Beneficial owner (BO) or also ultimate beneficial owner (UBO) is the term typically used for the real owner of the company, i.e. any individual who directly or indirectly owns or controls, or has a significant influence over the business, including individuals who ultimately control the legal entity’s decisions. One of the criteria for determining possession, control or influence over a legal entity is direct or indirect ownership of at least 25% of a legal entity’s shares or voting rights.
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An offshore company refers to an entity formed in a foreign country typically with zero or low tax with aim to operate outside (i. e. offshore) of such country of formation, i. e. its work or service is conducted in a different country. In contrast, an onshore company is a standard company incorporated in a home country typically with high taxes, and doing business in that country of formation.
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A tax transparent entity is a legal entity, e.g. a limited liability partnership (LLP) in England, of whom members, not the entity itself, are liable for taxing their profits. Hence, it is an useful tool in international tax planning.
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Due diligence is a compliance procedure to know your client (KYC), a process to obtain information about the identity and address of the clients by a business (e.g. banks, financial institutions, CSPs, trust companies) to identify and verify the identity of its clients to help to ensure that its services are not misused.
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A person with significant control (PSC) is a term used in the UK in connection with a disclosure requirement to ascertain and identify a person who ultimately controls the company, basically its beneficial owner. Essentially, PSC is any person that holds, directly or indirectly, more than a 25% interest in the company, either by owning shares or having voting rights in the company or the right to appoint or remove the majority of the board of directors. Since 2016 such PSC must be registered into PSC register which is public.
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Basically, tax evasion is illegal and tax avoidance is a legal mitigation of tax. Tax evasion means breaking the law by paying less tax than one is legally obliged to pay, e.g. by filing an incorrect tax return on purpose. In contrast, tax avoidance is doing everything possible within the law to reduce the tax bill. On this note, there is famous quote of Learned Hand, an American judge worth mentioning: “There is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible – nobody owes any public duty to pay more than the law demands.”
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A politically exposed person (PEP) is a term used for person with actual or former ties in politics or public office, it refers to someone who has been appointed by a public institution, an international body or a state to a high-profile position within the last 12 months, basically an individual who is or has been entrusted with a prominent public function.
As clients, PEPs generally present a higher risk for potential involvement in illicit or unlawful activities such as bribery and corruption by virtue of their position and the influence. Hence, an enhanced KYC due diligence applies to for such persons and their family members to manage and mitigate such risk.
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