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I.O.S.: Glossary of offshore terminology

In this section we have provided an explanation of the terms most frequently used in the process of incorporation and servicing of non-resident companies.

A.G., AktienGesellschaft, Apostille, Arms length principle, Assets, Bearer shares, Beneficial owner, British Commonwealth, Certificate of incorporation, Certificate of incumbency, CFC, Controlled foreign corporation, C.G.S., Certificate of good standing, Common law, Corporate director, Corporate search, Dissolution, Domicile, Double tax treaty, EORI, Economic Operator Registration and Identification, FATCA, Foreign Account Tax Compliance Act, Fiscal year, Franchise tax, G.m.B.H., Gesellschaft mit Beschrankter Haftung, Her Majesty Revenue & Customs, Holding company, I.B.C., International business company, Intrastat, Jurisdiction, Legal opinion, Liabilities, Limited liability, Mareva Injunction, Member, Merger, MiFID, Markets in Financial Instruments Directive, Minutes, Nominee director, Non-resident, Objects of the company, Operating agreement, Pass-through taxation, PEP, Politically exposed person, P.L.C., Public limited company, Ready-made company or shelf company, Re-domiciliation, Registered agent, Registered shares, R.O., Registered office, S.A., Sociedad Anónima, S.A.R.L., Société á Responsabilité Limitée, Stamp duty, TCSP, Trust and company services provider, Thin capitalisation, Treasurer, V.A.T., Value Added Tax, VIES, Vat Information Exchange System, Withholding Tax,


 
A.G., AktienGesellschaftApostille
Arms length principleAssets
Bearer sharesBeneficial owner
British CommonwealthCertificate of incorporation
Certificate of incumbencyCFC, Controlled foreign corporation
C.G.S., Certificate of good standingCommon law
Corporate directorCorporate search
DissolutionDomicile
Double tax treatyEORI, Economic Operator Registration and Identification
FATCA, Foreign Account Tax Compliance ActFiscal year
Franchise taxG.m.B.H., Gesellschaft mit Beschrankter Haftung
Her Majesty Revenue & CustomsHolding company
I.B.C., International business companyIntrastat
JurisdictionLegal opinion
LiabilitiesLimited liability
Mareva InjunctionMember
MergerMiFID, Markets in Financial Instruments Directive
MinutesNominee director
Non-residentObjects of the company
Operating agreementPass-through taxation
PEP, Politically exposed personP.L.C., Public limited company
Ready-made company or shelf companyRe-domiciliation
Registered agentRegistered shares
R.O., Registered officeS.A., Sociedad Anónima
S.A.R.L., Société á Responsabilité LimitéeStamp duty
TCSP, Trust and company services providerThin capitalisation
TreasurerV.A.T., Value Added Tax
VIES, Vat Information Exchange SystemWithholding Tax
  1. A.G., AktienGesellschaft: This is a joint-stock company and the name given to such a legal entity in Germany, Switzerland and other German-speaking countries. However, certain other jurisdictions where German is not the official language also accept incorporation of a company with this abbreviation.
  2. Apostille: This is a special certificate that is attached to another document being certified. The Apostille makes the certifiable document valid in all countries that are members of the 1961 Hague Convention which currently has more than eighty members. The Apostille cannot exist as a separate document as it is valid only together with the document to which it is attached.
  3. Arms length principle: This is the condition or the fact that the parties to a transaction are independent of each other in that they are independent profit centres who are not working for a common benefit. They are not part of the same group of companies nor are they controlled by the same party or parties. In the event that a transaction between two related parties has taken place and it is an “arms-length transaction” it means that two parties have entered into a transaction no differently than it would have been for any third party in that it is based on a market value.
  4. Assets: This is an accounting term used to describe funds that are at the disposal of the company being, inter alia, movable as well as immovable property, cash, securities, financial and other claims against third party organisations.
  5. Bearer shares: These are shares that instead of bearing the forename and surname of their owner, contain the term "the bearer". This means that information on the owner of those shares is not recorded in either governmental or other registers, and so the owner of these company shares is the actual person who presents or “bears” the share certificate. In practice, the registration of companies with bearer shares is rare as even jurisdictions which accept bearer shares apply considerable limitations on their use.
  6. Beneficial owner: This person is the actual ultimate owner of the company who has the right of ownership over the company and its property and who also benefits from the company’s activity.
  7. British Commonwealth: This is now known as the Commonwealth of Nations and is the association of independent states as well as the dependencies that were formerly part of the British Empire. The main official document underlying the British Commonwealth is the 1931 Statute of Westminster. The objective of this organisation is to ensure business cooperation between its members as well as mutual consultative and other assistance. Since this time many former colonies of Britain have become independent states, some have left the Commonwealth and others have joined it. The ruling body of the Commonwealth is the Secretariat which is located in London. The leaders of the Commonwealth meet biennially but the results of these meetings are not binding on other Commonwealth members.
  8. Certificate of incorporation: This is the name of the document certifying the incorporation of the company in the majority of tax-exempt jurisdictions such as the British Virgin Islands or the Bahamas and in certain European countries such as the United Kingdom and Ireland.
  9. Certificate of incumbency: This is a document issued either by the register of enterprises or the local registered agent in the country of incorporation confirming the list of officers of the particular company being the directors and the company secretary.
  10. CFC, Controlled foreign corporation: In accordance with controlled foreign corporation rules, certain classes of taxpayers must include in their income certain amounts earned by foreign entities which they or persons related to them control. A set of controlled foreign corporation rules defines the types of owners and entities concerned, the types of income or investment subject to inclusion, exceptions to inclusion, and the means of preventing double inclusion of the same income. Controlled foreign corporation rules may vary significantly between different countries.
  11. C.G.S., Certificate of good standing: This is an official document issued by the register of enterprises in the country of incorporation of a company which certifies that the specific company is, at the date of issue, duly registered and has submitted all due reports as well as paid all state taxes which are due.
  12. Common law: This is also known as Anglo-Saxon law and the system of law predominant in countries such as the United Kingdom, Ireland, as well as the former colonies of the British empire. The distinctive feature of Anglo-Saxon law lies in the fact that all court verdicts are based on precedent being decisions of the court given in an identical situation in the past.
  13. Corporate director: This term identifies the director or manager of a company that has the status of a legal person. Not all the countries accept nomination of legal persons as directors or managers of a company. However, in most tax-exempt jurisdictions and in the United Kingdom, the use of corporate directors is quite common in the internal structure of a company.
  14. Corporate search: This is a request for information submitted to the register of enterprises of a particular country regarding a specific company. The corporate search answers questions whether a specific company exists, whether all due taxes have been paid, where the address of its registered office is as well as the date and number of its registration. In some jurisdictions the corporate search includes information about the directors and other officers of the company.
  15. Dissolution: This is the cessation of a company’s existence. This process may take place either on a voluntary basis according to the decision of the company’s owners which is known as a voluntary dissolution, or as prescribed by law in country of incorporation if the company fails to submit financial statements or annual reports, or fails to pay the relevant annual duties.
  16. Domicile: This is a country or territory that is legally linked with the physical or legal person. For a legal person this is the country of its incorporation and/or permanent residence. For a physical person this is the country where the said person resides permanently.
  17. Double tax treaty: This is an agreement on excluding double taxation signed by two countries to prevent deduction of the same taxes from an entrepreneur in both countries.
  18. EORI, Economic Operator Registration and Identification: This is a system for registration of business operators involved in import-export business in the EU. An EORI number for residents of EU countries may be issued in their country of registration, but for non-residents of the EU this will be in a country with which the entity begins its cooperation with the EU territory for the first time.
  19. FATCA, Foreign Account Tax Compliance Act: This is the US law which requires foreign financial institutions such as banks and financial companies to enter into an agreement with the US Internal Revenue Service (IRS) to identify their US account holders. They must also disclose the account holders names to the IRS. FATCA states that US persons owning these foreign accounts or other specified financial assets must report them on a Form 8938 (Statement of Specified Foreign Financial Assets) which is filed together with the persons US tax return.
  20. Fiscal year: This is the period of twelve months in respect of which a company has to submit financial statements in accordance with the legislation of its country of incorporation.
  21. Franchise tax: This is otherwise known as duty being the fixed sum collected annually by a specific country or state from a company for the right of that company to be incorporated and registered there. Even if the company has not carried out any business operations, the franchise tax is still paid annually at the time stipulated by each country.
  22. G.m.B.H., Gesellschaft mit Beschrankter Haftung: This is the name of a limited liability company in Germany, Switzerland and other German-speaking countries. However, certain other jurisdictions where German is not the official language also accept incorporation of a company with the abbreviation ’GmbH’.
  23. Her Majesty Revenue & Customs: This is the tax administration of the United Kingdom. All companies liable for accounting in the United Kingdom such as public limited companies, limited companies and limited liability partnerships must submit their tax reports to Her Majesty Revenue & Customs.
  24. Holding company: This is a company which holds stock or capital shares in other companies. In certain countries such as Denmark or the Netherlands companies acting as holding companies and satisfying certain conditions can enjoy tax privileges.
  25. I.B.C., International business company: This is the name of the tax-exempt company in the majority of offshore jurisdictions such as the Bahamas or the British Virgin Islands. In order to preserve its tax-exempt status the international business company generally may not carry out any business activities in the country of incorporation and its directors/managers must be non-residents of that country.
  26. Intrastat: This is the system for collecting information and producing statistics on the trade in goods between countries of the European Union. Intrastat began operation on 1st January 1993 when it replaced customs declarations as the source of trade statistics within the EU. The requirements of Intrastat are similar in all member states of the EU with some exceptions.
  27. Jurisdiction: This is a country or territory under the law of which a particular company is incorporated.
  28. Legal opinion: This is the written opinion of a licensed attorney, lawyer or auditor of a particular country, describing the possibility of application of certain legal norms with regard to a specific company or group of companies.
  29. Liabilities: This is an accounting term which identifies the sum of the company’s liabilities to other legal and physical entities such as creditors, loans, contracts payable, wages payable and other debts.
  30. Limited liability: This is the term indicating the restricted liability of the members and shareholders of a company for its debts. In cases of limited liability the members of the company are personally financially liable only to the extent of the monetary value invested by them in the share capital of the company. The legislation of the majority of countries requires that where a company has the status of a limited liability company its name should contain an abbreviation which indicates this status such as Limited, LLP or Ltd.
  31. Mareva Injunction: This is a legal pre-trial order or freezing order which prevents the defendant to an action from dissipating its assets from beyond the jurisdiction of a court. This was named after the case Mareva Compania Naviera S.A. vs. International Bulkcarriers SA (1975). A freezing order will usually only be made where the claimant can show that there was at least a good arguable case that they would succeed at trial and that the refusal of an injunction would involve a real risk that a judgment or award in their favour would remain unsatisfied.
  32. Member: This is the holder of an interest in a British limited liability partnership. The legislation on limited liability partnerships does not contain the term “shareholder”, but functionally the member plays this role in the limited liability partnership. Usually, in the majority of limited liability partnerships the members also act as managers.
  33. Merger: This is the process whereby two companies are merged into one. One of the companies continues to exist whilst the other ceases to exist, and all its assets and liabilities are transferred to the account of the first company.
  34. MiFID, Markets in Financial Instruments Directive: This is a European Union directive 2004/39/EC that provides harmonized regulation for investment services across member states of the European Union as well as Iceland, Norway and Liechtenstein. The main objectives of the directive are to increase competition and consumer protection in investment services. Firms covered by MiFID will be authorized and regulated in their home state where they have their registered office. However, having a MiFID passport means that a company will be able to provide its services to customers in other EU member states.
  35. Minutes: These are documents containing decisions taken by the board of directors of a company or reflecting some other event in the company linked with its corporate structure. Copies of minutes are usually filed and stored.
  36. Nominee director: This is a director whose name is entered in the register of enterprises of the specific country but who, similar to trustee, hold this position on behalf of other person. The use of services of nominee directors depends on choice of the client; in practice this service is ordered frequently. In accordance with current legislation in most jurisdictions the services of nominee directors and shareholders are regulated by anti money laundering laws. These laws require that full information about the ultimate beneficial owner of the company is kept by the nominee director / service provider.
  37. Non-resident: This is a term used from the point of view of a specific jurisdiction denoting a physical or legal person who has no physical presence in that particular jurisdiction and who does not carry out business activities on its territory.
  38. Objects of the company: This is a description of the proposed activities of the company. This description is inserted into the incorporation documents if required by the legislation of the specific country. Frequently, there are listed all the possible types of activity in the company’s by-laws in order to provide the entrepreneur with the maximum level of freedom in operating the company.
  39. Operating agreement: This is a document that serves as the by-laws for a limited liability partnership in the United Kingdom. The term by-laws is not applied in the legislation on limited liability partnerships. The activity of any limited liability partnership is regulated by its operating agreement which is signed by the members.
  40. Pass-through taxation: This is the taxation principle whereby the profit derived by an entity is not taxed at the level of that entity but the income is regarded as derived directly by its members or partners in proportion to the amount of their interest in the capital of that entity. This taxation principle is applied to a United Kingdom limited liability partnership.
  41. PEP, Politically exposed person: This is a politically important person who holds an important government or public office such as a politician, member of the government, deputy, senior officer of the armed forces, head of the embassy or any other person mentioned in the international databases of politically exposed persons.
  42. P.L.C., Public limited company: This is a company whose shares are on public offer and are available to an unlimited number of persons. PLC might be a company listed on the Stock Exchange. Requirements as regards to incorporating a public limited company are much more stringent compared to those applying to the incorporation of ordinary private limited companies.
  43. Ready-made company or shelf company: This is a company that has been incorporated previously by the company formation agent and since the date of its incorporation has been kept in the safe deposit with the formation agent. Property rights for this company can be rapidly registered to a client for immediate use of the company.
  44. Re-domiciliation: This is the continuation of the company’s existence as the same legal entity in another jurisdiction. In such an event a special document known as the certificate of continuation, certificate of domestication or similar will be issued in this other jurisdiction. This certifies that the said company is not newly incorporated but has been re-registered from another jurisdiction.
  45. Registered agent: This is usually a lawyer or legal practice resident in the country of incorporation who is responsible for communication between that company and the regulatory institutions of the country of incorporation. The registered agent is the person who pays franchise taxes and similar duties to continue the legal existence of the company. He can also forward mail which has been delivered to the registered office of the company. The registered agent is the person to whom the regulatory institutions of the country of incorporation turn if they wish to convey any information to the company.
  46. Registered shares: These are shares that are registered in the name of a specific physical or legal person. The name or title of this person appears on the front of the share certificate and depending on the legislation of the specific jurisdiction is entered in the company’s books and/or recorded in the database of the register of enterprises.
  47. R.O., Registered office: This is the legal address of a company in the country of incorporation that is identified in the incorporation documents of the company. Almost all jurisdictions require that the registered office be located in the territory of that jurisdiction. This address does not imply that the operating office of the company or any of its employees are located there. However all mail from the authorities or regulatory institutions addressed to the company will be sent to this address.
  48. S.A., Sociedad Anónima: This is a joint-stock company and the name given to this type of legal entity in Spain and other Spanish-speaking countries. In France this type of company is known as a Societe Anonyme. It should be noted that some other jurisdictions where Spanish or French are not the official languages also accept incorporation of companies with such an abbreviation.
  49. S.A.R.L., Société á Responsabilité Limitée: This is a company with limited liability and the name given to this type of legal entity in France, Luxembourg and other French-speaking countries. However, some other jurisdictions where French is not the official language also accept incorporation of companies with such an abbreviation.
  50. Stamp duty: This is the duty payable for the registration of a specific document or transaction with a public authority. Once the duty is paid the said document or transaction becomes valid and enforceable and the seal of the public authority is put on the document or the relevant duty stamp is applied. Stamp duty may be either a fixed sum for a specific operation or it may be charged as a certain percentage of the value of the transaction such as for example 0.5% of the nominal value of shares in the case of Stamp duty for the transfer of shares in a United Kingdom company.
  51. TCSP, Trust and company services provider: This is an individual or a legal entity whose business involves, inter alia, establishment of companies and other legal entities, acting as a director or secretary of the company for the benefit of others, providing a registered office for the company, acting as a trustee and other similar activities associated with corporate or trust services.
  52. Thin capitalisation: A company is defined to be thinly capitalized when its capital is made of a much greater proportion of debt than its own capital, and hence having a high debt to equity ratio. This is a risk for creditors because if most of the company’s capital comes from debt which needs to be serviced and ultimately repaid, it means that in the case of insolvency of the company, the providers of capital are ultimately competing with the company’s trade creditors for the same capital resources (which is not the case with equity). The other aspect is that some tax authorities protect tax revenue by prohibiting residents from claiming tax deductions for interest paid to foreign entities which eliminates the possibility of using thin capitalisation to shift income to lower-tax jurisdictions.
  53. Treasurer: This is the officer of a company responsible for its financial resources and cash. The legislative requirement to appoint a Treasurer exists only in a few countries such as for example in Panama.
  54. V.A.T., Value Added Tax: This is a tax imposed on sales within the European Union. To make VAT payments and carry out the necessary accounting procedures the company receives its individual VAT registration number in the country where it carries out commercial operations. Companies selling their goods entirely outside the EU, even if their country of incorporation is one of the EU member states, do not pay VAT.
  55. VIES, Vat Information Exchange System: This is an electronic means of transmitting information relating to VAT registration such as the validity of VAT numbers of companies registered in the EU. Through VIES the supplier has an easy way to validate the VAT number presented by the purchaser.
  56. Withholding Tax: This is an additional tax imposed at source by a particular country when various types of remuneration such as dividends, interest and royalties are paid in favour of non-residents of that country.
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