21 Offshore Banking Terms Every Investor Should Know

by World Offshore Banks

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Offshore banking is often shrouded in complex terminology and misconceptions, but for the global investor, fluency is non-negotiable.

Understanding the language of global finance, from FATCA requirements to the impact of CRS, is the first step toward effective wealth management.

This guide demystifies the 21 most crucial terms, offering you the clarity and confidence needed to navigate international banking structures and protect your wealth legally and strategically.


Here is a list of 21 essential offshore banking terms, defined for clarity:

1. Jurisdiction: A country or sovereign area whose laws govern a financial structure (e.g., Jersey, Cayman Islands, Switzerland). Also called a "domicile."


2. Double Taxation: The taxation of the same income or asset by two or more countries. Offshore planning often aims to mitigate this through tax treaties or specific wealth structures.


3. Withholding Tax: A tax deducted at the source of income (e.g., interest, dividends, royalties) before the recipient receives it. This is often applied to payments made across international borders.

4. Know Your Customer (KYC): The mandatory due diligence process banks perform to verify the identity and suitability of a client.


5. Anti-Money Laundering (AML): Regulations and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.


6. Automatic Exchange of Information (AEOI): A global standard, led by the OECD, where jurisdictions exchange financial account information automatically.

7. Common Reporting Standard (CRS): The primary global framework for AEOI, requiring financial institutions to report non-resident client data to their home tax authorities.


8. Foreign Account Tax Compliance Act (FATCA): A U.S. law requiring foreign financial institutions to report information about financial accounts held by U.S. citizens.


9. Bank Secrecy: The principle that a bank will not disclose account information unless compelled by a court order or international agreement (now largely replaced by transparency agreements like CRS/AEOI).

10. Bearer Share: A certificate that grants ownership of a company to the person who physically possesses the document (now heavily restricted or banned globally).


11. Economic Substance: The requirement for entities in certain offshore jurisdictions to demonstrate real business activities (staff, offices, and expenditure) in that location.


12. Shell Company: A company that exists only on paper and has no active business operations or significant assets; often associated with tax avoidance or evasion.


13. Domicile: The legal, administrative, or tax home of an individual or corporation.

14. Fiduciary: A person or institution entrusted with holding assets for the benefit of another party, typically a trustee or bank acting on a client's behalf.


15. Trust: A legal arrangement where a settlor transfers assets to a trustee, who holds them for the benefit of the beneficiaries.


16. Settlor: The individual who establishes a Trust by transferring assets to the trustee.

17. Beneficiary: The person or entity who ultimately benefits from the assets held in a Trust or Foundation.


18. Multi-Currency Account (MCA): A single bank account that can hold, send, and receive funds in multiple foreign currencies without forcing immediate conversion.


19.Nostro/Vostro Account: Accounting terms referring to reciprocal accounts banks hold with each other to facilitate foreign transactions and payments.

20. International Business Company (IBC): A legal entity incorporated in an offshore jurisdiction specifically designed for international business activities, often exempt from local taxes and having simplified regulatory requirements, but still requiring economic substance.

21. Due Diligence: The comprehensive investigation of a client, company, or financial transaction to confirm facts and legal requirements, ensuring compliance with KYC/AML.