Guernsey: Investment Funds In Guernsey


The investment funds industry in Guernsey has achieved significant growth in recent years. Statistics show that as at 31 December 2010 there was £184 billion of assets under management in Guernsey. The Island has developed into a leading jurisdiction for the establishment of investment funds and a large number of Guernsey funds are listed on the London and other stock exchanges. Guernsey and Jersey have established the Channel Islands Stock Exchange where special procedures exist to enable the relatively easy listing of Guernsey and Jersey funds. Please visit for further information.

Fund types

There are a wide variety of funds under management in Guernsey including equities funds, bond funds, money market funds, commodities and futures funds, hedge funds, property funds, feeder funds, umbrella funds, private equity and venture capital funds and emerging markets funds. In addition, there are a large number of institutional investment schemes established in Guernsey which have become increasingly popular for use as special purpose vehicles in asset securitisation, real property and other specialised schemes.

Modern legislation

The growth of the investment funds industry in Guernsey is attributable in part to the policies of the Guernsey authorities and the flexibility of the regulatory system. Growth is also attributable to the high quality of services available in Guernsey in relation to fund management and custody. The Protection of Investors (Bailiwick of Guernsey) Law, 1987 ('POI Law') sets up a modern statutory structure for the regulation and administration of collective investment schemes in Guernsey. The law provides a framework for investor protection whilst retaining the flexibility to adapt quickly to changing market conditions.

Guernsey Financial Services Commission

The Guernsey Financial Services Commission (the 'GFSC') seeks to maintain Guernsey's reputation for probity in the international financial community and its general duty to protect and enhance the Bailiwick's reputation is reflected in its approach to regulation. There is a policy of selectivity which means that great weight is given to the status of the intended promoters. Only those of the first rank are encouraged. Normally a demonstrable and favourable track record in the promotion of established collective investment funds is required. Please visit for further information.

International Recognition

Guernsey is one of the most established, transparent and well-regulated offshore jurisdictions.

Guernsey is a member of the OECD and was placed on the G20 white list of offshore jurisdictions in 2009. It has also obtained designated territory status under the UK Financial Services and Markets Act, 2000 (the 'FSMA'). Guernsey's low tax status, proximity to the financial markets of Europe and a sophisticated banking and professional infrastructure have also contributed to the success of the Island as a base for investment funds.

Regulatory framework

The establishment and operation of both open and closed-ended investment funds in Guernsey is governed principally by the POI Law together with the rules made thereunder. An open-ended fund is basically defined as a vehicle where investors are entitled to redeem their holdings at a price related to the value of the underlying assets. A closed-ended fund does not entitle investors to redeem at a price related to the value of the underlying assets although redemptions may be made by the directors or manager.


Both funds and persons providing services to funds are regulated by this Law. In order to provide services such as management or custody, a person must obtain a licence under the POI Law. In general, once licensed to carry out a particular activity, that person may provide such services to any fund without further reference to the GFSC. Licensees are subject to certain rules.

Funds (whether open or closed-ended) must be authorised or registered before issuing units or shares.

All Guernsey funds (whether open or closed-ended) are categorised as either:

  • authorised (i.e. regulated) funds which are subject to ongoing supervision by the GFSC; or
  • registered funds which are not authorised and are subject to a lighter touch regulatory regime.

Factors which may be relevant in deciding between an authorised or a registered fund may include the following:

  • investor preference (whether investors would prefer more or less regulatory supervision);
  • other regulatory or listing authorities (e.g. Euronext) may require the fund to be authorised; and
  • registered funds may not be offered directly to the public in Guernsey.

Application procedure for authorised funds

Applications for authorisation of an authorised open or closed-ended fund are made under the POI Law to the GFSC.

There are three stages in the authorisation process: outline authorisation, interim authorisation and formal authorisation. Where new and innovative funds are proposed or some other part of the application process is unsuitable or can be improved, the GFSC can be flexible in its procedures and it will generally be possible to discuss and agree alternative application procedures where necessary.

Promoters should discuss applications with Ogier as soon as possible in the planning and launch of a fund.

Outline authorisation

Form GFA (Application for Outline Acceptance of a Collective Investment Fund Open or Closed- Ended) is submitted to the GFSC. The form sets out general information regarding the structure of the fund, its investment activities and the parties involved. Form GFA requires the supporting signature of the proposed administrator (and, in the case of an open-ended fund, the proposed trustee/custodian).

At this stage, the GFSC also considers whether the promoter of the fund meets its stated policy as follows:

"There is a policy of selectivity which, in the context of open or closed-ended funds, means that great weight is given to the status of the intended promoters. Only those of the first rank are encouraged. Normally, a demonstrable and favourable track record in the promotion of established collective investment funds is required."

Where the promoter of the fund is not known to the GFSC, in order to facilitate the GFSC's consideration of its suitability as a potential sponsor, the promoter should also submit a completed New Promoter's Introductory Checklist form together with the requested information on the proposed promoter's full background and status, including details of any authorisation by a regulatory authority, professional body, investment exchange, clearing house, etc. Alternatively, the New Promoter's Introductory Checklist and accompanying information may be submitted on its own or prior to Form GFA. Where the Checklist is submitted on its own, the GFSC will carry out its own due diligence checks and will notify the applicant as to whether it would be willing to consider a formal application from the applicant as the promoter of a Guernsey fund.

The information (which should all be in English) requested by the Checklist includes:

  • the full name of the promoter (being the party ultimately standing behind the proposal for new business);
  • the registered address of the promoter, and the principal operating address if different;
  • if applicable, the address of the promoter's website;
  • details of the promoter's authorisation by any regulatory authority, including membership number. If the promoter is not itself regulated, please give details of any regulatory approvals held by its principals;
  • details of the promoter's main activities, including its operating history. Corporate literature may be provided to satisfy this question;
  • details of the ultimate beneficial ownership of the promoter, including the full name of any individual or entity with any interest of 15% or greater, who should complete a Form PQ (discussed below) if not known to the GFSC, it is a requirement to provide details of the name and address of all individuals or entity with any interest of 5% or more but less than 15%;
  • if the promoter is part of a group, a complete structure diagram showing ultimate beneficial ownership, any intermediate or holding companies and any other companies in the group. Where not already explicit, details should be provided of the principal activities of these companies and the jurisdiction in which they are domiciled;
  • third party evidence of a favourable track record by the promoter in the establishment and/or management of collective investment schemes. This could include, for example, prospectuses, annual accounts and performance sheets. Where no such track record exists, see the next item;
  • if the promoter lacks a track record in its own right, evidence of the track record of its principals;
  • a copy of the promoter's latest audited accounts, or latest management accounts if no audited accounts are available or the audited accounts are for a period ending more than six months prior to the date of the application;
  • to the extent known, a brief description of the proposed collective investment fund(s) to be established in Guernsey (fund class, underlying asset type, geographical or sector specialisations and target investors);
  • if known, the full names, private residential addresses and dates of birth of any individuals not already disclosed and not already known to the GFSC who will have key roles in the management of the fund (for example, as director of the fund or any management company, or as investment adviser); and
  • if known, the full name, regulatory status and proposed role of any other entity to be associated with the fund (for example, investment adviser).

The GFSC also takes account of the other parties involved with a proposed fund including administrators, custodians, auditors and lawyers and in cases where such other parties are not already known to the GFSC the provision of background information with the Checklist would be helpful.

If the fund and promoter appear acceptable, a letter of 'outline authorisation' is issued within a few days stating that the fund will be considered for interim authorisation within 10 days of receipt of final draft documentation.

Interim authorisation

The final draft prospectus is submitted to the GFSC. Other documents may also be required at this stage as follows:

  • Forms PQ (for directors of corporate funds and directors of managers);
  • Form APA (for a Class A fund), plus drafts of all constitutive documents;
  • Form APB (for a Class B fund);
  • Form APQ (for a Class Q fund);
  • Form APC (for a closed-ended fund); and
  • application fee.

If the GFSC is content with the detailed submission, 'interim authorisation' is granted, normally subject to amendment or clarification of the draft constitutive documents. Before proceeding to the final stage, any amendments or clarifications are agreed with the GFSC.

Formal authorisation

Certified true copies of the final constitutive documents are filed with the GFSC together with the following where relevant:

  • lawyer's certificate (Class A and Class B open-ended schemes);
  • manager's certificate (Class Q open-ended schemes); and
  • certified true copies of all final constitutive documents (including, for example, trust deed, memorandum and articles of incorporation, management agreement, custodian agreement, administration agreement, investment advisory/management agreement, registrar's agreement, sub-custodian agreement, delegation agreement).

A formal letter of authorisation follows in a matter of days or, if prior arrangement is made with the GFSC, immediately.

Depending upon the complexity of the investment structure and the extent to which the proposals have been finalised prior to the first approach to the GFSC, the whole procedure can be completed within several weeks.

It should also be mentioned that an investment fund established outside Guernsey may obtain authorisation in Guernsey, provided that it and its licensees comply with any relevant provisions of the POI Law as are relevant.

Application procedure for registered funds

As an alternative to the authorisation process outlined above, a promoter may instead elect for an open or closed-ended fund to be a registered fund which is registered with, not authorised by, the GFSC. Registration may be obtained from the GFSC within 3 business days of filing the required documents with the GFSC.

The following must be filed with the GFSC as part of the application for registration:

  • certified final copy of the prospectus or offer document;
  • certified copies of the constitutive documents;
  • certified final copies of all material agreements;
  • forms PQ in respect of controllers, directors of the promoter and fund (as appropriate);
  • a certificate from the administrator of the fund confirming that, among other matters, the administrator has performed sufficient due diligence to be satisfied that the promoter of the fund and the associated parties to the fund are fit and proper and that the fund will not be offered directly to the public in Guernsey (although the fund may be offered to an entity or person which is licensed under the Banking Law, POI Law, Insurance Laws or Fiduciaries Law in Guernsey); and
  • application fee.

Qualifying Investor Funds

The GFSC has issued guidance notes in respect of Qualifying Investor Funds which are applicable to open or closed-ended funds whether authorised or registered. Only 'Qualified Investors' (as defined in the guidance notes) are permitted to invest. The guidance notes set out due diligence issues that need to be considered by Guernsey licensed service providers to such funds and the information required to be submitted to the GFSC in support of an application. Relevant authorisation or registration from the GFSC will be forthcoming in 3 business days. Qualified Investor Funds are likely to be attractive where the promoter is seeking to establish an authorised fund on an expedited time scale where the minimum investment is US$100,000.

Qualifiying Investor Funds are funds which are registered or authorised following a particular procedure. The requirements may be different from, and additional to, those for a Class Q fund.

A detailed briefing on Qualifying Investor Funds is available on request or online at

Open-ended funds

It is central to the concept of an open-ended fund that it has the power to issue and redeem its own units or shares with the redemption price of the units or shares being calculated by reference to the net asset value of the fund divided by the number of units or shares then in issue. Whilst the fund will retain discretion as to whom it may issue units or shares, an investor will be entitled to redeem in accordance with its constitutive documents.

Open-ended funds will generally require an administrator and a custodian who are licensed so to act under the POI Law.

Open-ended funds are authorised under the POI Law and will be one of three categories: Class A, Class B or Class Q. Alternatively an open-ended fund may be registered.

Class A

A Class A scheme is subject to the Collective Investment Schemes (Class A) Rules 2002 (the 'Class A Rules 2002'). Revised Class A Rules have now been introduced with effect from 24 November 2008 but may not yet apply to new and existing Class A funds. The Authorised Collective Investment Schemes (Class A) Rules 2008 (the 'Class A Rules 2008') have been submitted to the FSA for confirmation that they provide equivalent protections to the UK rules such that the Class A scheme can be freely marketable in the UK. Whilst this confirmation is pending new and existing Class A Funds will continue to be governed by the Class A Rules 2002 unless they elect otherwise. Once FSA confirmation is obtained funds will have 6 months from that date to comply with the Class A Rules 2008.

A Class A scheme will be categorised as a securities fund, a money market fund, a futures and options fund, a geared futures and options fund, a property fund, a warrant fund, a feeder fund, a fund of funds or an umbrella fund. The main characteristics of the Class A Rules 2002 are as follows:

  • Investment restrictions for each type of fund are set out in the Class A Rules 2002. They are similar to the FSA Rules and UCITS requirements.
  • A Guernsey manager and trustee/custodian are required.
  • The method of valuation of assets is set out in the Class A Rules 2002.
  • The fund must be incorporated or constituted under Guernsey law.
  • The method of dealing in units is set out in the Class A Rules. The manager may act as principal or agent and may operate a box.
  • The expenses and fees which may be charged to the fund are set out in the Class A Rules 2002. All usual fees and expenses are permitted.
  • Annual and interim accounts are required.
  • Annually reviewed scheme particulars are required.

Class B

In introducing the Collective Investment Schemes (Class B) Rules 1990 (the 'Class B Rules'), the GFSC determined that they should be as flexible as possible consistent with meaningful investor protection. The Class B Rules are essentially a codification of best practice, with reliance placed on disclosure. The GFSC also has power to derogate the requirements of any of the Class B Rules. The main characteristics of the Class B Rules are as follows:

  • There are no investment restrictions set out in the Class B Rules. The principle of risk spreading applies.
  • A Guernsey manager and trustee/custodian are required.
  • There are no restrictions set out in the Class B Rules concerning valuations, dealing or expenses.
  • Annual accounts are required.
  • Annually reviewed scheme particulars are required.

Class Q

The Collective Investment Schemes (Qualifying Professional Investor Funds) (Class Q) Rules 1998 (the 'Class Q Rules') seek to provide a clear and concise set of requirements for the operation of professional investor funds and have been designed to encourage innovation. The Class Q Rules incorporate a measure of flexibility, consistent with meaningful investor protection. Accordingly the Class Q Rules allow greater discretion in respect of investment restrictions and place more emphasis on disclosure of risks inherent in the investment vehicle.

The manager and directors must take reasonable steps to ensure that units or shares are only held by qualifying professional investors (at the time of investment) which are defined as:

  • a government, local authority or public authority;
  • a trustee of a trust which has net assets in excess of £2,000,000;
  • a body corporate or limited partnership if it or any holding company or subsidiary of it has net assets in excess of £2,000,000; or
  • an individual who has, together with any spouse, a minimum net worth (excluding main residence and household goods) of £500,000.

The main characteristics of the Class Q Rules are as follows:

  • Only qualifying professional investors may hold units or shares.
  • No investment restrictions, valuation or dealing restrictions.
  • A Guernsey manager and trustee/custodian are required.
  • Annual reports are required.
  • Information particulars must be revised to include any significant change.
  • Derogations from the requirements of the Class Q Rules are permitted.

Note that the procedural requirements of a Qualifying Investor Fund are different from the requirements for a Class Q fund and do not necessarily apply to a Class Q fund (please see above).


An open-ended registered fund is subject to the Registered Collective Investment Scheme Rules 2008 and the Prospectus Rules 2008.

The main characteristics of a registered open-ended fund are as follows:

  • The fund must be established with the objective of spreading risk. The criteria for the spread of risk must be specified in the fund's offering document.
  • The Prospectus Rules 2008 make provision for disclosures in the fund's offering document.
  • There are provisions for both immediate and periodic notifications to the GFSC regarding changes to the fund, financial and statistical information.
  • Registered funds may not be offered to the public in Guernsey.
  • A locally licensed custodian is required (unless a derogation is available).

Closed-ended funds

This form of investment vehicle is referred to as a closed-ended fund in that investors are not entitled to redeem their units or shares at a price related to the value of the underlying assets. Redemptions may be made at the discretion of the directors or manager.

Closed-ended funds have been used for many varied and innovative funds. Such funds may be quoted on any stock exchange subject to its rules. The structures of such funds may be simple or complex involving many different entities and classes of security. Closed-ended funds may be authorised or registered.


Authorised closed-ended funds are subject to the Authorised Closed Ended Investment Schemes Rules 2008. The main characteristics are as follows:

  • The fund is authorised and subject to continuing supervision by the GFSC.
  • The fund must be established with the objective of spreading risk. The criteria for the spread of risk must be specified in the fund's offering document.
  • Specified disclosures to investors must be included in the offering document.
  • There are provisions for both immediate and periodic notifications to the GFSC regarding changes to the fund, financial statements and statistical information.


A closed-ended registered fund is subject to the Registered Collective Investment Scheme Rules 2008 and the Prospectus Rules 2008.

The main characteristics of a registered closed-ended fund are as set out above for registered open-ended funds, save that there is no requirement to appoint a custodian.

Hedge funds

The GFSC estimates that, as at December 2010, there were 142 Guernsey funds which may be described as hedge funds or fund of hedge funds (together with numerous cells or sub funds above this number).

The GFSC has published framework guidance for the authorisation of hedge funds in Guernsey, including a policy of relaxing certain of the requirements discussed above (e.g. to permit direct appointment of prime brokers). The framework puts Guernsey squarely in the class of jurisdictions which recognise the particular needs of hedge funds and offers a secure, well-regulated home for alternative investment products. The full text of the framework policy document can be found on the GFSC's website ( or we can supply a copy on request.

The framework document referred to above, provides that, especially for institutional and expert investor funds, the GFSC will permit a prime broker, regulated in an acceptable jurisdiction and having substantial net worth, to be appointed without the need for a Guernsey domiciled and licensed custodian. Further, the GFSC will not, for institutional and expert investor funds, insist on complex segregation requirements for prime brokers holding fund assets.


Funds may take the form of a company. The incorporation of a company under the laws of Guernsey is by means of registration under the Companies (Guernsey) Law, 2008 (as amended) and the process may be carried out while the terms of the draft offering documents are being reviewed by the GFSC.

There are no authorised share capital or minimum issued share capital requirements imposed on a Guernsey company.

Share capital may be denominated in any convertible currency and the issue of fractional shares is permitted and shares may be issued at a premium.

Investment companies may have any appropriate share structure from one class to many classes having different rights.

Guernsey law also provides for the incorporation of protected cell companies. The relevant legislation provides that each class of shares is ring-fenced from the insolvency of the other classes. From this has developed the incorporated cell company - an arrangement which entails similar ring-fencing but provides that each cell is to be treated as a separate legal person.

Unit trusts

In contrast to an investment company, a unit trust is not a separate legal entity as such, but a trust arrangement whereby legal ownership of the fund's assets is vested in a trustee who holds the assets of the fund on trust for the benefit of the unitholders.

The unit trust will be constituted by means of a trust instrument made between a Guernsey trustee company and an independent Guernsey management company.

Typically the management company will be a Guernsey subsidiary of one of the international fund management groups which will undertake promotion of the scheme by means of publication of an explanatory memorandum relating to the offer of units in the trust. The management group will also undertake the management and general administration of the trust.

The subscription proceeds will be paid to the trustee which thereafter will act as the custodian of the investment assets of the fund. In addition the trustee will generally supervise compliance by the manager with its obligations under the trust instrument. It is usual for the trust instrument to contain such provisions regulating the issue, redemption and valuation of units, as would in the case of shares of an open-ended investment company, be found in its articles of incorporation.

In order to obtain regulatory permits the explanatory memorandum in connection with the offer of units and the trust instrument and other constitutive documents of the fund must be approved by the GFSC. The trust instrument will also contain provisions for the appointment and removal of the trustee and the manager, their duties and remuneration, borrowing powers, investment restrictions and for the winding-up of the trust.

For most practical purposes a unit trust scheme will operate and be regulated in the same manner as a corporate investment fund.

Limited partnerships

The Limited Partnerships (Guernsey) Law, 1995 as amended provides a comprehensive statutory framework for the establishment and operation of limited partnerships in Guernsey.

A limited partnership may be an appropriate structure for a number of different purposes. A principal use will be to provide an additional form of investment vehicle for mutual funds, in particular for the venture capital industry. A limited partnership will also be an attractive structure for various tax planning purposes.

In order to establish a limited partnership the general partner executes a declaration of partnership and the limited partnership will come into existence upon registration of the declaration by the Registrar of Limited Partnerships.

Under Guernsey law a limited partnership will not be subject to separate assessment for income tax and a non-resident partner will not be liable to Guernsey income tax except on Guernsey source income (other than bank deposit interest).

Where the general partner is a Guernsey incorporated company it will be able to pay interest on loans to the partnership made either by the limited partners or third parties without being liable to make a deduction in respect of withholding tax.

The general partner will manage the business of the partnership and have unlimited liability for its debts. The liability of investors taking interests as limited partners (and who do not participate in the management of the Partnership) will be limited as to the amount of their investment. In recent years the limited partnership has been particularly favoured for use in venture capital projects as the partnership is generally treated as being fiscally transparent.

A Guernsey registered limited partnership may elect to have separate legal personality. For the purposes of Guernsey's Income Tax Law, a Guernsey registered limited partnership (meaning a limited partnership either with or without legal personality) is neither a 'person' nor a 'company'. Therefore, the partners (whether limited or general) fall to be examined for tax purposes in their own right whether or not the partnership has elected to have separate legal personality.

Recognised funds

The ability of offshore investment funds to offer shares directly to investors in the United Kingdom has been restricted by the FSMA. However, Section 270 of the FSMA provides a procedure for the recognition of investment funds established in designated territories whose laws afford investors in the United Kingdom protection at least equivalent to that provided under the FSMA. Guernsey has obtained designated territory status under section 270 of the FSMA and a number of Guernsey funds of Class A1 (henceforth, Class A) have been recognised by the Securities and Investment Board. The regulations adopted to achieve this designation reflect the requirements which apply to authorised unit trusts in the United Kingdom and their operators, with appropriate adjustments to cover open-ended investment companies (which are not currently possible under UK company law).

A Guernsey recognised fund which qualifies under the regulations made pursuant to the Financial Services and Markets Act 2000 (Collective Investment Schemes) (Designated Countries and Territories) Order 2003 and is granted a recognised fund certificate is freely marketable in the United Kingdom and may offer its shares for direct subscription by the public in the United Kingdom.

Presently any Class A scheme which is not a feeder fund or a protected cell scheme is eligible for a recognised fund certificate.

Class B and Class Q schemes may be offered to sophisticated investors if they meet the requirements of the relevant United Kingdom regulations.

Guernsey funds have also been recognised by the following:

Country Status


Agreement signed by ASC and GFSC June 1996, to allow Class A schemes to be marketed in Australia.


As of May 2000, the CBF is satisfied that Class A schemes are comparable to UCITS and may be marketed in Belgium. Class B schemes considered on case-by-case basis but closed-ended schemes not allowed.

Hong Kong

Class A schemes are granted certain waivers from standard HK regulatory requirements. Class B schemes are considered on a case by case basis.

The Netherlands

AFM will consider applications from Guernsey open and closed-ended schemes.

Republic of Ireland

Class A schemes will receive marketing approval subject to satisfactory completion of CBI's notification requirements. Class B schemes will be considered on a case by case basis.


FSA-recognised Class A schemes eligible for public marketing. Class B schemes may also be marketed to Japanese investors subject to regulatory approval.

South Africa

Guernsey authorised funds are required to enter into a representative agreement or maintain a representative office and to satisfy the FSB that they are regulated to an equivalent standard to South Africa funds. Class A schemes and also some Class B schemes have been accepted.


If a manager carries out marketing at 'arms length' (eg advertising staff in Sweden) no authorisation is required from F-I. The manager must comply with the Marketing Practices Act 1995. If selling or redeeming through a branch or local subsidiary/ agent, F-I authorisation is required.


Equivalency of Guernsey regulation/supervision to Swiss standards recognised by SFBC in January 1994. Applications to SFBC must be made by a body holding the appropriate licence. A Swiss bank must be appointed as paying agent.

The above list is based on the material on the GFSC's website at, and may not be exhaustive.

Investment funds under management in Guernsey take a number of different forms and new types of fund structures are constantly being developed. However, in practice the types of investment vehicle most often encountered are closed-ended and open-ended companies and unit trusts and closed-ended limited partnerships.

The prospective investor at whom the investment product is targeted will be an important consideration in determining the selection of the appropriate form of investment vehicle. Where, for example, a retail fund is to be offered to the public in the UK a unit trust may be the most familiar structure, whereas if the fund is to be marketed in Europe or in the US, an open-ended mutual fund company may be the appropriate form. It is also worth noting that Japanese investors have recently shown greater interest in the trust form because of the flexibility of a unit trust in enabling distributions to be made out of capital. For a complex investment product having a high minimum investment threshold which is to be offered to investment institutions, a limited partnership may be the appropriate form.

While regulatory and marketing considerations are important in selecting whether the corporate, trust or partnership form is used, the fiscal implications for investors will generally be the determining factor. The promoters of the investment fund will generally wish to ensure that, at the least, the scheme achieves tax neutrality, whereby an investor will be in the same tax position whether he makes his investment directly in the underlying assets or through the medium of the investment fund.

In most tax jurisdictions the corporate form, by virtue of being a separate legal entity, is treated as being fiscally non-transparent, the fund's tax position being determined without regard to its shareholders. However, it has been possible to structure companies as entities which satisfy the relevant conditions within other jurisdictions for fiscal transparency. A limited partnership on the other hand will for tax purposes generally be treated as being transparent and the total tax take will be determined by the partners' individual circumstances. For fiscal purposes a unit trust has mixed tax characteristics. In certain jurisdictions it may be treated as being transparent for income and non-transparent for capital gains distributions. The revenue authorities may regard income in the hands of the trustee as the income of the unit-holder.

Accordingly, for certain types of investments in certain jurisdictions it may be advantageous for investors to use a trust vehicle. However, by virtue of the greater flexibility provided by the corporate form for listing on stock exchanges and the wider acceptability of companies for marketing purposes, the majority of investment funds established in Guernsey in recent years have been closed-ended and open-ended investment companies.

Taxation and charges

Guernsey offers a location for investment funds which does not impose its own tax burden on an investment fund or its investors.

Under current legislation in Guernsey, there is no capital gains tax, capital transfer tax, wealth tax, estate or inheritance tax payable in respect of the issue or realisation of shares in a closed-ended or open-ended company, units in a unit trust or interests in a limited partnership. There is no Guernsey corporation tax, profits tax or withholding tax applicable to or payable by a closed-ended or open-ended company, unit trust or partnership or their respective shareholders, unit-holders or partners (except in respect of Guernsey resident investors who will be subject to withholding tax). No stamp duty is payable on the transfer of shares or units in an investment fund and Guernsey levies no annual taxes or charges by reference to a company's issued share capital.

A Guernsey investment fund company will, upon application to the Administrator of Income Tax in Guernsey, normally qualify for exempt status for income tax. Accordingly, distributions made by a Guernsey investment fund company may be paid to shareholders without deduction of any Guernsey tax, notwithstanding that central management and control of the company is exercised from within Guernsey. The manager of the Guernsey investment fund company will, however, be required to deduct Guernsey income tax from distributions made to any holders who are resident in Guernsey and to account to the Guernsey Administrator of Income Tax for the same.

The conditions for the grant of tax exempt status are that the company files the appropriate election to be exempt from tax and pays a flat rate annual charge of £600, irrespective of the level of its profits. If an exempt company election is made there is no requirement on the company to file tax returns.

As there is no capital gains tax in Guernsey it is possible to accumulate income and realised gains tax-free in Guernsey.

A standard fee for incorporating a company is £100.

Registration fees of £350 are payable upon registration of a limited partnership.

There are no taxes, registration fees or duties payable to the Guernsey authorities in respect of the establishment or administration of a unit trust.

Neither the trustee nor the assets of a unit trust will be liable to Guernsey income tax on the income of a unit trust arising outside Guernsey (including by concession bank interest arising in Guernsey) but the manager will be required to deduct Guernsey income tax from distributions made to any Guernsey resident unitholders and to account to the Administrator of Income Tax for the same.

Although no stamp duty or similar tax is payable on the issue, transfer or redemption of shares in a company, units of a unit trust or partnership interests, a Guernsey grant of probate or administration may be required to deal with the shares, units or partnership interests of a deceased holder. Guernsey is free from all exchange control restrictions.

It should be mentioned that the basic rate of income tax on company profits will be 0%, however, certain regulated businesses will be subject to income tax at 10%.

Both open and closed-ended funds must pay application and annual fees to the GFSC. According to the GFSC's website at the main current fees are as set out:

Licensee Fees

Application Fee

£2,100 per licensee (one-off payment)

Annual Fee

Designated Manager/Custodian

(open-ended funds)

£3,000 per licensee (annually)

Designated Manager (closed-ended funds)

£3,000 per licensee (annually)

Principal Manager (open-ended or closed-ended funds)

£1,500 per licensee (annually)

Manager of Closed-Ended Fund

£1,500 per licensee (annually)

Other Licensees

£3,000 per licensee (annually)

Open-Ended Funds

Annual fee - scheme

£3,100 per scheme (annually)

Application fee - scheme

£3,100 per scheme

Application fee - new class of umbrella/multi class scheme

£650 per scheme

Closed-Ended Funds

Application fee - fund

£3,100 per fund (one-off payment)

Annual fee - fund

£3,100 per fund (annually)

We can advise up-to-date fees on request or check the GFSC's website. Legal fees and other start-up costs will be incurred in the year of inception but it is usual practice for these to be amortised over a five year period.

European Union Directive on the Taxation of Savings Income

Guernsey is not subject to the EU Savings Tax Directive. However, the States of Guernsey have introduced a retention tax system in respect of payments of interest, or other similar income, made to an individual beneficial owner resident in an EU member state by a paying agent situated in Guernsey.

Such an individual beneficial owner resident in an EU member state will be entitled to request a paying agent not to retain tax from such payments but instead apply a system by which the details of such payments are communicated to the tax authorities of the EU member state in which the beneficial owner is resident.

In order to give effect to these measures, Guernsey has entered into bilateral agreements with the 27 EU member states. The agreements will only apply to interest payments when these payments are made by a paying agent situated in Guernsey.

Under the terms of the agreements, interest payments may include distributions from and the proceeds of shares or units in certain collective investment schemes. The provisions will only apply to schemes which are equivalent to a UCITS.

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.

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