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F

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.


G

Gesellschaft mit beschrankter 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.


H

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.


I

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. 

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. 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.


J

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


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FAQ
What is offshore?

The word "offshore" has no precise legal dictionary definition, it simply means "situated or operating in a foreign country or at some distance from the shore" and reflects the fact that most low tax jurisdictions are islands.

read more >>

Portfolio of Laws
- BVI - Trustee (Amendment) Act, 2003

- Cayman Islands - The Companies Law (CAP.22) - (2002 Revision)

- Cyprus - The Income Tax Law of 2002

more laws >>

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