Guernsey Companies and Guernsey Trusts

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General Introductory and Offshore Tax Information

In 1950 Guernsey had already devised a fiscal regime for non-resident/offshore companies by way of the Corporation Tax (Guernsey) Law, which subjected companies owned by non-residents to only a set tax rate of £500 annually. However, in January 1990, the law was repealed, transforming all Guernsey offshore business companies and entities registered and incorporated in Guernsey into resident bodies for tax purposes. Under the new system, company exemption from tax was made possible only if accorded pursuant to the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, the new Act.

With this arrangement, Guernsey companies referred to as Exempt Companies, were excused from income tax obligations for any income generated in a foreign jurisdiction, meetings could be held in Guernsey and were not deemed ‘doing business in Guernsey’, funds could be deposited in bank accounts without incurring tax and investments could be made in other Guernsey exempt companies or investment schemes entirely tax free. In essence, what the new regime aimed to do was open up Guernsey’s shores to non-resident nationals and companies which were now able to freely invest in the Island (establish branches, management offices, factories etc.), as Guernsey offshore companies and entities were no longer restricted to operating solely overseas. Guernsey companies were also grouped into 4 main categories and were required to meet certain conditions in order to be eligible for tax exemptions. These groups included Category A (Guernsey established Unit Trusts), Category B (Guernsey registered Investment Companies), Category C (Investment Companies registered in foreign jurisdictions, and Limited Partnerships incorporated in foreign jurisdictions) and Category D (Exempt Companies).

Despite the ongoing use of these categories to identify Guernsey companies and entities, by 1997 the fiscal system was soon to evolve further. This time around, an overhaul of the fiscal system for Guernsey companies would be primarily motivated by new international regulatory demands, partly promoted by European Finance Minister’s Economic and Financial Committee among other organizations like the OECD, to bring ‘harmful’ business practices to a halt. Harmful practices generally referred to the unequal/preferential tax treatment meted out to non-resident/offshore companies over resident/onshore companies, not only in Guernsey but internationally. In Guernsey for example, domestic Guernsey companies were subject to tax on international income at a rate of 20%, whilst offshore companies acquired exempt status for not being owned by any Guernsey resident and not generating any revenue in Guernsey.

After careful assessment of the potential negative impact of new regulatory demands, in 2007, under the Income Tax (Zero-10) Guernsey Law, 2007 and the Income Tax (Zero-10) Guernsey No 2) Law 2007, Guernsey committed to introduce a zero/10 fiscal regime for companies, offshore and onshore alike. Under this framework, Guernsey sought to respond to international regulatory standards without destroying its international business sector. The zero/10 system made all Guernsey companies liable to 0% tax whereas loan companies and banks pay 10%, whilst companies which generate income from activities involving buildings, utilities and land pay a tax rate of 20%. Prior to this, taxation was applied across the board (individuals and companies) at 20%. However, though the zero/10 slogan tends to indicate two rates of taxation, Guernsey companies are now presented with at least four options: 0%, 10%, 20% as explained above, whilst the Category B and C companies are able to retain their exempt status if all income is generated outside Guernsey. Furthermore, Category A, B or C companies/entities may be registered yearly and opt to pay a yearly exemption fee of £600.

As time, business considerations and client profiles evolve, Guernsey continues to engineer adaptable corporate structures and legal entities. This is evidenced in the Cell Company, pioneered by Guernsey and which serves as a multipurpose vehicle, an alternative to the regular group holding, presents a cellular approach to private fund investing and succession planning. Family oriented structures such as the Family Limited Partnership, Family Office and Private Trust Company have also been designed for expats, foreign and UK nationals. The Family Limited Partnership, for instance, is an ideal alternative to trusts (established for children) which in the UK have been subject to an inheritance tax rate of 20% on initial capital exceeding £325.000, including a fixed 6% charge which is applied on the value of trust property every 10 years. Guernsey FLPs are exempt from all these charges as long as the settler remains alive for at least 7 years after establishing the FLP, partners are taxed separately based on the source of receipts from the partnership, only some types of Guernsey sourced income are taxed and only licensing fees may apply to general partners for managing the FLP.

Diversity however, has not caused Guernsey’s international business sector to be flooded with numerous corporate structures. Instead, while certain structures have specific uses, others are multipurpose, able to cover an extensive span of functions and operations.

Guernsey Offshore Business Entities:

  • Guernsey Companies
  • Guernsey Protected Cell Company
  • Guernsey Incorporated Cell Company
  • Guernsey Incorporated Cell
  • Guernsey Qualifying Recognized Overseas Pension Scheme
  • Guernsey Private Trust Company
  • Guernsey Insurance
  • Guernsey Limited Partnership
  • Guernsey Family Limited Partnership
  • Guernsey Trust

Guernsey Companies (Ordinary)

Main Features:

  • Legislation — Guernsey Company Law 2008
  • Comprehensive piece of legislation for Guernsey onshore and offshore companies
  • Able to operate both as Guernsey offshore and domestic companies
  • Limited by shares, limited by guarantee, unlimited liability, mixed liability
  • Mixed liability companies refer to companies with shareholders if the company has a share capital, guarantee members and unlimited members as in the case of an unlimited liability company
  • Independent legal entity which is distinct from its members
  • A Guernsey company with unlimited liability can be transformed into a company with mixed liability, or limited by shares or by guarantee; likewise, a mixed can convert to being limited by shares or guarantee; or limited by shares or guarantee into mixed
  • Incorporated with no less than one member
  • Main formation documents include the Memorandum and Articles of Association and the certificate of Incorporation which is issued by the Registrar
  • Memorandum and Articles of Incorporation in which the name, address of registered office, type of liability and company, and the by-laws are set out must be prepared
  • Beneficial owner(s) are required to sign a declaration of compliance essentially stating that the company is incorporated pursuant to the provisions of the law
  • Guernsey companies end with the following expressions: mixed liability company — Mixed liability or ML; limited guarantee company — Limited by guarantee or LBG; company limited by shares — Limited, With limited liability, Ltd.; Avec responsabilité limitée, ARL; protected cell company — Protected Cell company or PCC; incorporated cell — Incorporated Cell or IC; incorporated cell company — Incorporated Cell Company or ICC
  • Non-cellular company allowed to be transformed into PCC or ICC, or, transformed into an IC and then transferred to an ICC by means of a Conversion and Transfer Agreement and a special resolution
  • Two or more Guernsey companies can amalgamate to form a single or a new entity; amalgamations can be undertaken with companies registered in Guernsey or incorporated in foreign jurisdictions
  • Required to have a resident agent

Guernsey Protected Cell Company (PCC)

Main Features:

  • Legislation — Guernsey Company Law 2008
  • Prior approval must be obtained from the Commission to incorporate a cell company
  • Incorporated with no less than one member
  • The Memorandum and Articles of Incorporation must be prepared
  • The Memorandum of a Guernsey company states the name of the company, address of registered office in Guernsey, type of company and liability (mixed, guaranteed, etc.); and the founder’s signature is required
  • Cells must be named distinct from each other
  • Names can be reserved for a maximum period of 3 months
  • Guernsey PCC must maintain a Guernsey based registered office
  • Able to be converted into a non-cellular company
  • Two or more Guernsey protected cell companies can amalgamate to form a single or a new entity; amalgamations can be undertaken with protected cell companies registered in Guernsey or incorporated in foreign jurisdictions
  • Required to have a resident agent

Guernsey Incorporated Cell Company (ICC)

Main Features:

  • Legislation — Guernsey Company Law 2008
  • Prior approval must be obtained from the Commission to incorporate a cell company
  • Existing and new companies can only be converted and incorporated as (respectively) incorporated cell companies if they are authorized collective investment schemes, are close ended companies, licensed to carry on insurance business pursuant to the Insurance Business (Bailiwick of Guernsey) law, 2002, or administered and situate in Guernsey
  • Juridical persons that are not allowed included in the latter include licensees under the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002, Banking Supervision (Bailiwick of Guernsey) Law, 1994, Regulation of Fiduciaries, Administration Business and Company Directors etc. (Bailiwick of Guernsey) Law, 2000, Protection of Investors (Bailiwick of Guernsey) Law, 1987
  • Incorporated with no less than one member
  • The Memorandum and Articles of Incorporation must be prepared
  • The Memorandum of a Guernsey company states the name of the company, address of registered office in Guernsey, type of company and liability (mixed, guaranteed, etc.); and the founder’s signature is required
  • Two or more Guernsey incorporated cell companies can amalgamate to form a single or a new entity; amalgamations can be undertaken with ICC’s registered in Guernsey or incorporated in foreign jurisdictions
  • Required to have a resident agent

Guernsey Incorporated Cell

Main Features:

  • Legislation — Guernsey Company Law 2008
  • Prior approval must be obtained from the Commission to incorporate a cell company
  • A special resolution must be first passed before an incorporated cell of an incorporated cell can be incorporated
  • Required to have the same registered office as its ICC
  • Is a single legal person from its ICC and does not constitute a subsidiary of its ICC
  • ICs are unable to be members of their ICCs
  • Prohibited from amending its memorandum without the approval of its ICC by special resolution
  • Able to be transformed into a non-cellular company
  • An IC of a given ICC can transfer to another ICC by means of a Transfer Agreement and upon the approval of the directors of all ICCs involved by special resolution
  • An incorporated cell is able to be subsumed into an ICC and then transformed into a company which is non-cellular
  • Incorporated cells must obtain the Commission’s approval before amalgamating

Guernsey Qualifying Recognized Overseas Pension Scheme

Main Features:

  • Introduced in April 2006 through a series of amendments to the pension system in the UK
  • Pension payments are made in full (gross or lump sum)
  • Income tax is not deducted from pension income
  • No maximum or minimum level requirements on funds
  • In the case of a drawdown can receive transfer values from pension schemes which are registered in the UK provided that the necessary requirements are met
  • Scheme assets are exempt from capital gains and income tax
  • Funds residues can be left to beneficiaries
  • Guernsey qualifying recognized overseas pension schemes can receive protected rights from a pension scheme which is based in the UK

Guernsey Private Trust Company (PTC)

Main Features:

  • Legislation — Guernsey Trusts Law, 2008
  • New piece of legislation under which Purpose Trusts were introduced
  • Have no specific structure and can be arranged to suit the personal, legal or tax
  • needs of its settler(s) but is a private company
  • Guernsey PTCs are normally established for a group of trusts or a family trust
  • Prevents directors from having personal liability
  • Managed by a board of directors
  • Does not undertake commercial activity for third party trusts

Guernsey Offshore Insurance

Main Features:

  • Legislation — The Insurance Business (Bailiwick of Guernsey) Law, 2002
  • Comprehensive law regulating both domestic and offshore insurance business in Guernsey
  • Guernsey offshore insurance business licenses are issued either for long term insurance or general insurance
  • Guernsey offshore insurance licenses are valid for the duration of time accorded by the Commission
  • Licensees are to conduct domestic and offshore business as described in their business plan and are not allowed to trade in derivatives except for those approved pursuant with the Act and the Commission’s approval
  • Insurance companies are required to maintain a paid up share capital which is no lower than the minimum capital requirement
  • Guernsey offshore insurers that are not companies must maintain non-distributable funds no lower than the minimum capital requirement and shareholder’s funds of no less that 75% of the minimum capital requirement
  • Annual returns are to be filed yearly and be submitted along with an updated business plan, a declaration of reliance on reinsurers, approved calculation of asset and solvency margin, financial projections for the upcoming 12 months, copy of management letter from auditor and a signed certificate from the general representative as confirmation that the insurer operated in compliance with accounting and insurance business standards

Guernsey Limited Partnership

Main Features:

  • Legislation- The Limited Partnership (Guernsey) Law, 1995
  • Usually comprises a general partner who assumers personal liability and one or more limited partners with limited liability
  • Established by a Partnership Agreement
  • Guernsey offshore limited partnerships may be established to be perpetual or to have a limited duration, coming to an end upon the occurrence of a certain event

Guernsey Family Limited Partnership

Main Features:

  • Has the basic structure of a limited partnership
  • The general partner is controlled by the donor or elder who administers distribution regulations and strategies for investment
  • Management mechanisms and strategies for investing can be established in the Articles of Incorporation and written so as to be maintained for many generations
  • Partnership laws allow for flexibility and adaptability so as to allow the members of a family to tailor the partnership in accordance with the business, personal and legal considerations of family members
  • Family members as well as persons without blood relation can sit on the board of directors
  • Children usually serve as limited partners and obtain distributions as natural persons or by way of a trust or company with limited liability

Guernsey Offshore Trust

Main Features:

  • Legislation — The Regulation of Fiduciaries Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000
  • Comprehensive piece of legislation which governs both onshore and offshore trusts
  • Two main types of Guernsey trust licenses are issued Full fiduciary license:
  • Only issued to partnerships or companies
  • Partnership or company may exist in or outside the Bailiwick
  • Issued for carrying out trust/fiduciary services in or from within the Bailiwick Personal fiduciary license
  • Provides only for a restricted range of fiduciary activities
  • Only issued to individuals
  • Authorizes a person who is the director of a company, the partner in a partnership or other corporate entity whether incorporated or not to be appointed the trustee of a trust
  • Person to whom trust license is issued may also be the employee of a licensed fiduciary
  • Person to whom trust license may also be appointed as the manager of an estate or the executor of a will
  • May assume such duty for trust in or in a foreign jurisdiction
  • May not be the sole trustee
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