Guernsey: - Offshoring For The Chinese Market: Funds And Wealth Management

Last Updated: 24 November 2009
Article by Peter Niven

Most Read Contributor in Guernsey, September 2018

Guernsey has over the last 50 years established itself as a world-class International Finance Centre (IFC).

Our unique environment has attracted several hundred firms who today provide an extensive range of financial products and services to clients across the globe.

A distinguishing feature of our finance industry is the considerable depth and breadth, including banking; investment funds; fiduciary services (trust and company administration); insurance; professional services such as lawyers and accountants; and an independent regulator, the Guernsey Financial Services Commission (GFSC).

Guernsey's standing as a top-tier IFC is reflected in the fact that the Island was ranked 12th in the latest Global Financial Centres Index (GFCI) published in March 2009, with the Cayman Islands 22nd and the British Virgin Islands 34th; and was placed alongside major financial centres such as the UK and the United States (US) on the Organisation for Economic Co-operation and Development (OECD) white-list that was published at the conclusion of the G20 summit in London, April 2009.

In short, Guernsey is ideally positioned to provide Chinese companies and individuals with solutions to best meet their financial objectives.

A trusted gateway to Europe's capital markets

Guernsey offers a solution to the fact that the non-convertible nature of the renminbi currency restricts the ease with which capital can flow in and out of China. Establishing a Guernsey (holding) company avoids tying up funds in renminbi and can also allow for access to a greater range of capital markets.

In particular, it can provide for listings on exchanges outside of China which tend to be more stable, structurally mature and liquid. Guernsey offers a gateway to Europe's capital markets. The Island offers an array of structures, including limited partnerships and a variety of different corporate structures, including cell companies.

Guernsey introduced a new Company Law last year, in parallel establishing a new company and intellectual property registry. The new registry has been developed by benchmarking and improving on international best practice. It uses the very latest systems and on-line technology to provide a speedy, cost-effective and high-quality service. All company formations are now completed within 24 hours, with 2-hour and 15-minute incorporations also on offer. Formed entities can be used for a variety of purposes, including as a trading company, an offshore holding company, an asset (e.g. property) holding company, a company holding intellectual property rights, a special purpose acquisition company (SPAC), an investment company or as investment funds.

Guernsey's has a 50-year heritage in investment funds. The Island has built up an infrastructure and expertise to manage and administer the widest range of funds, from the traditional to the alternative (property, private equity and hedge funds/funds of hedge funds) and even the more esoteric (such as fine art, fine wine and timber funds). Today, the value of funds under management and administration in the Island is £175bn.

IFCs also provide for such entities to list on stock exchanges outside of China. Entities established in Guernsey can be listed on the Channel Islands Stock Exchange or on the main London Stock Exchange (LSE), its Alternative Investment Market (AIM) or Euronext Amsterdam. Together, the LSE main market and AIM saw more admissions from Guernsey-domiciled funds than any other jurisdiction during 2008. In addition, Guernsey is one of only a very few jurisdictions from where investment funds wishing to list on Euronext Amsterdam do not need to obtain a license in the Netherlands because the Dutch regulator has ruled that there is already adequate 'home' supervision.

If you want to gain access to the wide pool of capital available through the European markets then it makes sense to look at using Guernsey.

A leading provider of wealth management solutions for HNWIs

Guernsey companies and trusts offer a great solution for managing the business and financial affairs of High Net Worth Individuals (HNWIs).

Trusts allow individuals/families to manage their wealth and assets efficiently, for example for investment purposes, tax planning and inheritance planning. The concept originates from and has been used successfully for many years in the United Kingdom and the United States. However, it is less familiar in jurisdictions such as China, where for many people the idea of handing over control of wealth and assets to complete strangers (albeit professionals) and who may be halfway across the world is an uncomfortable prospect.

Guernsey can address these concerns: (1) Within the arrangements of a standard Guernsey trust there are special provisions which allow for the Settlor to take control of the wealth/assets; (2) The use of a structure involving a Private Trust Company (PTC) (and a purpose trust) gives the Settlor greater control – they may sit on the board of the PTC and also be in command of the purpose trust which is the ultimate authority over the PTC board.

It should be stressed, though, that – aside from the tax implications – there are dangers in the Settlor controlling the wealth/assets, especially if they are not experienced or have particular expertise in managing such affairs. Indeed, trusts have been successfully used for many years in the likes of the UK and US precisely because the trustees have been financial professionals. Regardless, of the exact structure of a trust though, it is essential to have confidence in where the wealth/assets are being placed.

Guernsey has some 50 years experience in providing fiduciary services (trust and company management and administration). The Island plays host to 150 licensed providers, ranging from large organizations to independent, boutique operations. Together they hold more than £300bn worth of assets in trust. There is substantial expertise in using the innovative modern structures that are available on the Island for the preservation of wealth and assets. This infrastructure and expertise is supported by strong banking sector, including many offering a wide range of private banking services.

Wealthy individuals and families from China can potentially benefit from the specialized wealth management solutions that are on offer through companies and trusts in Guernsey.

Summary

Guernsey is a leading European IFC that offers a wide range of financial products and services to meet the needs of companies and individuals from across the globe, including China.

The right environment

  • Situated in Europe between the United Kingdom (UK) and France.
  • A British Crown Dependency
  • A special relationship with the European Union (EU)
  • English-speaking
  • Currency: British pound Sterling (GBP)
  • Same time zone as the UK
  • Links to both London andl Europe

A leader in offshore structuring

Guernsey has a history of developing innovative solutions. The Island offers an array of structures, including limited partnerships but it is in cell companies that the Island really stands out. Guernsey pioneered the cell company concept when in 1997 it established the protected cell company (PCC) in response to the needs of the Island's pre-eminent captive ('self') insurance industry. The Island's finance industry has shown great creativity in adapting the structure to also provide a vehicle for investment funds and wealth management solutions.

The success of the concept is illustrated by the fact that it has been replicated in various guises – they are also known as segregated cell companies – by more than 30 other jurisdictions and is used as a vehicle in a variety of disciplines across the global financial services industry.

However, it is Guernsey which retains the advantage of having the experience and expertise of using cell companies. Indeed, the Island has since made a series of amendments to provide further flexibility in the use of this vehicle. The innovative incorporated cell company (ICC) has also been quickly introduced, adding yet another product to the continually expanding range on offer in the Island.

The Channel Islands Stock Exchange – Your listing solution

The Channel Islands Stock Exchange (CISX) was formed in 1998. Today it has more than 3,000 securities listed. The CISX has a focus on some core products: securities, including special purpose vehicles (SPVs); investment funds; and primary and secondary listings of both Guernsey and international companies.

An advantageous tax regime

While Guernsey does not currently have a Double Taxation Agreement (DTA) with China, this is mitigated by the limited nature of the advantages they actually offer and the fact that Guernsey has a particularly advantageous tax regime:

  • A standard zero rate of corporate tax
  • Most funds can elect to be exempt from paying income tax, although the payment of an annual fee is required for this concession
  • Non-Guernsey income (and Guernsey bank interest) accruing to trusts that have no Guernsey beneficiary is not subject to Guernsey income tax
  • No withholding tax on dividends; no capital gains tax; no inheritance tax; and no value added tax or goods and services tax
  • Banks do not deduct interest at source so taxpayers can defer their tax payable on interest earned until they declare it at the end of the year. Interest earned on Guernsey accounts should be declared to the tax authorities where the depositor is resident for tax purposes.

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.

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