avoids classification as the owner of the commercial activity or trust assets. A purpose trust can be used for: (i) permitting avoidance of regulatory restrictions; (ii) obtaining freedom from liability when undertaking hazardous activites; (iii) facilitating a loan by sequestering assets; and (iv) removing voting control of stock from a company or individual.
· Revocable Trust: One that may be cancelled by the grantor under most circumstances. An revocable trust has many applications, including the authority for someone other than the grantor to pay taxes on the income of the trust or to be certain that the capital in trust is preserved for children and grandchildren.
· Simple Trust: This is a trust that must distribute all its income; all other trusts are in the category of "complex trusts".
· Spendthrift Trust: A trust that prohibits the beneficiary from disposing of or assigning an interest to another party. This type of trust may not be attached or otherwise reached by the beneficiaries' creditors.
Trustee
Trustees have a fiduciary duty to act in accordance with a trust deed and for the benefit of the beneficiary(ies). See trust.
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 tax havens offer trust services such as ourself, eBan24. In addition there are trust companies specifically offering trust services. Most tax haven 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.
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Underground Economy
Part of an economy that is unrecorded by the tax authorities. It may be unrecorded because it involves a barter transaction, for example, or because it is attempting to evade tax.
URL
Universal Resource Locator is a means of identifying an exact location on the Internet. For example, http://www.eban24 is the URL which defines the use of HTTP to access the Web page default.htm in the /html/info/ directory on the WebTrends Corporation web site). As the previous example shows, a URL is comprised of four parts: Protocol Type (HTTP), Machine Name (webtrends.com), Directory Path (/html/info/), and File Name (default.htm).
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VAT
Value Added Tax.
Venture Capital
Money that is put up by a financial institution or wealthy individual to back a risky project, either in its early stages or when it needs a new injection of capital. Because of the high risk involved, venture capital expects a higher rate of return than that obtained from normal equity.
Vintage Company
See Shelf Company.
Web Payment Services (WPS)
While the bulk of Internet e-commerce is still transacted using credit cards, there has been steady inroads being made by alternative methods of settling e-transactions. These Web Payment Services (WPS) have ingeniously utilized the most popular application on the Internet "e-mail", to appeal to customers. By using an existing platform to launch their services, WPS providers have enjoyed wide appeal with customers worldwide. Contact an eBan24 representative to get more information about our Merchant Accounts product.
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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 treaties.
WTO
Short for World Trade Organization, a Geneva-based organization that acts as a kind of watchdog for the world’s trading system. It oversees the enforcement of the GATT.
