Value added tax: A tax levied on transactions designed to cumulatively tax value added within a jurisdictions. This is achieved by charging VAT on imports into and on the sales of registered traders within a jurisdiction but by allowing those same registered traders to make claims for all VAT charged to them for offset against the VAT they collect from their customers. The result is that VAT should only be charged to end-consumers within the jurisdiction (exports invariably being exempt from charge). The range of goods and services on which VAT is charged varies from states. Reduced and zero rates are used in some jurisdictions to reduce the regressive impact of the tax which otherwise imposes the greatest proportionate burden on those with lowest incomes in a society as they invariably spend the greatest proportion of their incomes on consumption, which is the tax base for VAT.
Vertical ring-fencing exists in the tax system of a jurisdiction if non-resident people and/or foreign owned business entities are provided with privileged taxation status and this privilege is dependent upon their using certain types of legal entity and / or their undertaking specified economic activity. International Business Corporations (IBCs) are an example of a vertical ring fence commonly available in many secrecy jurisdictions. Only those not resident in the secrecy jurisdiction are allowed to own IBCs and their income is exempt from tax in the secrecy jurisdiction in which they are incorporated on condition that they do not trade there.