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Administrative Office
An administrative office is frequently located in a country other than that of the headquarters office, the parent company or a country of operation. The role of such an administrative office may be to co-ordinate international or regional activities, to provide particular services (such as management analysis, financial or other related services) or to perform a given function (such as marketing). A number of otherwise high tax jurisdictions (such as the United Kingdom, France, Belgium and Denmark) grant special tax treatment in order to attract the administrative offices of multinationals.
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Adverse trustee
One who has a substantial, beneficial interest in the trust assets as well as the income or benefits derived from the trust. A trustee that is related to the creator by birth, marriage or in an employer/employee relationship.
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Akte Van Opricht
Statutes of a Dutch company.
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Aktiengesellschaft (AG)
German company limited by shares.
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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.
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Anstalt
Establishment, a legal entity without shares established in Liechtenstein, with some features of a trust but with corporate personality.Do not have shares.
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Apostille
Certificate of Good Standing in connection with corporations according to the Convention of The Hague of October 05, 1961.
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Annuitant
The beneficiary or beneficiaries (in a last-to-die arrangement) of an annuity who receives a stream of payments pursuant to the terms of the annuity contract.
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Annuity
A tax sheltering vehicle. An unsecured contract between the company and the annuitant(s) that grows deferred-free and is used to provide for one's later years. All income taxes are deferred until maturing of the annuity. Capital gains and income accumulate tax deferred. Results in a stream of payments made to the annuitant during his or her lifetime under the annuity agreement. Taxes are paid on the income, interest earned and the capital gains but only to the extent as and when they are received. Currently, there is no annual limit on purchases, but there is no tax credit for purchases. An annuity is not an insurance policy.
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Anti-Avoidance Measures
The object of anti-avoidance measures, insofar as they relate to low tax jurisdictions, is to prevent the avoidance or reduction of tax through the displacement of one or more connecting factors (i.e. the basis of tax liability) from the taxing jurisdiction concerned to a low tax jurisdiction jurisdiction. Anti-avoidance measures may be of general application or may refer to specific low tax jurisdictions. Any measures usually appear in domestic tax systems; they may however be imposed by tax treaties.
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Articles of Association
Must contain1) the Company’s name; 2) its registered address; 3) its objects and aims; 4) its capitalization; 5) a statement that the company is a limited liability organization.
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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 account 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 estate under his or her management.
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Asset Protection Trust (APT)
A special form of irrevocable trust, usually created (settled) offshore for the principal purposes of preserving and protecting part of one's wealth offshore against creditors. Title to the asset is transferred to a person named the trustee. Generally used for asset protection and usually tax neutral. Its ultimate function is to provide for the beneficiaries of the APT.
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Auditors
The last body needed in connection with a corporationrequiredto inspect the company’s bookkeeping and verify the correctness of annual accounts. Usually not employees or directorsof the corporation but an outside firm.
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Aussensteuergesetz
Anti-avoidance German law whereby German citizens remain subject to the principal German taxes for a period of ten years if they emigrate to a country designated in the legislation (as from time to time amended) as a low tax country.
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Badges of Fraud
Conduct that raises a strong presumption that it was undertaken with the intent to delay, hinder or defraud a creditor.
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Banking
A considerable volume of international banking takes place offshore and many of the world’s major banks have banking and trust company operations in one or more low tax jurisdictions. Most low tax jurisdictions have enacted legislative provisions and set up administrative authorities whose function it is to control banking and trust company activities.
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Bank of International Settlements (BIS)
Structured like America's Federal Reserve Bank, controlled by the Basel Committee of the G-10 nations' Central Banks, it sets standards for capital adequacy among the member central banks.
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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.
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Basle Practices
A committee of central banks setting standards for conducting their business resulting in minimum standards, preventative money laundering measures etc.
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Bearer Bond
A bond issued in bearer form rather than being registered in a specific owner’s name. Ownership is d determined by possession.
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Bearer Shares
Shares in the capital of a company which are transferable by delivery of the certificate. They do not display a shareholder's name but instead grant ownership rights to any individual who is in actual physical possession of the certificate(s) Unlike registered shares, which are transferred by an instrument of transfer and display the shareholder's name on the actual share certificate, the name of the holder is not registered in the books of the company.
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Beneficial Owner
Person who is the ultimate beneficiary of a company or trust
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Beneficiary
The person(s), company, trust or estate named by the grantor, settlor or creator to receive the benefits of a trust in due course upon conditions which the grantor established by way of a trust deed. An exception would be the fully discretionary trust. The beneficiary could be a charity, foundation and/or person(s) which or who are characterized by classes in terms of their order of entitlement or their hierarchy.
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Besloten Vennootschap met Beperkte aansprakelijkheid (BV)
Dutch limited company for small commercial enterprise, not required to publish accounts; used as a Substantial Holding Company.
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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.
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Board of Trustees
A board acting as a trustee of a trust or as advisors to the trustee depending upon the language of the trust indenture. Also see Committee of Advisors.
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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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British West Indies (BWI)
In the Caribbean, including the UK-dependent territories of Anguilla, the British Virgin Islands (BVI), the Cayman Islands, Montserrat and the Turks and Caicos Islands.
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Business trust
A trust created for the primary purpose of operating or engaging in a business. It is a person under the Internal Revenue Code (IRC). It must have a business purpose and actually function as a business.
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By-Laws (also Articles of Association)
Articles of Association of a company (in certain jurisdictions).
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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.
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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.
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CARICOM
Caribbean Common Market. Consists of 14 sister-member countries of the Caribbean community. Members includeAntigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent, Surinam, Trinidad and Tobago. They have set as a goal that in 1997 there will be a single market allowing for the free movement of labor. Conspicuous by their absence are the Cayman Islands and the British Virgin Islands, two major players in international banking and finance.
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Cedula
National ID in Spanish speaking countries.
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Certificate of Incorporation
Certificate issued to companies who have complied with all the statutory requirements for registration.
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Charter
see Memorandum of Association.
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Committee of Advisors
Provides non binding advice to the trustee and trust protector. Friendly towards settlor but must still maintain independence.
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Committee of Trust Protectors
An alternative to utilizing merely one trust protector. Friendly towards settlor, but must remain independent.
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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.
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Companies Act or Ordinance
Legislation enacted by a tax haven to provide for the incorporation, registration and operation of international business companies (IBCs). More commonly found in the Caribbean tax havens.
Controlled Foreign Corporation (CFC)An offshore company which, because of ownership or voting control of U.S. persons, is 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.
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Corporation or Corp. (Company)
The basic existence of a corporation usually derives from two documentsthe Articles of Association and the Certificate of Incorporation.
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Couponsteuer
Tax charged on distributions of certain Liechtenstein legal entities (AG and Anstalt with share capital).
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Creator, Settlor or Grantor
A person who creates/settles a trust.
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Current Account
An offshore, personal savings or checking account.
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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.
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Custodian Trustee
A trustee that holds the trust assets in his or her name.
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Cuba Clause
The so-called "Cuba Clause" allows the situs and proper law of a trust to be transferred from one jurisdiction to another.
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Debenture
An unsecured bond backed only by the general credit of the issuing corporation.
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Declaration of Trust
A document creating a trust; a trust deed.
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Deelnemingsvrijstelling
Substantial Holding Company (in the Netherlands).
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Discretionary Trust
A grantor trust in which the trustee has complete discretion as to who among the class of beneficiaries receives income and/or principal distributions. There are no limits upon the trustee or it would cease to be a discretionary trust. The letter of wishes could provide some guidance to the trustee without having any legal and binding effects. Provides flexibility to the trustee and the utmost privacy.
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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.
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Donor
A transferor. One who transfers title to an asset by gifting.
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Dividend
Discretionary payment by a corporation to its shareholders, usually in the form of cash, stock, or other property.
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Double Taxation Agreement (or Double Tax Treaty)
Agreement between two countries intended torelieve 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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EC
The European Commission of the European Union (EU).
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ECU
European Currency Unit.
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EEC
European Economic Community.
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Emigration
Emigration to a low tax jurisdiction or to a country offering special retirement incentives may serve to break totally or in part the link between a taxpayer and the high tax jurisdiction from which he is emigrating. Normally, it is the change in the place of residence which is material;however, in other cases a change in domicileor 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.
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Escrow
When a contract or an asset such as money is placed with a third party until certain conditions are met, it is said to be held in escrow. Parties that are in dispute over the ownership of an asset may agree to place the asset in escrow until an arbitrator has had time to decide who is the rightful owner.
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Establishment
See Anstalt.
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Estate
Interests in real and/or personal property.
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European Union (EU)
Member countriesSpain, Italy, Ireland, Netherlands, Luxembourg, United Kingdom, Austria, Germany, Finland, Portugal, France, Sweden, Belgium, Denmark and Greece.
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Exempt Company
A company exempted from tax or from compliance with specified regulations of the country in which it is established.
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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.
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Family Holding Trust
A trust that is created and managed to hold a family's assets consisting or real and/or personal property and/or investment portfolios. Such trusts usually own underlying companies to hold assets thus limiting the associated risk to the individual assets.
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Family Limited Partnership (FLP)
A limited partnership created for family estate planning and some asset protection. It is family controlled by the general partners. A highly appreciated asset is transferred into the FLP to achieve a capital gains tax reduction. Usually, the parents are the general partners holding a 1 to 2 percent interest. The other family members are the limited partners holding the balance of the interest in the partnership.
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Fiduciary
See Trustee.
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Flag of Convenience
The flag of a ship is the flag of the country of its registration. The term "flag of convenience" refers to the flag of a country (in particular Liberia and Panama) which is chosen for ship registration in order to achieve fiscal benefits (no income tax being levied by such countries on international shipping operations) and other non-tax advantages relating to lower labour costs and manning scales, officer and crew requirements, trade union practices, etc. Ownership of the ship is normally vested in a company incorporated in the country of the flag. In addition to Liberia and Panama, the following countries offer or are preparing incentives to offer flag of convenience facilitiesBritish Virgin Islands, Cayman Islands, Costa Rica, Cyprus, Gibraltar, Hong Kong, Malta, Netherlands Antilles, Madeira, Singapore and Vanuatu.
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Flight Capital
Money that flows offshore and likely never returns. Flight is exacerbated by a lack of confidence as government grows without bounds.
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Foreign
May be utilized in a geographic, legal or tax sense. When used geographically, it is that which is situated outside of the U.S. or is characteristic of a country other than the U.S.
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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 addressUnited 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.
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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.
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Foreign Investor in Real Property Tax Act of 1980 - US Only (FIRPTA)
Under FIRPTA and the Economic Recovery Act of 1981, unless an exemption is granted by the IRS, upon the sale of real property owned by offshore (foreign) persons, the agency, attorney or escrow officer handling the transaction is required to withhold capital gains taxes at the closing of the sale transaction. Unless withheld and submitted to the IRS, the party handling the sale transaction is personally liable for the taxes.
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Foreign Person
Any person, including a U.S. citizen, who resides outside the U.S. or is subject to the jurisdiction and laws of a country other than the U.S.
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Foreign Personal Holding Company (FPHC)
Different than a controlled foreign corporation. Discuss with your CPA.
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Forfeiting
Buying without recourse of obligations, usually trade drafts or promissory notes, arising from international transactions. The buyer of the obligations explicitly foregoes his legal right to a claim upon any previous owner of the debt when endorsing "without recourse." The seller of forfeitable trade drafts or promissory notes usually is an exporter who has taken the obligations in full or part payment for goods supplied and who wishes to pass on all risks and responsibility for collection of the debt to the forfeiting financier and receive immediate cash.
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Foundation
See Stiftung.
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Fraudulent Conveyance
A transfer of an asset that violates the fraudulent conveyance statutes of the affected jurisdictions.
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Free Zones
Free zones are designated areas which receive special treatment through their exclusion from the area to which the country’s normal customs rules apply. A free port is one at which imports may be landed without paying customs duties. The system of free zones or free ports favours export processing, 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 low tax jurisdictions, e.g. Freeport in the Bahamas.
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Gesellschaft mit beschränkter Haftung GmbH
Austrian, German or Swiss private limited liability company without shares.
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Grantor
A person who creates a trust or transfers real property to another entity. In a U.S. grantor trust, the person responsible for U.S. income taxes on the trust. May have a reversionary interest in a trust.
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Grantor Trust
A trust created by a grantor and taxed to that grantor (settlor).
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Hedge Fund
A flexible investment fund for a limited number of large investors (the minimum investment is typically US$1 million). Hedge funds use almost all investment techniques, including those forbidden to mutual funds, such as short-selling and heavy leveraging.
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High Net Worth (HNW)
Individual/Person. An individual with more than $1,000,000 in liquid assets to manage.
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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 and the Netherlands).
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Homestead Exemption
State or federal bankruptcy laws that protect one's residence from confiscation by a judgment creditor or loss in a personal bankruptcy.
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I.B.C.
A corporation. See international business company or exempt company.
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I.B.I.T.
International Business and Investment Trust.
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I.F.C.
International Finance Companies.
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Inbound
Coming into the U.S.; onshore; such as funds being paid to a U.S. person from an offshore entity.
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Incomplete/Imperfect Gift
Where the settlor has reserved the right to add or delete beneficiaries to the trust, it is construed as an incomplete gift.
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Incorporation Haven
An incorporation haven is a country, such as Liberia and Marshall Islands, which has no infrastructure of local attorneys or accountants. It is simply in the business of registering corporations and ships. There are no other services offered and hardly anybody ever goes there. The registration of new companies is carried out by representative offices in New York, Zurich, Hong Kong, Tokyo, Rotterdam and Piraeus, in the case of Liberia and Marshall Islands.
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Independent Trustee
A trustee who is independent of the settlor. Independence is generally defined as not being related to the settlor by blood, through marriage, by adoption or in an employer/employee relationship.
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Intellectual Property
Ownership conferring right to possess, use or dispose of products created by human ingenuity, including patents, trademarks and copyrights.
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Inter-Company Pricing
low tax jurisdictions may be used for the purpose of inter-company pricing in a number of ways. In the first place, a manufactoring company located in a high tax jurisdiction could effect sales to a related company in a low tax jurisdiction jurisdiction at cost or at prices involving a very small profit margin; the low tax jurisdiction company could then in turn sell the goods to one or more related marketing companies in high tax jurisdictions at high prices which would produce a low profit in the hands of the latter company or companies. A variation of this technique would involve selling to unrelated marketing companies at arm’s length prices, the primary object of the exercise still being achieved since the manufacturing company would have avoided taxation on the real profits that would otherwise have accrued to it. Secondly, raw materials or goods or components manufactured at a very low cost abroad, could be purchased by a company and then sold to a related company in a high tax jurisdiction at high prices which would give the latter company a substantially lower profit than if purchases had been effected directly. Often inter-company pricing takes place by companies merely passing invoices without the subject matter of the sale actually being transferred to or by the intermediary company.
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INTERFIPOL
International Fiscal Police. The tax crime counterpart to INTERPOL.
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International Business Company (IBC)
A corporation formed (incorporated) under a Company Act of a tax haven, but not authorized to do business within that country of incorporation; intended to be used for global operations. Owned by member(s)/shareholder(s). Has the usual corporate attributes.
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International Financial Centre (IFC)
The term "International Financial Center" which is occasionally used - incorrectly - as a synonym for "low tax jurisdictions", 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.
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International Tax Planning
The object of international tax planning is to determine, from the tax point of view, whether or not to embark on a project; and, if it is embarked upon or has already been commenced, then to minimize or defer the imposition of the tax burden falling on taxable persons and events and to do so lawfully, in the attainment of the desired business and other objectives, while taking into consideration all relevant tax factors with particular regard to the danger of double taxation and the advantages which may be derived from the inter-relationship of two or more tax systems, and in the light of the material non-tax factors. The role of low tax jurisdictions in international tax planning lies in the possibility of situating a taxable person or a taxable event in a low tax jurisdiction with a view to displacing the connecting factor with a high tax jurisdiction and thus permitting a modification in the incidence of tax.
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International Trust
A Cook Islands term for a special type of an Asset Protection Trust (APT). Governed by the laws of the Cook Islands.
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INTERPOL
International Criminal Police Organization. The net-work of multinational law enforcement authorities established to exchange information regarding money laundering and other criminal activities. More than 125 member nations.
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Investment Bank
A financial institution that arranges the initial issuance of stocks and bonds and offers companies about acquisitions and divestitures.
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Investment Holding Company
A company organized in a low tax jurisdiction 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.
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Investment Incentive
Investment incentives are incentives of various kinds which are granted in order to attract local or foreign investment capital to certain activities (e.g. exports, technological development) or particular areas (e.g. backward regions or designated areas as part of a decentralization policy). Such incentives may be of various types, e.g. grants, interest-free loans, factory sites, exemption from exchange restrictions, and are frequently granted as a package together with tax incentives.
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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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Layered Trusts
Trusts placed in series where the beneficiary of the first trust is the second trust; used for privacy.
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Layering
May be achieved with numerous combinations of entities. For example, 100 percent of the shares of an IBC being owned by the first trust, which has as its sole beneficiary a second trust.
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Letter of Wishes
Guidance and a request to the trustee having no binding powers over the trustee. There may be multiple letters. They must be carefully drafted to avoid creating problems with the settlor or true settlor in the case of a grantor trust becoming a co-trustee. The trustee cannot be a pawn of the settlor or there is basis for the argument that there never was a complete renouncement of the assets. Sometimes referred to as a side letter.
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Licensing
Technology which can be the subject-matter of licensing covers all forms of industrial enterprise. It embraces industrial property which may be protected by patents, trade marks, etc. As well as technology which cannot be patented. Industrial enterprises frequently exploit their technology by transferring it to licensing companies in low tax jurisdictions so that royalties and other sums may be received by the licensing company from related companies or third parties thus reducing the total tax burden. The anti-avoidance provisions of most developed countries have limited the use of low tax jurisdictions for this purpose.
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Limited Company
Not an international business company. May be a resident of the tax haven and is set up under a special company act with a simpler body of administrative laws.
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Limited Liability Company (LLC)
A hybrid between the partnership and the corporation(originates from the German GmbH created by law in 1892).Consists of member owners and a manager, at a minimum. Similar to a corporation that is taxed as a partnership or as an S-corporation. More specifically, it combines the more favorable characteristics of a corporation and a partnership. The LLC structure permits the complete pass-through of tax advantages and operational flexibility found in a partnership, operating in a corporate-style structure, with limited liability as provided by the state's laws.
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Living Trust
Revocable trust, for reduction of probate costs and to expedite sale of assets upon death of grantor. Provides no asset protection.
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LLP
Limited liability partnership. A form of the LLC favored and used for professional associations, such as accountants and attorneys.
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LLLP
Limited liability limited partnership. Intended to protect the general partners from liability. Previously, the general partner was a corporation to protect the principals from personal liability. Under the LLLP, an individual could be a general partner and have limited personal liability.
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Low-tax Jurisdiction
The term low tax jurisdiction is generally used to refer to a jurisdiction
1) where there are no relevant taxes;
2) where taxes are levied only on internal taxable events, but not at all, or at low tax rates, on profits from foreign sources; or
3) where special tax privileges are granted to certain types of taxable persons or events. Such special tax privileges may be accorded by the domestic internal tax system or may derive from a combination of domestic and treaty provisions. (Where tax benefits are part of an economic development programme the term tax incentives is usually used). Simply stated, a low tax jurisdiction is any country whose laws, regulations, traditions, and, in some cases, treaty arrangements make it possible for one to reduce his over all burden.The low tax jurisdictions of the world broadly may be classified into six separate categories
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non-tax jurisdictions
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countries taxing only local income
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low-low tax jurisdictions with treatybenefits
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countries offering special privileges
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low tax jurisdictions for individuals
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low tax jurisdictions for International Business Companies
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Management and Control
In certain legal systems which follow the former United Kingdom law in this regard, a company is treated as being resident in the country in which its management and control is exercised, and not in the country of its place of registration or incorporation. The criterion of residence may be of relevance in international arrangements in involving low tax jurisdictions, and can be material from both the fiscal and the exchange control points of view.
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Management Company
See AdministrativeOffices.
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Mavera Injunction
A court injunction preventing the trustee for a trust from transferring trust assets pending the outcome of a law suit.
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Member
An equity owner of a limited liability company ((LLC), limited liability partnership (LLP), limited liability limited partnership (LLLP) or a shareholder in an IBC.
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Memorandum
The Memorandum of Association of an IBC, equivalent to articles of incorporation.
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Minute Book
Used for writing minutes in.
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Minutes
Brief summary of proceedings of a meeting/assembly/committee.
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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.
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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.
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Mutual Fund
Investment company usually formed in a low tax jurisdiction and issuing shares to the public.
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Mutual Legal Assistance Treaty (MLAT)
An agreement among the U.S. and many Caribbean countries for the exchange of information for the enforcement of criminal laws. U.S. tax evasion is excluded as not being a crime to the offshore countries.
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Naamlose Vennootschap (NV)
Limited company in the Netherlands used as a Substantial Holding Company, required to publish its accounts.
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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.
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Non-grantor Trust
Usually an APT created by a NRA person on behalf of the U.S. beneficiaries.
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NRA
Nonresident (of the U.S.) alien. Not a U.S. person as defined under the Internal Revenue Code (IRC).
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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.
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Non-tax jurisdiction
Term used by certain financial writers to refer to low tax jurisdictionswhere there are no relevant taxes.
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O.E.C.D.
Organisation for Economic Co-operation and Development.
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Offshore (OS)
Offshore is an international term meaning not only out of your country (jurisdiction) but out of the tax reach of your country of residence or citizenship; synonymous with foreign, transnational, global, international, and multi-national, though foreign is used more in reference to the IRS.
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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.
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Offshore Finance Company
A company organized in a foreign country, almost always in a low tax jurisdiction country, which handles such financing services as arranging foreign loans in Eurocurrency markets and floating bonds or other forms of indebtedness abroad in United States dollars or other hard currencies. Generally the offshore finance company is created to handle the financing requirements of its parent or related companies but is used occasionally to handle the financing needs of the parent company's distributors or agents overseas.
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Offshore Fund
A mutual fund offering its shares to persons resident outside the country in which it is incorporated.
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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.
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Offshore Investor
An investor who is a user of a foreign base company in an offshore centre and who may move in and out of his investment freely.
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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.
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Ownership
Ownership constitutes the holding or possession of limited liability company legal claim or title to an offshore asset.
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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.
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Permanent Establishment
Legal concept applied by a country in order to tax commercial activities realised in its territory by a company or person incorporated or resident outside the jurisdiction. The expression is commonly used in double taxation agreements and is defined in the O.E.C.D. model agreement, although in practice there is no consistent definition adopted either in double taxation agreements or in jurisdictions which recognise the concept under their general tax laws.
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Personen und Gesellschaftsrecht
Law applicable to individuals and corporate bodies in Liechtenstein.
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PLC
A UK public limited company.
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POA
Power of Attorney.
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Preferential Transfer
A disposition of an asset that is unfair to other creditors of the transferor.
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Pre-filing Notice, US Only
Mailed by the IRS to parties (tax payers) who are believed to be participating in fraudulent trust programs. The notice requests that the receiver seek professional counsel before filing their next tax return.
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Probate
The legal process for the distribution of the estate of a decedent.
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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.
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Pure Equity Trust
A special type of irrevocable trust marketed by promoters. The trust assets are obtained by an exchange of a certificate of beneficial interest in return for the assets, as opposed to traditional means, such as by gifting.
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Pure Trust
A contractual trust as opposed to a statutory trust, created under the Common Law. A pure trust is one in which there must be a minimum of three parties(the creator or settlor (never grantor), the trustee and the beneficiary(and each is a separate entity. A pure trust is claimed to be a lawful, irrevocable, separate legal entity.
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Ready-Made Company
See Shelf Company.
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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 low tax jurisdiction or other company.
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Register
The register of international business companies (IBCs) and exempt companies maintained by the Registrar of a tax haven.
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Registered Share
Share which is transferred by an instrument of transfer. The name of the holder is registered in the books of the company and the shareholder's name is displayed on the actual share certificate.
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Registrar
The Registrar of Companies, a governmental body controlling the formation and renewal of companies created under their company act.
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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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Revenue Reconciliation Act of 1995
Proposed changes to the Internal Revenue Code affecting foreign trust reporting, among other changes.
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Royalty
All amounts received for the privilege of using intangibles such as patents, copyrights, secret processes and formulae, as well as amounts received for the privilege of exploiting mineral, oil and gas deposits.
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Scheduled Territories
Since June 1972, the United Kingdom, the Channel Islands, the Isle of Man, and Gibraltar.
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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 includeBelgium, France, Germany, Greece, Luxembourg, The Netherlands, Portugal and Spain. Austria and Italy have also agreed to become members in the future.
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Screen Company
A company incorporated in a country which charges a nil or low rate of tax on receipts or distributions of interest, dividends or royalties received from another country, taking advantage of a favourable double taxation agreement between two countries which reduces the tax withheld at source in the country in which the income arises.
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S.E.C.
Securities and Exchange Commission, United States federal organisation which supervises information provided by companies whose shares are offered to or dealt in by the public.
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Securities
Shares and debt obligations of every kind, including options, warrants, and rights to acquire shares and debt obligations.
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Settle
To create or establish an offshore trust. Done by the settlor (offshore term) or the grantor (U.S. and IRS term).
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Settlor
One (the entity) who (which) creates or settles an offshore trust.
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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.
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Share of Stock
Represents ownership in a corporation.There exist several different types (common and preferred) and classes of shares with different privileges and rights, such as registered shares (with or without par value), preference shares, non-redeemable shares, shares with or without voting rights and bearer shares, etc.
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Shipping
Owing to the inate mobility of the shipping industry it is common for ship owners and operators to have recourse to low tax jurisdictions. Frequently the ownership, operation, administration and registration are situated in carefully chosen (and often different) jurisdictions in order to keep global tax burdens at a low level.
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SIPC
The Securities Industry Protection Corporation. Provides up to $500,000 insurance protection for your U.S. stock brokerage account.
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Situs or Site
The situs is the domicile or dominating or controlling jurisdiction of the trust. It may be changed to another jurisdiction, to be sited in another country or U.S. state.
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Sociedades Gestoras de Participatoes Sociais (SGPS)
Madeira holding company specifically designed to take advantage of European Union Directive 90/435.
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Societe Anonyme (SA)
A limited liability corporation established under French Law. Requires a minimum of seven shareholders. In Spanish speaking countries, it is known as the Sociedad Anonima. Important characteristic of both is that the liability of the shareholder is limited up to the amount of their capital contribution.
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SOPARFI (Societe de Participation Financiere)
Luxembourg has recently extended its participation exemption regime and SOPARFIs are now subject to the normal rate of national and municipal Luxembourg tax except that, subject to the fulfilment of certain conditions, dividends and capital gains are not taxed. Such companies are therefore able to take advantage of the EU parent/subsidiary directive 90/435 A SOPARFI is not excluded from the scope of the tax treaties concluded by Luxembourg and this may make this type of company extremely attractive for certain tax planning exercises. Luxembourg has signed tax treaties with most EU countries, Canada, Czech Republic, Hungary, Japan, Korea, Morocco, Norway, Slovak Republic, Switzerland and the US.
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Sparbuch
An Austrian numbered savings account.
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Special Custodian
An appointee of the trustee in an APT.
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Special Investment Advisor
An appointee of the trustee in an APT.
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Statute of Limitations
The deadline after which a party claiming to be injured by the settlor may (should) no longer file an action to recover his or her damages.
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Statutory
That which is fixed by statutes, as opposed to Common Law.
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Stepping-Stone Country
A country in which a screen company is incorporated.
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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.
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Stiftung
A legal entity established in Liechtenstein with corporate personality and founded in order to receive a permanent transfer of assets by way of settlement.Do not have shares.
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Stockholders’ Annual Meeting
"The parliament" and "ultimate authority"
1) approves annual accounts of both profit and loss and the company’s assets and liabilities;
2) makes policy decisions on future business actions;
3) personnel decisions (president, secretary and treasurer - to be retained or replaced - the same goes for whether to retain or replace the auditors and directors;
4) constitutional issues should the Articles of Association be modified or changed or should quorum requirements be changed? - etc.
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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".
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Subsidiary Company
A subsidiary company is a company under the control of another company through stock ownership.
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Substantial Holding Company
A particular type of holding company established in the Netherlands exempted from tax on income from investments under specified conditions.
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Suffix
The name/abbreviation of letters after the company name to denote limited liability, for exampleLimited, 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 (Samoa), Berhad (Labuan), Sociedad Anónima de Inversión (Uruguay), AG (Germany), ApS, A/S (Denmark), BV (The Netherlands), Corp., , GmbH (Germany), Inc., KFT (Hungary), LDA, LLC,Ltd., PLC (United Kingdom), S.A.R.L. (France), S.A.F.I. (Uruguay).
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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.
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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.
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Tax Exempt Company (as found in the Channel Islands and the Isle of Man)
This is a company designed for companies and individuals who are foreign to the jurisdiction in which it is registered, providing a maximum of privacy, combined with comprehensive freedoms from local taxation. Tax Exempt companies (often referred to simply as Exempt Companies) pay a tax-exempt fee each year. This fee is a fixed annual fee exempting the company from further tax liabilities in the jurisdiction in which it is registered. It also has to pay annual filing fees (governmental fees) and domiciliary fees (service provider's fees) in order to remain registered.
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Tax Haven
An international banking and financial centre providing privacy and tax benefits.
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Tax Holiday
Exemption from taxation for a designated period of time.
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Tax Incentives
The term Tax Incentives is used when tax benefits are part of an economic development programme.Most tax incentive measures fall into one or more of the following categoriestax exemption (tax holiday); deduction from the taxable base; reduction in the rate of tax; tax deferment.
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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.
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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.
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Tax Planning
See International Tax Planning.
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Tax Regimen
The local tax treatment of income tax, foreign source income, nonresident treatment and special tax concessions which, when combined, form complex issues.
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Tax Shelters
The term "tax shelters" is sometimes employed to refer to those jurisdictions where taxes are levied only on internal taxable events, but not at all, or at very low rates, on profits from foreign sources. In domestic tax law the term applies to a variety of devices which allow taxpayers to deduct certain artificial losses, i.e. losses which are not really economic losses but represent losses which are available as deductions under the current tax laws. These artificial losses may be offset not only against income from the investment out of which they arise, but also against the taxpayer’s other income, usually from his regular business or professional activity.
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Tax Sparing
The sphere of application of a tax incentive may be extended by way of a tax sparing clause in a treaty between a capital importing country and a capital exporting country. Such clauses allow residents of the capital exporting country a credit against domestic tax for profits or gains derived in the developing country in respect of which all or specified taxes are subject to exemption or reduction in the latter country. Normally tax treaties are not concluded between high tax jurisdictions and low tax jurisdictions. In line with this approach certain tax treaties specifically exclude from their scope entities which benefit from specially favoured tax treatment (e.g. the exclusion of Luxembourg holding companies from the provisions of tax treaties concluded with Luxembourg). However, certain colonies or former colonies of the United Kingdom and the Netherlands benefit from extensions (with or without modification) of treaties concluded respectively by the United Kingdom and the Netherlands. The existence of such treaty links may be of considerable value with regard to low tax jurisdiction operations taking place in jurisdictions such as the British Virgin Islands and the Netherlands Antilles.
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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.
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TCI
Turks and Caicos Islands.
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Tranch
A bond series issued for sale in a foreign country.
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Transmogrifying
Conversion of non-exempt assets to exempt assets.
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Treuhänderschaft
A Liechtenstein form of a trust.
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Treuunternehmung
Another Liechtenstein form of registered trust, designed to undertake commercial activities.
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True Settlor
The true grantor is not the true settlor, and his or her identity is kept quite private by the trustee. See grantor trust.
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Trust
The concept of a trust dates back to the time when the Norman’s conquered England in the middle of the 11th century. The trust concept has been developed over the centuries, and has now become one of the most effective tax and estate planning techniques available today. The word "trust" refers to the duty or aggregate accumulation of obligations that a person (known as the settlor) rest upon a person described as a trustee by transferring his assets to this third party. The responsibilities are in relation to property held by him or under his control. The trustee is obliged to administer the trust property in the manner lawfully prescribed by the trust instrument (Trust or Settlement Deed, Declaration of Trust), or in the absence of specific provision, in accordance with equitable principles or statute law. The administration will thus be in such a manner that the consequential benefits and advantages accrue, not to the trustee, but to the beneficiary(ies).
There are three basic types of trust
1) an ‘Interest in Possession’ trust allows for a particular beneficiary, often the settlor, to have a distinct right to income from part of the trust’s capital assets;
2) An ‘Accumulation and Maintenance’ trust allows for income to accumulate until a class of beneficiaries reach a certain age;
3) A ‘Discretionary’ trust vests discretion with the trustees to decide how both income and capital are distributed.
It is also possible to appoint an individual who is known as the ‘protector’. The protector’s main function is to ensure that the trustee administers and manages the trust assets in accordance with the trust deed and he is often vested with the power to appoint and remove trustees.A trust does not have shares.
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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.
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Trust Indenture
A trust instrument such as a trust deed creating an offshore trust.
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Trust Protector
A person appointed by the settlor to oversee the trust on behalf of the beneficiaries. In many jurisdictions, local trust laws define the concept of the trust protector. Has veto power over the trustee with respect to discretionary matters but no say with respect to issues unequivocally covered in the trust deed. Trust decisions are the trustee's alone. Has the power to remove the trustee and appoint trustees. Consults with the settlor, but the final decisions must be the protector's.
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Trust Services
A large number of banks located in low tax jurisdictions offer trust services. In addition there are trust companies specifically offering trust services. Most low tax jurisdictions have enacted legislative provisions and set up administrative authorities to control the activities of such banks and trust companies. Services offered by banks and trust companies normally include a fairly wide range of trusteeship, management and related services. The trusteeship services involve not merely acting as trustee of settlements, but many other services such as acting as trustee for debenture holders or as custodian trustee for pension funds, attending to statutory requirements and the maintenance of financial records. Often nominee shareholders, directors and other officers are furnished. Investment services are normally provided.
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Trustee
A person totally independent of the settlor who has the fiduciary responsibility to the beneficiaries to manage the assets of the trust as a reasonable prudent business person would do in the same circumstances. Shall defer to the trust protector when required in the best interest of the trust. The trustee reporting requirements shall be defined at the onset and should include how often, to whom, how to respond to instructions or inquiries, global investment strategies, fees (flat and/or percentage of the valuation of the trust estate), anticipated future increases in fees, hourly rates for consulting services, seminars and client educational materials, etc. The trustee may have full discretionary powers of distributions to beneficiaries.
Uniform Partnership Act (UPA)One of the uniform type of laws adopted by some states or used as a baseline for other states.
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VAT
Value Added Tax.
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Vetting
It is the process used by the offshore consultant for qualifying the prospective client to determine if he or she is a good candidate for offshore asset protection; as in to vet the prospective client.
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Vintage Company
See Shelf Company.
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Wirtschaftlich Beguenstigter
Person who is the ultimate beneficiary of a company or trust. This term is used in Switzerland and Liechtenstein.
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Withhholding 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.
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World Bank
Formed to be the bank lender and technical advisor to the developing countries, utilizing funds and technical resources from the member nations.
