Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Administrative Office

An administrative office is frequently located in a country other than that of the headquarters office, the parent company or a country of operation. The role of such an administrative office may be to co-ordinate international or regional activities, to provide particular services (such as management analysis, financial or other related services) or to perform a given function (such as marketing). A number of otherwise high tax jurisdictions (such as the United Kingdom, France, Belgium and Denmark) grant special tax treatment in order to attract the administrative offices of multinationals.

Adverse trustee

One who has a substantial, beneficial interest in the trust assets as well 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.

Aktiengesellschaft (AG)

German company limited by shares.

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. It does not have shares.

Annuitant

The beneficiary or beneficiaries (in a last-to-die arrangement) of an annuity who receives a stream of payments pursuant to the terms of the annuity contract

Annuity

A tax sheltering vehicle, an unsecured contract between the company and the annuitants. Funds that may grow deferred-free and are used to provide for one's later years. All income taxes are deferred until maturing of the annuity. Capital gains and income accumulate tax deferred resulting in a stream of payments made to the annuitant during his or her lifetime under the annuity agreement. Taxes are paid on the income, interest earned and the capital gains but only to the extent as and when they are received. Currently, there is no annual limit on purchases, but there is no tax credit for purchases. An annuity is not an insurance policy.

Anti-Avoidance Measures

The object of anti-avoidance measures, insofar as they relate to low tax jurisdictions, is to prevent the avoidance or reduction of tax through the displacement of one or more connecting factors (i.e. the basis of tax liability) from the taxing jurisdiction concerned to a low tax jurisdiction.

Anti-avoidance measures may be of general application or may refer to specific low tax jurisdictions. Any measures usually appear in domestic tax systems; they may however be imposed by tax treaties.

Apostille

Certificate of Good Standing in connection with corporations according to the Convention of The Hague of 5th October, 1961.

An apostille is a special seal applied by an authority to certify that a document is a true copy of an original. Apostilles are available in countries, which signed the Hague Convention Abolishing the Requirement of Legalization of Foreign Public Documents, popularly known as The Hague Convention. This convention, created in 1961, replaces the time consuming chain certification process used so far, where you had to go to four different authorities to get a document certified.

Arbitrage

Buying securities in one country, currency or market and selling in another to take advantage of price differentials.

Articles of Association

Regulations for governing the rights and duties of the members of a company among themselves. Articles deal with internal matters such as general meetings, appointment of directors, issue and transfer of shares, dividends, accounts and audits.

Must contain:

1) the Corporation’s name; 2) its registered address; 3) its objects and aims; 4) its capitalization; 5) a statement that the company is a limited liability organization.

Asset manager

A person appointed by a written contract between the IBC (International Business Company) or the exempt company or the APT (Asset Protection Trust) 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.

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.

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.

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 favourable 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.

Badges of Fraud

Conduct that raises a strong presumption that it was undertaken with the intent to delay, hinder or defraud a creditor.

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.

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. Basle, Switzerland. The bank’s bank.

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 drugs are involved. The exchange of information clause contained in most tax treaties may enable the tax administration of one treaty country to obtain information concerning bank accounts which its residents have in the other country.

Banking 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.

Bare Trusts

Also known as dry, formal, naked, passive or simple trusts. These are trusts where the trustees have no duties to perform other than to convey the trust property to the beneficiary(s) when called upon to do so.

Basle Practices

A committee of central banks setting standards for conducting their business resulting in minimum standards, preventative money laundering measures etc.

Bear

An investor who has sold a security in the hope of buying it back at a lower price.

Bearer Bond

A bond issued in bearer form rather than being registered in a specific owner’s name. Ownership is determined by possession.

Bearer Shares

Shares in the capital of a company which are transferable by delivery of the certificate. They do not display a shareholder's name but instead grant ownership rights to any individual who is in actual physical possession of the certificate(s). Unlike registered shares, which are transferred by an instrument of transfer and display the shareholder's name on the actual share certificate, the name of the holder is not registered in the books of the company.

Bearer Stocks/Shares

Securities for which no register of ownership is kept by the company. Dividends are not received automatically from the company and must be claimed.

Bearer Share Certificate

A negotiable share certificate made out in the name of the bearer and not in the name of a particular person or organization.

Beneficial Owner

Person who is the ultimate beneficiary of a company or trust as distinct to the registered or nominal owner.

Beneficiary

The person(s), company, trust or estate named by the grantor, settlor or creator to receive the benefit's of a trust in due course upon conditions, which the grantor established by way of a trust deed. An exception would be the fully discretionary trust. The beneficiary could be a charity, foundation and/or person(s) which or who are characterised by "classes" in terms of their order of entitlement or their hierarchy.

Besloten Vennootschap met Beperkte aansprakelijkheid (BV)

Dutch limited company for small commercial enterprise, not required to publish accounts; used as a Substantial Holding Company.

Best effort

A designation that a certain financial result is not guaranteed but that a good faith effort will be made to provide the result that is represented.

Blind Trust

A trust in which the trustees are not allowed to provide any information to the beneficiaries about the administration of the assets of the trust.

Blocked Funds

Term for "reserving" funds by one bank for the benefit of another bank. Blocking of funds is an often used banking procedure to ensure that the same funds are not used twice. Often more beneficial to an investor than a bank guarantee.

Blue Chip

Term for the most prestigious industrial shares. Originally an American term derived from the colour of the highest value poker chip.

Board of Directors

The company’s "cabinet" - as specified in the Articles of Association - is supposed to make decisions on the issues that are too specific for the general meeting to discuss but which are beyond the day-to-day responsibility of the company management.

Board of Trustees

A board acting as trustees to a trust or as advisors to the trustee depending upon the language of the trust indenture. This board is in full control of the trust affairs. The board of trustees will manage the trust affairs based on the rights and responsibilities granted to them by the settlor's trust deed.

Bond

Any interest-bearing government or corporate security that requires that the issuer will pay the holder of the bond a specified sum of money, usually at fixed intervals, and will repay the principal amount of the loan at maturity. A secured bond is backed by collateral, whereas as an unsecured bond or debenture is backed by the full faith and credit of the issuer, not by any specified collateral. Only corporations can issue stocks, but bonds can be issued by corporations or governments.

Broker

An individual or organization in-between the person/organization that controls the funds and the provider/trader. A broker often knows someone who knows somebody else who may provide program trading. This chain of brokers is known in the business as a "daisy chain".

Bye-Laws or By-Laws (also Articles of Association)

Articles of Association of a company (in certain jurisdictions).

Bull

An investor who has bought a security in the hope to make a profit from rising prices.

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.

Cap

An option like contract for which the buyer pays a fee or premium, to obtain protection against a rise in a particular interest rate above a certain level. For example, an interest rate cap may cover a specified principal amount of a loan over a designated time period such as a calendar quarter. If the covered interest rate rises above the rate ceiling, the seller of the rate cap pays the purchaser an amount of money equal to the average rate differential times the principal amount times one quarter.

Capitalization Issue

The process whereby money from a company's reserves is converted into capital and then distributed to shareholders as new shares, in proportion to their original holdings, also known as bonus or scrip issue.

Captive Bank

Bank intended to provide services to the promoter and associates of the promoter, usually an international group of companies.

Captive Insurance Company

Insurance company established by a company or international group to provide insurance (or reinsurance) for the promoter and associates of the promoter.

Certificate of Incorporation

Certificate issued to companies who have complied with all the statutory requirements for registration.

Charter

see Memorandum of Association.

Clearing System

A mechanism for calculation of mutual positions within a group of participants with a view to facilitating the settlement of their mutual obligations on a net basis.

Collar

The simultaneous purchase of a cap and the sale of a floor with the aim of maintaining interest rates within a defined range. The premium income from the sale of the floor reduces or offsets the cost of buying the cap.

Committee of Advisors

Provides nonbinding advice to the trustee and trust protector. Friendly towards settlor but must still maintain independence.

Committee of Trust Protectors

An alternative to utilizing merely one trust protector. Friendly towards settlor, but must remain independent.

Commission

The fee that a broker charges clients for dealing on their behalf.

Commitment Holder

A wealthy private party buying guarantees from the issuing banks, reselling them to other banks/brokers. Commitment holders are not allowed to trade or to do business on their own behalf. Other designation: provider.

Common Trust Fund

A trust that operates by the process of pooling funds from a number of participants in the trust, who as beneficiaries under the trust, share in the income or other gains derived from the acquisition, holding, management or disposal of assets acquired for the trust.

Companies Act or Ordinance

Legislation enacted to facilitate and regulate for the incorporation, registration and operation of international business companies (IBC's). More commonly found in The Caribbean countries i.e. the Bahamas or the BVI.

Compound Yield

The total return on investment, consisting of the distribution (dividend, interest) and the capital gain or loss, in % of the investment amount.

Conditional SWIFT

A funds transfer method which uses Society for Worldwide Interbank Financial Telecommunications protocols to transfer funds conditionally between banks, subject to the performance of a specified party.

Consideration

The money value of a transaction (number of shares multiplied by the price), before adding commission, stamp duty, etc.

Contract exit for non-performance

A condition in a financial agreement that enables the investor to take back his funds if the result represented is not achieved.

Contract Note

The day that a transaction takes place, the broker sends the client a document detailing the transaction, including full title of the stock, price, consideration and stamp duty (if applicable).

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.

Corporate Officers

Another "cabinet like" 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.

Cover

The total net profit a company has available for distribution as dividend, divided by the amount paid, gives the number of times that the dividend is covered.

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.

Couponsteuer

Tax charged on distributions of certain Liechtenstein legal entities (AG and Anstalt with share capital).

Creator, Settlor or Grantor

A person who creates/settles a trust

Credit Equivalent

Value amount representing the credit risk exposure in off-balance sheet transactions. In the case of derivatives, credit equivalent value represents the potential cost at current market prices of replacing the contract's cash flows in the case of default by the counter-party.

Credit Risk

The risk that a counter party to a transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss.

Currency

The denomination of the notes and coins in circulation in an economy.

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.

Current Exposure Method

Term used in the Basle Capital Accord to denote a method of assessing credit risk in off-balance sheet transactions, consisting of adding the market to market replacement cost of all contracts and an amount for potential credit exposure arising from future price- or volatility changes.

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.

Debenture

An unsecured bond backed only by the general credit of the issuing corporation. A certificate of indebtedness, an instrument in which a corporation or a company acknowledges indebtedness for a specified sum on which interest is due until the principal is paid back.

Debit, 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 cheque book 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 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.

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.

Demand Guarantees

General term for payment undertakings arising on the presentation of a written demand (plus possible other documents specified in the guarantee), not conditional on proof of default by the principal in the underlying transaction. They ensure often that the lender will be paid the principal on maturity and possibly, depending on the instrument, interest when due.

Depository Trust Company (DTC)

A custodial clearing facility owned by the major banks and securities firms and monitored by various banking regulatory agencies and the Securities and Exchange Commission.

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.

Discount

When the market price of a newly issued security is lower than the issue price. If it is higher, the difference is called a premium.

Discretionary Trust

1. 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 settler 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.

2. 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.

3. The form of trust usually established offshore. The discretion's are vested in the trustee who can usually decide which of the beneficiaries is to benefit, when and to what extent. Discretion's are exercised under advice of, or suggestions from the settlor or protector.

Dividend

The part of a company's post-tax profits distributed to shareholders, usually expressed as an amount per share. Discretionary payment by a corporation to its shareholders, usually in the form of cash, stock, or other property.

Domicile

The place where an individual has his permanent home and the means by which the person is connected with a certain system of law related to issues such as marriage, divorce, succession of estate and taxation, 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.

Donor

A transferor. One who transfers title to an asset by gift.

Double Exit

Use of two passports for the purpose of confusion or convenience.

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.

Draft

A signed, written order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight or at a specific date.

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. and even private ATM transactions.

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. Austria is following suit.

Emigration

Emigration to a low tax jurisdiction or to a country offering special retirement incentives may serve to break totally or in part the link between a taxpayer and the high tax jurisdiction from which he is emigrating. Normally, it is the change in the place of residence which is material; however, in other cases a change in domicile or even citizenship 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.

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 the rightful owner is.

Estate

Interests in real and/or personal property.

Eurobonds

A bond issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.

Eurobonds are long-term loans issued in terms of the USD 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. It consists of 25 Member States (2005).

Equity

The risk-sharing part of a company's capital, usually referred to as ordinary shares.

Equity Options

A class of options giving the purchaser the right but not the obligation to buy or sell an individual share, a basket of shares or an equity index at a predetermined price, on or before a fixed date.

Equity Swaps

A transaction that allows an investor to exchange the rate of return (or a component thereof) on an equity investment (an individual share, a basket or index) for the rate of return on another non-equity or equity investment.

Ex

Latin for 'without', the opposite of Cum. Used to indicate that the buyer is not entitled to participate in whatever forthcoming event is specified, for example, ex cap, ex dividend, ex rights.

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.

Exercise Price

The fixed price at which an option holder has the right to buy, in the case of a call option, or to sell, in the case of a put option, the financial instrument covered by the option.

Exit Buyer

The buyer of a security arriving on the secondary (retail) market.

Expatriation

The removal of one’s legal residence or citizenship from one country to another in anticipation of future restrictions on capital movements or to avoid estate taxes. Expatriates from Third World countries enter OECD countries to search for better income opportunities than they can pursue at home.

FATF

G-7's Financial Action Task Force set up in 1989.

FIAT Money

FIAT money is paper money that is created out of nothing and without any work - usually by banks or central banks.

Family holding trust

A trust specifically created and managed to hold a family's assets consisting or real and/or personal property and/or investment portfolios. Such trusts usually own underlying companies to hold assets thus limiting the associated risk to the individual assets.

Family Limited Partnership (FLP)

A limited partnership created for family estate planning and some asset protection. It is family controlled by the general partners. A highly appreciated asset is transferred into the FLP to achieve a capital gains tax reduction. Usually, the parents are the general partners holding a 1 to 2 percent interest. The other family members are the limited partners holding the balance of the interest in the partnership.

FIBV

World Federation of Stock Exchanges.

Fiduciary

See Trustee.

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).

Final Dividend

The dividend paid by a company at the end of its financial year.

Flag of Convenience

The flag of a ship is the flag of the country of its registration. The term "flag of convenience" refers to the flag of a country (in particular Liberia and Panama) which is chosen for ship registration in order to achieve fiscal benefits (no income tax being levied by such countries on international shipping operations) and other non-tax advantages relating to lower labour costs and manning scales, officer and crew requirements, trade union practices, etc. Ownership of the ship is normally vested in a company incorporated in the country of the flag. In addition to Liberia and Panama, the following countries offer or are preparing incentives to offer flag of convenience facilities: the Cayman Islands, Costa Rica, Cyprus, Gibraltar, Haiti, Honduras, Hong Kong, Malta, Morocco, the Netherlands Antilles, Madeira, Singapore and Vanuatu.

Flight Capital

The movement of large sums of money from one country to another to escape political or economic turmoil, aggressive taxation or to seeking higher rates of interest.

Floor

A contract whereby the seller agrees to pay to the purchaser in return for the payment of a premium, the difference between current interest rates and an agreed (strike) rate times the notional amount, should interest rates fall below the agreed rate. A floor contract is effectively a string of interest rate guarantees.

Flotation

The occasion on which a company's shares are offered on a market for the first time.

Foreign

May be utilized in a geographic, legal or tax sense.

Foreign Corporation

A corporation organized under the laws of a foreign country and whose parent company in the home country may participate in any percentage of shares of the affiliate corporation.

Foreign Currency Account

An account maintained in a bank in another currency than the currency of the country in which the bank is located.

Foreign Personal Holding Company (FPHC)

Different than a controlled foreign corporation. Discuss with your CPA.

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.

Foundation

See Stiftung.

Fraudulent Conveyance

A transfer of an asset that violates the fraudulent conveyance statutes of the affected jurisdictions.

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.

Fresh Cut

Security arriving on the secondary (retail) market.

Fully Paid

Applied to new issues when the total amount payable in relation to the new shares has been paid to the company.

Futures

Securities or goods bought or sold for future delivery. There may be no intention to take them up but to rely upon price changes in order to sell at a profit before delivery.

Gesellschaft mit beschränkter Haftung (GmbH)

German private limited company without shares.

Gilt

Security issued and guaranteed by the Government.

Glass-Steagall Act

A portion of the Banking Act of 1933 which prohibits banks from entering into the securities business and prohibits securities firms from accepting deposits. However, securities issued or guaranteed by a bank are not subject to the Securities Act of 1933. Therefore, bank instruments, by virtue of being issued by a bank, are not considered a form of securities.

Globalization

A strategy in which companies aim to sell their products and services all around the world.

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.

Grantor

A person who creates a trust or transfers real property to another entity.

Grantor Trust

A trust created by a grantor and taxed to that grantor (settlor).

Grossing Up

Calculation of the amount that would be required in the case of an investment subject to tax to equal the income from that investment as if it were not subject to tax.

GmbH

A Swiss, German and Austrian form of a limited liability corporation.

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.

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

Headquarters Company

A company organized in a foreign country, 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.

High net worth Person/Individual

An individual with more than $1,000,000 in liquid assets to manage.

Holding Company

A company whose activity is limited to holding and managing investments or property but not having ordinary commercial or trading activities. The requirements to achieve holding company status vary in different countries (in particular Liechtenstein, Luxembourg, Nauru and the Netherlands).

Holding Company (Luxembourg)

A Luxembourg holding company is exempt from all forms of Luxembourg taxation but its activities are restricted to the holding of shares and certain other investments. In particular the company may not advance funds to its shareholders, invest in commodities or futures or carry out any sort of commercial or industrial activity. The company may only hold property in so far as it is necessary for its own use but could, for example, own the shares of a property investment company. This type of company is specifically excluded from the tax treaties signed by Luxembourg except the treaty signed by China.

Homestead Exemption

State or federal bankruptcy laws that protect one's residence from confiscation by a judgment creditor or loss in a personal bankruptcy.

Hot Money

1. Large quantities of money that move quickly in international currency exchanges due to speculative activity.

2. Foreign funds temporarily transferred to a financial center and subject to withdrawal at any moment.

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.

Incomplete/Imperfect Gift

"Equity will not perfect an imperfect gift". Where the settlor does not transfer the property to the trustee the trust is not constituted. Common law rules that the settlor has to do all in his power to transfer the gift in order to create a valid trust. Where the settlor has reserved the right to add or delete beneficiaries to the trust, it is construed as an incomplete gift.

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.

Insider Dealing

A criminal offense involving the purchase or sale of shares by someone who possesses inside information about a company's performance and prospects which is not yet available to the market as a whole, and which, if available, might affect the share price.

Interbank Rate of Exchange

The rate at which banks deal with each other in the market.

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).

Interest Rate Swap

A transaction in which two counterparties exchange interest payment streams of differing character based on an underlying notional principal amount. The three main types are coupon swaps (fixed rate to floating rate in the same currency), basis swaps (one floating rate index to another floating rate index in the same currency) and cross-currency interest rate swaps (fixed rate in one currency to floating rate in another).

Intellectual Property

Ownership conferring right to possess, use or dispose of products created by human ingenuity, including patents, trademarks and copyrights.

Inter-Company Pricing

Low tax jurisdictions may be used for the purpose of inter-company pricing in a number of ways. In the first place, a manufacturing company located in a high tax jurisdiction could effect sales to a related company in a low tax jurisdiction 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 affected 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 Business Company (IBC)

A term used to define a variety of offshore corporate structures. Common to all IBC's are the dedication to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation and minimal filing and reporting requirements. An increasing number of offshore jurisdictions are permitting the use of nominee shareholders, directors and officers.

International Business Corporation IBC (Channel Islands and the Isle of Man)

Like the international IBC, the IBC found in this region is designed for foreign companies and individuals to the jurisdiction in which it is registered, providing a maximum of privacy, combined with a comprehensive freedom from local taxation. An IBC pays every year filing fees and domiciliary fees in order to remain registered. This company has a special form of tax rate, designed to defeat the controlled foreign company legislation of the neighbouring larger countries. This type of company will pay taxes on local, as well as international revenue at a very competitive tax rate.

International 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.

International Trust

A Cook Islands term for a special type of an Asset Protection Trust (APT). Governed by the laws of the Cook Islands.

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.

Investment Trust

A company whose sole business consists of buying, selling and holding shares.

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 low tax jurisdiction country by an investor which purchases and subsequently handles for him his personal investment portfolio through the anonymity of a nominee company. Consideration for the purchase is the establishment on the investment company’s books of a debt to the investor equivalent to the value of the investments transferred whereby the income generated from the investment holding company’s assets are not taxable.

Investment Incentive

Investment incentives are incentives of various kinds which are granted in order to attract local or foreign investment capital to certain activities (e.g. exports, technological development) or particular areas (e.g. backward regions or designated areas as part of a decentralization policy). Such incentives may be of various types, e.g. grants, interest-free loans, factory sites, exemption from exchange restrictions, and are frequently granted as a package together with tax incentives.

Joint Venture

A type of business partnership involving joint management and the sharing of risks and profits as between two or more enterprises based in different countries. When the capital of the partnership is known as a joint venture.

Key tested telex (KTT)

An older form of transferring funds between banks, using telex machines in addition to verification of messages through the use of key code numbers.

Layered Trusts

Trusts placed in series where the beneficiary of the first trust is the second trust; used for privacy.

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.

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 jurisdictions.

Laundering

Laundering is the process of cleaning illicitly gained money so that it appears to others to have come from, or to be going to, a legitimate source.

Letter of Intent (LOI)

A document by which the investor states that he intends to enter into a High-Yield transaction.

Letter of Wishes/Memorandum of Wishes

A document prepared by the settlor or grantor of a trust providing guidance on how trustees should exercise their discretion's (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.

Leverage

Company debt expressed as a percentage of equity capital. High leverage means that debts are high in relation to assets. The equivalent UK term is gearing.

Leveraged (indirect) programs

Programs which use leased assets to increase the amount of instruments purchased and resold for a profit. The benefit of leased assets is that such programs generate substantially larger profits.

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.

Limit

In relation to dealing instructions, a restriction set on an order to buy or sell, specifying the minimum selling or maximum buying price.

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.

Limited liability company/corporation

A company established under common Law. This type of company can be found in the UK, the Channel Islands, the Isle of Man and many Caribbean jurisdictions. The important characteristic is that the liability of the shareholder is limited up to the amount of their capital contribution.

Limited Liability 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 favourable 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.

Limited Liability Partnership (LLP)

A form of the LLC favoured and used for professional associations, such as accountants and attorneys. The benefits are that it protects the general partners usually the one funding the operation from liability.

Limited Power of Attorney

A legal document that empowers the trade manager to deal with the various parties of the transaction on behalf of the owner of the funds (the Principal). Transactions will not happen without this instrument.

Listed Company

A company that has obtained permission for its shares to be admitted to the London Stock Exchange's Official List.

Living Trust

Revocable trust, for reduction of probate costs and to expedite sale of assets upon death of grantor. Provides no asset protection.

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.

Low tax jurisdiction

The term low tax jurisdiction is generally used to refer to a jurisdiction: 1) where there are no relevant taxes; 2) where taxes are levied only on internal taxable events, but not at all, or at low tax rates, on profits from foreign sources; or 3) where special tax privileges are granted to certain types of taxable persons or events. Such special tax privileges may be accorded by the domestic internal tax system or may derive from a combination of domestic and treaty provisions. (Where tax benefits are part of an economic development programme the term tax incentives is usually used). Simply stated, a low tax jurisdiction is any country whose laws, regulations, traditions, and, in some cases, treaty arrangements make it possible for one to reduce his over all burden. The low tax jurisdictions of the world broadly may be classified into six separate categories: 1) non-tax jurisdictions (e.g., Anguilla, Bahamas, Bermuda, Cayman Islands, Nevis, St. Vincent, Turks and Caicos, and Vanuatu); 2) countries taxing only local income (e.g., Costa Rica, Liberia, Panama, Gibraltar and Hong Kong); 3) low-low tax jurisdictions with treaty benefits (e.g., the Netherlands, the Netherlands Antilles, British Virgin Islands, Luxembourg and Singapore); 4) countries offering special privileges (e.g., Channel Islands and the Isle of Man); 5) low tax jurisdictions for individuals (e.g., Andorra), 6) low tax jurisdictions for International Business Companies (e.g., Antigua, Barbados, Grenada, Jamaica and Montserrat).

Man of Straw

Effectively a nominee settlor or grantor who creates an offshore trust but often has no further connection with the trust once it is created.

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.

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.

Management Company

See Administrative Offices.

Managed Bank

An offshore bank also known as a Class "B" or Cubicle Bank. The Managed Bank is not required to maintain a physical presence in the licensing jurisdiction. Its presence in the licensing jurisdiction is passive with nominee directors and officers provided by a managing trust company with a physical presence. The Managed Bank is not permitted to transact business within the licensing jurisdiction but may maintain its books, records, etc., to assure secrecy of operations.

Mavera injunction

A court Injunction preventing the trustee for a trust from transferring trust assets pending the outcome of a lawsuit.

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.

Memorandum of Association

See Articles of Association.

Merchant Bank

A European form of an Investment Bank.

Minutes

Brief summary of proceedings of a meeting/assembly/committee.

Mini-Trust

A short (usually preprinted) form of a trust, often used as a confidentiality enhancer, to bridge the ownership and management of an International Business Company. The Mini-Trust is intended only to pass assets on the death of the settlor, i.e. a will substitute.

Money Laundering

Money-laundering occurs when criminals seek to make illegally obtained funds look legitimate by funnelling them through a string of banks and businesses until the money's origin is obscured.

MTN

Medium Term Note. A guarantee issued by a bank with a maturity between 1 and 10 years and paying interest (often 10 years with a 7 1/2% coupon).

Mutual Legal Assistance Treaty

A treaty which provides for mutual legal assistance, including the exchange of information, etc., in cases where criminal offences have been committed.

Mutual Assistance Agreement

A contract agreement between two or more nations in which the fiscal Governments are empowered to take preference over the civil rights of each others' citizens in ascertaining and collecting crime-related proceeds or tax liability.

Mutual Fund

Investment company usually formed in a low tax jurisdiction and issuing shares to the public.

Naamlose Vennootschap (NV)

Limited company in the Netherlands used as a Substantial Holding Company, required to publish its accounts.

Net Asset Value

The value of a company after all debts have been paid, expressed as an amount per share.

Nominee Company

A company formed for the express purpose of holding securities and other assets in its name or to provide nominee directors and/or officers on behalf of clients of its parent bank or trust company.

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. A director whose function is passive in nature. The director receives a fee for lending his or her name to the organization. Nominee directors are subject to director responsibilities.

Nominee Name

Name in which security is registered and held in trust on behalf of the beneficial owner.

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.

O.E.C.D.

Organisation for Economic Co-operation and Development.

Off-balance sheet financing

The process whereby a contingent (dependent on certain events) liability is not recorded as a liability on the balance sheet but typically appears in the notes to the financial statement. Off-balance sheet financing is therefore not reflected in the balance sheet total, although possible related reserves will.

Offshore

1. Any country other than your own.

2. Offshore means non-resident and applies for companies as well as individuals. Those countries which give non-residents special tax treatment or total exclusion from local tax liability on funds and assets they hold in that country or via an entity in that country provide "offshore services", that is services for private people or legal entities which are not resident in that country for tax purposes. For example the US, the UK, Austria etc. are commonly not known as offshore centres, however they do provide offshore services to non-residents.

3. 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, transworld and multi-national, though foreign is used more in reference to the IRS.

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 Company

See International Business Company.

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. 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 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 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 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 Limited Partnership

A partnership, the general partner of which is an offshore company. The limited partners may be onshore entities.

Offshore Profit Centers

Branches of major international banks and multinational corporations located in a low tax financial center which are established for the purpose of lowering taxes.

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 Trust

The quality that differentiates an offshore trust from an onshore trust is portability. The offshore trust can be transferred to additional jurisdictions to maintain confidentiality and to advantage desirable facets of the new jurisdictions laws.

One-year zeros

An obligation of a bank due in one year and sold at a discount from face value in lieu of an interest coupon.

Onshore

Onshore is defined as the country in which a private person, a company or any other legal entity is resident for tax purposes.

Ordinary Shares

The most common form of shares. Holders receive dividends which vary in accordance with the profitability of the company and the recommendations of the directors. The holders of the ordinary shares are the owners of the company.

Ownership

Ownership constitutes the holding or possession of limited liability company legal claim or title to an offshore asset.

Par

The nominal or face value of a security. A bond selling at par is worth the same dollar amount as when issued or when redeemed at maturity.

Parallel Account

A separate account established at the trading bank.

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.

Pay Order

A document which instructs a bank to pay a certain sum to a third party. Such orders are normally acknowledged by the bank which provides a guarantee that the payment will be made.

PBG

Guarantees issued by prime banks. In this context the word prime is an adjective and not a noun, meaning that the bank issuing the bank guarantee is of prime status, one of the top international banks.

Permanent Establishment

Legal concept applied by a country in order to tax commercial activities realised in its territory by a company or person incorporated or resident outside the jurisdiction. The expression is commonly used in double taxation agreements and is defined in the O.E.C.D. model agreement, although in practice there is no consistent definition adopted either in double taxation agreements or in jurisdictions which recognise the concept under their general tax laws.

PLC

A UK public limited company.

Personen und Gesellschaftsrecht

Law applicable to individuals and corporate bodies in Liechtenstein.

Petrodollar

United States dollars obtained by oil exporting countries.

Portfolio

A collection of securities held by an investor.

Preferential Transfer

A disposition of an asset that is unfair to other creditors of the transferor.

Prime Bank

An older term for a well known (top 25, top 100) international bank. The term should be avoided and replaced by "money center bank" or "international bank".

Principal

The party that controls the funds and seeks a secure high-yield investment.

Private Placement

An issue that is offered to a single or a few investors as opposed to being publicly offered.

Private Trustee Company

A company incorporated in certain offshore jurisdictions, such as Bermuda, to act as a trustee for a limited class or group of trusts. Private trustee companies are not permitted to offer trustee services to the public generally.

Privatization

Conversion of a state run company into a public company, often accompanied by a sale of its shares to the general public.

Probate

The legal process for the distribution of the estate of a decedent.

Proof of Funds (POF)

A document by which the principal's bank states that the principal owns the funds required for the transaction. Usually, proof of funds can also be delivered in the form of a recent bank-, security- or custody statement. A generic document can be found in the "How to contact us" page of this site.

Proper Law

The body of law which governs the validity and interpretation of a contract or trust deed.

Protector

A person appointed by the settlor to oversee the trust on behalf of the beneficiaries. In many jurisdictions, local trust laws define the concept of the trust protector. The protector usually has veto power over the trustee with respect to discretionary matters but no say with respect to issues unequivocally covered in the trust deed. Trust decisions are the trustee's alone. In some cases the protector has the power to remove a trustee and appoint another trustees

Provider

A wealthy private party buying guarantees from the issuing banks, reselling them through banks/brokers. Other designation: commitment holder.

PT - The Perpetual Traveller

A PT by definition, is a non-conformist in a highly regulated, highly taxed, first world society. In a nutshell, a PT merely arranges his or her paperwork in such a way that all governments consider him a tourist. A person who is just "Passing Through". The advantage is that being thought of by government officials as a person who is merely "Parked Temporarily", a PT is not subjected to taxes, military service, lawsuits, or persecution for partaking in innocent but forbidden pursuits or pleasures. Unlike most citizens or subjects, the PT will not be persecuted for his beliefs or lack of them. PT stands for many things: a PT can be a "Prior Taxpayer", "Permanent Tourist", "Party Thrower", "Priority Thinker", "Practically Transparent", "Privacy Trained", or "Perpetual Traveller" if he or she wants to be. The individual who is a PT can stay in one place most of the time or all of the time. PT is a concept, a way of life, a way of perceiving the universe and your place in it. One can be a full-time PT or a part-time PT. Some may not want to break out all at once, or become a PT at all. They just want to be aware of the possibilities and be prepared to modify their lifestyle in the event of a crisis. Knowledge will make you sort of a PT. A "Possibility Thinker" who is "Prepared Thoroughly" for the future.

Purpose Trust

A trust created for an express purpose without any individually ascertained or ascertainable beneficiaries. A purpose trust is typically used in circumstances where the trust is of philanthropic nature.

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.

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.

Pyramid Selling

A method of selling products through layers and layers of agents who are structured like a pyramid. The top layer of agents sells to the next layer and so on. The last layer gets to sell to the general public. In practice, the last layer more frequently gets left with a load of unsellable stuff.

Ready-Made Company

See Shelf Company.

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.

Register

The register of international business companies and exempt companies maintained by the Registrar.

Registrar

The Registrar of Companies, a governmental body controlling the formation and renewal of companies created under their company act.

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.

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.

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. A bank, trust company or holding company permitted to deal only in local currency. Foreign currency transactions must be approved by the appropriate regulatory authority.

Retail Buyer

The buyer of a security when it arrives on the secondary (retail) market.

Re-domiciliation Corporations

Some offshore jurisdictions allow corporations incorporated in other jurisdictions to reincorporate in their own at will.

Rights Issue

An invitation to existing shareholders to acquire additional shares in the company in proportion to the number of shares they already own - usually at a preferential price.

Roll Program

A broker term describing a trade program. The use of the term “roll program” should be avoided.

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.

Safekeeping receipt

A document issued by a bank which requires the bank to hold specific funds (or securities, gold, etc.) unconditionally separate from other assets and return them when requested by the depositor. In this way, the funds (or securities, gold, etc.) are not an asset of the bank nor are they, directly or indirectly, subject to any of the bank’s other obligations or debts.

Seasoned

Securities owned by a participant in the secondary (retail) market.

Scheduled Territories

Since June 1972, the United Kingdom, the Channel Islands, the Isle of Man, and Gibraltar.

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.

Securities

General name for shares and bonds of all types including options, warrants, and rights to acquire shares and debt obligations. Shares produce a variable dividend and bonds at a fixed interest.

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 10 per cent of the outstanding balance within a couple of weeks from receiving your statement.

Settle

To create or establish an offshore trust. Done by the settlor {UK and Channel Island term) or the grantor (U.S. and IRS term).

Settlor

The person who creates a trust.

Share of Stock

Represents ownership in a corporation. There exist several different types (common and preferred) and classes of shares with different privileges and rights, such as registered shares (with or without par value), preference shares, (non-) redeemable shares, shares with or without voting rights and bearer shares etc.

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 shipowners 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.

Service Company

A company located in an offshore financial center to provide management, invoicing and other services for client companies located in other countries. Initially used to advantage double taxation treaties. Service Companies are now frequently used to facilitate flight capital outflow and are often involved in money laundering schemes.

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.

SLC (Stand-by Letter of Credit)

A financial guarantee or performance bond issued by a bank on behalf of a customer and regulated by the ICC-500 rules.

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.

Sociedad Anonima

A company established under Spanish Law. The important characteristic is that the liability of the shareholder is limited up to the amount of their capital contribution.

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.

Sociedades Gestoras de Participatoes Sociais (SGPS)

Madeira holding company specifically designed to take advantage of European Union Directive 90/435.

SOPARFI - the Luxembourg 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.

Sparbuch

An Austrian and German type of bank / building society account. Ownership is certified by a book and stamp not by identification. They do still exist.

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.

Statutory

That which is fixed by statutes, as opposed to Common Law.

Stiftung

A Liechtenstein form of private foundation.

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.

Settlement

Exchanging money or securities for securities.

Shelf Company

Stiftung

Foundation, 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.

Stockholders’ Annual Meeting

"The parliament"/"ultimate authority": 1) approves annual accounts of both profit and loss and the company’s assets and liabilities; 2) makes policy decisions on future business actions; 3) personnel decisions (president, secretary and treasurer - to be retained or replaced - the same goes for whether to retain or replace the auditors and directors; 4) constitutional issues: should the Articles of Association be modified or changed?; should quorum requirements be changed?

Sub-account (segregated account)

When a bank acts on behalf of an intermediary, a sub account is opened for each of the intermediaries' clients, to hold their funds in their name. The account can only be operated, and the funds can only be used, according to the terms of a written agreement (Power of Attorney) that is given to, and approved by, the bank. The deposited funds are not considered intermediary assets nor bank assets if a safekeeping receipt is issued by the bank.

Subpart F Income

The section of the American tax law of 1962 containing anti-low tax jurisdiction measures in relation to specified companies known as "controlled foreign corporations".

Subsidiary Company

A subsidiary company is a company under the control of another company through stock ownership.

Substantial Holding Company

A particular type of holding company established in the Netherlands exempted from tax on income from investments under specified conditions.

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), S.A., S.A.R.L. (France), S.A.F.I. (Uruguay).

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 Exempt Company (as found in the Channel Islands and the Isle of Man)

This is a company designed for companies and individuals who are foreign to the jurisdiction in which it is registered, providing a maximum of privacy, combined with comprehensive freedoms from local taxation. Tax Exempt companies (often referred to simply as Exempt Companies) pay a tax-exempt fee each year. This fee is a fixed annual fee exempting the company from further tax liabilities in the jurisdiction in which it is registered. It also has to pay annual filing fees (governmental fees) and domiciliary fees (service provider's fees) in order to remain registered. The relevant tax-exempt fee for the relevant jurisdiction is denoted in the e-offshore list for every jurisdiction.

Tax 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 Incentives

The term Tax Incentives is used when tax benefits are part of an economic development programme. Most tax incentive measures fall into one or more of the following categories: tax exemption (tax holiday); deduction from the taxable base; reduction in the rate of tax; tax deferment.

Tax 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., 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, Italia and Monaco; 6) tax havens for International Business Companies (e.g., Antigua, Barbados, Grenada, Jamaica and Montserrat).

Tax Holiday

Exemption from taxation for a designated period of time.

Tax Regimen

The local tax treatment of income tax, foreign source income, non-resident treatment and special tax concessions which, when combined, form complex issues.

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 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 economics 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 low tax jurisdictions. In line with this approach certain tax treaties specifically exclude from their scope entities which benefit from specially favoured tax treatment (e.g. the exclusion of Luxembourg holding companies from the provisions of tax treaties concluded with Luxembourg). However, certain colonies or former colonies of the United Kingdom and the Netherlands benefit from extensions (with or without modification) of treaties concluded respectively by the United Kingdom and the Netherlands. The existence of such treaty links may be of considerable value with regard to low tax jurisdiction operations taking place in jurisdictions such as the British Virgin Islands and the Netherlands Antilles.

Tax Treaties

Tax treaties are international agreements or conventions concluded with the object of eliminating double taxation by the contracting states. International double taxation may be loosely defined as the imposition of comparable taxes in two (or more) states on the same taxpayer in respect of the same subject matter and for identical or overlapping periods. The most harmful effects of double taxation are on the exchange of goods and services and on the movement of capital and persons.

Transfer

The form signed by the seller of a security authorizing the company to remove his name from the register and substitute that of the buyer.

Tranch

A bond series issued for sale in a foreign country.

Tranche

A specified part of a larger transaction. Each purchase and resale of a separate block of bank instruments within the total transaction is known as a tranche.

Trade Program

A term for the participation in the buying and the selling of bank debentures.

Transmogrifying

Conversion of non exempt assets to exempt assets.

Treuhänderschaft

A Liechtenstein form of a trust.

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.

Treuunternehmung

Another Liechtenstein form of registered trust, designed to undertake commercial activities.

True Settlor

The true grantor is not the true settlor, and his or her identity is kept quite private by the trustee.

Trust

1. An entity created for the purpose of protecting and conserving assets for the benefit of a third party, the beneficiary. A contract affecting three parties, the settlor, the trustee and the beneficiary. A trust protector is optional but recommended, as well. In the trust, the settlor transfers asset ownership to the trustee on behalf of the beneficiaries.

2. 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 trustees administers and manages the trust assets in accordance with the trust deed and he is often vested with the power to appoint and remove trustees.

A trust does not have shares.

3. 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.

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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 whether or not distributed. This is a tax classification rather than a traditional trust classification by usage.

10. 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).

11. 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.

12. 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.

13. Simple Trust: This is a trust that must distribute all its income; all other trusts are in the category of "complex trusts".

14. 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

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.

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 Indenture

A trust instrument such as a trust deed creating an offshore trust.

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.

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.

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.

Underwriting

An arrangement by which a company is guaranteed that an issue of shares will raise a given amount of cash because the underwriters, for a commission, agree to subscribe for any of the issue not taken up by the public.

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.

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.

Warrant

A special kind of option given by the company to holders of a particular security giving them the right to subscribe for future issues, either of the same or of some other security.

White Knight

A company which rescues another which is in financial difficulty, especially one which saves a company from an unwelcome takeover bid.

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.

World Bank

Formed to be the bank lender and technical advisor to the developing countries, utilizing funds and technical resources from the member nations.

Wirtschaftlich Beguenstigter

Person who is the ultimate beneficiary of a company or trust. This term is used in Switzerland and Liechtenstein.

Yield

The return earned on an investment taking into account the annual income and its present capital value. There are a number of different types of yield and in some cases different methods of calculating each type.

Links

Glossary

Administrative Office

Adverse trustee

Aktiengesellschaft (AG)

Alternate Director

Anstalt

Annuitant

Annuity

Anti-Avoidance Measures

Apostille

Arbitrage

Articles of Association

Asset manager

Asset Protection Trust (APT)

Auditors

Aussensteuergesetz

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Badges of Fraud

Banking

Bank of International Settlements (BIS)

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Bearer Bond

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Bearer Share Certificate

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Best effort

Blind Trust

Blocked Funds

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Broker

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Business trust

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Capitalization Issue

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Captive Insurance Company

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Contract Note

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Credit Equivalent

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Custodian