The Guernsey company is still an extremely flexible tax planning tool, whether it is a Guernsey exempt tax company, a Protected Cell Company, an Incorporated Cell Company or a Guernsey International Business Company, they all have their place in the armoury of the private client advisor. In the second of a series of four articles about the Guernsey company, Mik Underdown of the Blenheim Fiducuary Group, explains how this flexibility arises through the attributes of the different types of Guernsey company available.
Times have moved on from the days when the principal vehicle for tax planning was the Guernsey exempt tax company. Available now are some extremely powerful corporate vehicles principally designed to suit the needs of different sectors of the finance industry but often adaptable throughout.
However, it is worth noting immediately that from 1 January 2008, Guernsey will introduce a 0/10 (zero-ten) corporate tax regime under which all normal companies will pay no (zero) tax and companies regulated by the Guernsey Financial Services Commission will pay 10% tax. What this means is that the traditional Guernsey offshore company with it's exempt tax status will disappear because all companies, other than those regulated, will pay no tax in Guernsey.
The good news is that this will simplify matters whilst still retaining a corporate structure that is the cornerstone of a good deal of financial planning.
The Guernsey Resident Company
Until 2008, the Guernsey resident company remains treated as resident for Guernsey tax purposes if it does not apply for exempt tax status or if it carries on a trade or profession in Guernsey. If considered resident, tax will be payable at the flat rate of 20% less allowable deductions.
The Guernsey Exempt Tax Company
The exempt tax company has been the principal planning tool for tax advisors in recent years. This is primarily because of its tax treatment. To qualify for exempt status the company must not trade in Guernsey and must be beneficially owned by persons not resident in Guernsey for tax purposes. It must also pay exempt company duty of £600 per annum, which is paid at the time of filing the annual return.
The additional benefits of exempt companies are that they can be managed and controlled in Guernsey, enabling all administrative functions, including the holding of board meetings, to be conducted locally by specialist administrators such as the Blenheim Fiduciary Group. The directors and secretary can also be locally appointed.
The Memorandum and Articles of Association also allow for the expected wide range of corporate activities from trading, property ownership and development, holding and exploiting intellectual property, through ownership of luxury items such as private yachts and planes.
The Guernsey International Business Company ('IBC')
The Guernsey IBC is only granted this status following application to the Administrator of Income Tax. The application must be made before incorporation and must contain details of the activities the company intends to undertake, a business plan, a declaration that the company is beneficially owned by person non-resident in Guernsey for tax purposes and a proposal for the rate of tax at which the company should be charged.
The rate of tax will vary between a rate above zero but not more than 30%. The company is considered resident in Guernsey for tax purposes. The rate of tax is fixed for a period of five years.
The intention of allowing the IBC has been to assist companies that have to conform to minimum tax requirements in other jurisdictions.
The Guernsey Protected Cell Company ('GPCC')
The GPCC was introduced by Guernsey in 1997 and was initially the sole domain of vehicles carrying out financial services activities, such as captive insurance, collective investment funds and securitisation. The innovative structure of a 'core' company with underlying 'cells' proved extremely popular. This was mainly because it allowed the segregation of individual assets and liabilities into distinct cells with the legislation expressly providing that the assets of one cell are only available to the shareholders and creditors of that cell. The assets of one cell being immune from attack by the creditors of another cell.
The popularity of the GPCC has now been further increased by a relaxation of the regulations on their use that allows them to be used for a range of commercial non-financial activities, both by the corporate and the private individual.
Guernsey Incorporated Cell Company
The Guernsey ICC legislation extended the PCC concept such that each cell is a separate legal entity with the ability to enter into contracts and relationships of its own. Thus, cells are able to contract with one another and with third parties – for example to raise finance from institutions.
Each of the above types of Guernsey company will be considered in more detail in future articles, particularly their uses in financial planning for the private client.
What is clear though, is that through forward thinking and innovation, Guernsey, as an offshore finance centre, has allowed the traditional Guernsey company to evolve to meet the needs of private and corporate financial planners.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.