William Simpson of Ogier Legal in Guernsey explains why the jurisdiction is a suitable location for looking after Latin American private wealth.
Guernsey is one of the leading tax-free jurisdictions for international private wealth from Latin America. Although a Crown Dependency and represented internationally by the UK government, it is autonomous. It has its own parliament, its own currency and its own tax regime. Guernsey also has over 50 years' experience in establishing and managing private structures for individuals and families.
In recent times, it has been consistently recognised for its compliance with international standards and its quality of regulation. Data security, capital adequacy and high ethical standards are among the many requirements imposed by the law. As a result, Guernsey is well regarded by governments and regulators worldwide, and is accepted without reservation as an appropriate jurisdiction in which to do business.
Guernsey also has a long tradition of providing services to Latin American clients. For many such clients, Guernsey's European location, with its proven stability, proximity to London and access to all the major markets, has been determinant.
Guernsey has both excelled in offering traditional services to private clients, and been at the forefront of new developments.
Standard companies remain popular, but many families now prefer the 'cellular' approach, using either a protected cell company or an incorporated cell company. The former provides by law that the assets and liabilities of separate cells must be kept separate; the latter takes a similar approach but constitutes each cell as a legal person. Such companies have been used to divide assets and liabilities between family members, or to provide for different assets to be held separately – for example, real estate, a traditional portfolio, and trading assets with potentially significant liabilities.
Companies have also been structured so as to divorce control from economic ownership, allowing younger members or a wider family group to benefit, while control is retained by a selected group. A company limited by guarantee is particularly apt for this purpose, as it recognises a class of members who may have no interest in the capital of the company, while at the same time allowing for the issue of shares.
Latin American clients have also found open-ended companies attractive, particularly for holding family businesses, allowing family members to add to or withdraw from the capital of the company, usually subject to the directors' consent and frequently used in conjunction with a trust at shareholder level.
All types of trusts have remained popular with Latin American clients, partly because of the great flexibility afforded in the drafting of the constitutional documents. Families with more complex requirements find a real advantage in stepping outside of the constraints of corporate law and designing their own regime. For similar reasons, family unit trusts have proven popular, again splitting ownership and control and providing for fixed interests.
PRIVATE TRUST COMPANIES
A particularly interesting way of providing involvement for the family, or certain members, at trustee level, is the establishment of a private trust company (PTC) to act as trustee of the family trust. The PTC might be owned by one or more family members or by another trust, but in principle will allow involvement in the management of one or more trusts by way of board membership.
PRIVATE LIMITED PARTNERSHIPS
Private limited partnerships have proven particularly popular as a way of one generation retaining control, via the general partner, and another generation gradually receiving benefit through the transfer of limited partnership interests. Of course, interests as general partner may also in due course be passed over.
Many of the above concepts are very recognisable in Latin America. However, the most recent innovation in Guernsey is a special type of foundation designed particularly to allow flexibility in drafting, to give corporate status, and to provide maximum confidentiality. At the same time, a foundation will have no members or shareholders nor any person beneficially interested in its assets. This gives its governing body, the council, very wide power to manage its assets. It also avoids having interests held by persons residing in jurisdictions where this may be problematic.
All of the structures proposed will in principle not be subject to any Guernsey taxation, provided the income generated arises outside of Guernsey and those who benefit also reside outside of Guernsey.
All the major international firms of accountants, together with banks, trust companies and law firms, are located in Guernsey, with very considerable expertise in establishing and managing the structures outlined.
An original version of this article appeared in STEP Journal, August 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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.