Offshore Banking Terms All You Ever Wanted To Know
Below is a MRR and PLR article in category Finance -> subcategory Other.
Understanding Offshore Banking: Essential Terms Explained
Introduction
Navigating the world of offshore banking can be confusing due to the complex terminology. Here's a simplified guide to some of the most common terms you need to know.
Asset Protection Trust (APT)
An Asset Protection Trust is an irrevocable trust established offshore with the primary aim of safeguarding wealth from creditors. The ownership of assets is transferred to a trustee, who manages them for the beneficiaries. This type of trust is often tax neutral.
Business Trust
A business trust is created to operate a business and is treated as a legal entity under the Internal Revenue Code. It must have a commercial purpose and function as a business.
CARICOM
The Caribbean Community and Common Market (CARICOM) consists of 14 member countries in the Caribbean, such as Antigua, Jamaica, and Trinidad and Tobago. This organization promotes free trade and labor movement, excluding financial hubs like the Cayman Islands and the British Virgin Islands.
Discretionary Trust
In a discretionary trust, the trustee decides who among the beneficiaries receives income or principal disbursements. A "letter of wishes" may guide the trustee, though it holds no legal weight.
Estate
An estate encompasses all personal interests in real and personal property.
Flight Capital
This term describes money that moves offshore and rarely returns, often due to a lack of confidence in a country’s fiscal policies.
GmbH
In Germany, a GmbH denotes a limited liability corporation.
High Net Worth (HNW) Person
An individual with over $1,000,000 in liquid assets.
International Business Company (IBC)
An IBC is incorporated under the Company Act of a tax haven for global operations but cannot conduct business within that country.
Limited Company
A Limited Company operates under special corporate laws in a tax haven. An LLC combines partnership tax benefits with a corporate structure. A LLP refers to a Limited Liability Partnership often used by professionals. A LLLP protects general partners from liability.
Member
An equity owner in an LLC, LLP, LLLP, or a shareholder in an IBC.
Nonresident Alien (NRA)
An NRA is not considered a U.S. person for tax purposes as defined by the Internal Revenue Code.
Offshore
Refers to activities or investments moved outside your home country and tax jurisdiction.
Public Limited Company (PLC)
A UK Public Limited Company.
Revenue Reconciliation Act of 1995
This act proposed changes to foreign trust reporting under the Internal Revenue Code.
Securities
Includes shares and debt obligations of all kinds, such as options and rights to acquire shares.
Settle
To establish an offshore trust, carried out by a settlor or grantor.
Settlor
The entity that creates an offshore trust.
Turks and Caicos Islands (TCI)
A renowned tax haven.
Trustee
The independent individual managing a trust fund, with fiduciary responsibility to prudently handle assets. Reporting requirements and trustee duties are defined when the trust is created.
Uniform Partnership Act (UPA)
A set of uniform laws adopted or used as a reference by various states.
Vetting
The process an offshore consultant uses to evaluate a client's suitability for offshore asset protection.
World Bank
An international financial institution providing loans and advice to developing countries. It has faced criticism for its influence on austerity programs.
Conclusion
This guide aims to help investors understand offshore banking terms and make informed decisions about asset protection.
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