📖 Glossary
Arising basis (tax)
If a person is taxed on the arising basis, they pay tax on all their worldwide income in the country they are a tax resident in. This is an alternative to paying tax on the remittance basis.
Say you’re a South African citizen now living in the UK, and paying your taxes there, but you’re still earning some money into a South African bank account. If you pay your taxes on an arising basis, you’ll likely include that South African income in your UK tax calculations, even if you don’t convert it to pounds or move it into a UK bank account. There are some exceptions though, so check with a tax specialist.
Annualised return
A measure of the average yearly growth or loss of an investment, shown as a percentage. It can be calculated for an investment made over multiple years, or just for a few months, and returns a normalised annual average that also takes compound interest into account. It’s a useful way to compare two investments to each other, even if you invested over different lengths of time.
Annual reccuring revenue
The revenue that a business expects to generate from its customers over the course of a year. Usually, this refers to reliable and predictable types of income, like subscriptions or retainers.
Capital
Money that has been put to work making more money! Capital usually refers to cash, debt or other liquid assets that have been invested into a business venture, or are available for investment, with the intention of creating value for the investors.
Captial gains tax
A capital gain is the profit that’s made when someone sells an asset. Usually, investors must pay a tax on this profit.
If there is a capital loss (the asset is sold for less than its original cost) this can usually be offset from capital gains made in that year.
Capital flight
The large-scale exit of capital from a country or group of countries, usually because of political or economic instability, or distrust in that financial system (sometimes, just because investors believe that their money has a better chance of growing if invested elsewhere).
Distribution
A payout from a financial asset to its beneficiary or owner, usually as cash. Distributions often refer to income paid out from a retirement fund, or to dividends paid out to shareholders or mutual fund investors.
Dividend
A portion of a company’s profits that are paid out to shareholders. Dividends are usually paid out in cash or as additional stock. Rather than paying dividends, many companies reinvest the profits back into the company instead.
Dividend withholding tax
A tax that is levied at 20% on dividend distributions (in South Africa). The company that pays the distribution to the beneficiary is required to withhold the tax and pay it directly to SARS. Some entities are exempt from paying dividends withholding tax.
Drawdown
The percentage that an investment or fund value dropped before recovering back to its peak value. For example, if an investment had R10,000 in it, and the funds dropped to R9,000 before moving back above R10,000, the investment witnessed a 10% drawdown. Drawdowns allow investors to compare the historical volatility of different investments.
Drawdown Risk
Large drawdowns increase the risk of an investment significantly. When there’s a drawdown, the investment needs to recover by more than the percentage it fell by to get back to its original value. For instance, if an investment loses 50% of its value, it then needs to grow in value by 100% of its new value to get back to its original price. This is called the drawdown recovery rule.
Exit Risk
Exiting, in financial terms, means to sell your shares in an investment, hopefully for a profit. Exit risk is the risk that an investor faces in making a loss from an investment.
Guernsey Law
Law established by the States of Guernsey, an island in the English Channel often used as a tax haven. An agreement between the States of Guernsey and Mauritius exists in order to prevent double taxation.
Initial public offering (IPO)
The first time shares of a private company are sold to the public. This allows the business to raise money from public investors and marks the transition from a private to a public company. It is typically the time when initial private investors realise the gains from the early investment they made. After the IPO, the company will usually be listed on a stock exchange where its shares can be sold freely on the open market.
Pay-as-you-earn (PAYE) tax
A tax that employers withhold each month and then pay directly to the South African Revenue Service (SARS) on behalf of the employee. It is deducted from an employee's salary before it hits their bank account and means that you pay the tax that you owe SARS monthly, instead of all at once at the end of the year.
Public company
A company that has offered shares of stock to the general public after an IPO. Public companies are also required to share their financial information regularly.
Qualifed domestic trust (QDOT)
A type of trust that allows the surviving spouse of a US citizen to take the marital deductions of an estate duty. Usually a non-citizen cannot take the marital deductions, even if they are a spouse.
Real estate investment trust (REIT)
A listed company that pools the capital of many investors to invest in real estate. They own, run, finance or rent out properties to produce income. It is a great way for investors to earn dividends from a real estate investment without having to buy properties themselves. REITs invest in all kinds of property, including apartments, hotels, offices and retail spaces.
Revenue multiple
A calculation sometimes used in the valuation of a business. It measures the ratio between the selling price of a company and the annual revenue it generates. Usually, to estimate the value of a new startup, you’d calculate the revenue multiple of a few similar companies where the valuation is already known, and then apply the average of those ratios to the annual revenue of the startup you’re trying to value.
Remittance basis (tax)
If a person is taxed on a remittance basis, they pay tax only on money that they have brought into the country they are a tax resident in. This is an alternative to paying tax on the arising basis.
Say you’re a South African citizen now living in the UK, and paying your taxes there, but you’re still earning some money into a South African bank account. If you pay your taxes on a remittance basis, you will only pay UK tax on South African money that is brought into the UK.
Seed stage
Seed funding is the first official round of money that is invested into a new business, often raised from angel investors, founders, incubators and friends. In a seed stage, a young company uses that money to get off the ground, hire a team and validate their business idea. If a seed stage company needs more funding, they then need to demonstrate that they’ve reached some business goals in order to progress to a “Series A” (then B, then C…) funding round.
Trust
A trust is a legal entity that can hold property or assets on behalf of someone else. There are normally three parties involved: a founder, who places their assets into the trust; a trustee, the person or institution who manages the trust; and the beneficiary or beneficiaries who benefit from the trust. Trusts are often set up by lawyers or financial institutions to protect assets on behalf of a founder’s heirs. Trusts can also be a tool to reduce taxes and protect assets from creditors.
Unlisted property funds
Property funds that are privately held and aren’t listed on the public market like REITs. An unlisted property fund is a pooled fund of a number of different properties.
Valuation
Determining the current or projected value of a company. There are many different approaches and methodologies for company valuation. Valuations can be done to prepare for funding rounds or share sales, for taxation reasons, or even during a divorce.