How to form an offshore company in Guernsey
Offshore investments in the Channel Island of Guernsey are very popular due to the obvious tax advantages of running a Guernsey company. Investments in Guernsey companies and offshore company formation is proven to be an excellent business move, and this is why Guernsey's main industry today is the finance industry as opposed to the tomato growing industry as it was in the now distant past. Guernsey tax is far lower than UK rates with a basic level of only 20%, making Guernsey a very appealing location for potential offshore investment.
This article is designed to provide a basic guide to those companies that are considering investing offshore, either by starting up a Guernsey company, investing in Guernsey companies or simply by investing money offshore
Introduction to the Investment Industry and Regulation
What is the major difference between open ended and closed ended funds?
Open ended schemes are investment vehicles which offer for sale without limitation, or have outstanding securities which investors are entitled to redeem on demand, subject to any applicable notice period. Closed ended investment vehicles normally have a fixed capital, and investors have no absolute entitlement to redeem their shares, units, or limited partnership interests.
How can funds be constituted?
Open ended funds may be established as Class A, B or Q funds and are constituted as companies, protected cell companies or unit trusts. Protected cell companies are similar to umbrella funds but are incorporated as companies not as unit trusts. The assets of each cell may not be combined with the assets of another cell and must be kept legally separate. Closed ended investment funds are constituted as companies, unit trusts, limited partnerships or protected cell companies.
What legislation is in place to control the establishment of collective investment funds in Guernsey?
Open ended schemes are authorised and entities involved in controlled investment business are licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended ("the Law"). The Commission has made a number of rules under the Law which set out the detailed requirements to be followed by all authorised schemes and licensees.
The major rules under the Law are:-
- The Collective Investment Schemes Rules 2002 (which cover Class A schemes);
- The Collective Investment Schemes (Class B) Rules 1990 (which cover Class B schemes);
- The Collective Investment Schemes Qualifying Professional Investors (Class Q) Rules 1998 (which cover schemes designed for qualifying professional investors);
- The Collective Investment Schemes (Designated Persons) Rules 1988;
- The Licensees (Conduct of Business and Notification)(Non-Guernsey Schemes) Rules 1994.
Note: The Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959, as amended (which provides for consents to be granted for closed ended schemes).
What are the major differences between Class A, Class B and Class Q collective investment schemes?
Class A schemes are those which meet the Commission's Collective Investment Schemes Rules 2002 and are therefore eligible for recognition by the UK Financial Services Authority for sale to the public in the United Kingdom by virtue of Guernsey's designation under section 270 of the Financial Services and Markets Act 2000.
The rules for Class B schemes incorporate a measure of flexibility, consistent with meaningful investor protection, and are applied by the Commission exercising judgement and discretion and taking into account all the facts pertaining to a particular fund application. This policy recognises that Class B schemes range from the retail fund aimed at the "general public" via institutional funds to the strictly private fund established solely as a vehicle for investment by a single institution, and that their investment objectives and risk profiles are similarly wide-ranging. Accordingly, the rules do not incorporate specific investment, borrowing and hedging restrictions. This also allows for the possibility of new products without the need to amend the Commission's regulation.
Historically, a substantial number of Class B schemes have been targeted at institutional investors. 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. Accordingly, the Rules place emphasis on disclosure of risks inherent in the investment vehicle, rather than prescription, simplified document requirements, timely processing of applications and no prescribed minimum subscription requirement. Since the introduction of the Class Q Rules in 1998 fund managers in Guernsey have taken advantage of the flexibility in regulations covering qualifying professional and sophisticated investors whilst Class B schemes continue to cater for the more innovative products.
Can Guernsey open ended schemes be marketed to the public in any other countries?
Although local legislation varies, it is the Commission's experience that the majority of countries distinguish between retail funds, aimed at the general public, and wholesale funds selling investment from institutions and / or their existing clients. In the case of wholesale funds, the requirements (if any) tend to be less onerous.
What continuing supervision of licensees and authorised schemes is undertaken by the Commission ?
Schedule 1 to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 was extended on 1 July 1998 to include Category 2 controlled investment business relating to general securities and derivatives. Category 1 controlled investment business covers collective investment schemes only. All entities carrying on controlled investment business within the Bailiwick must be licensed and are subject to financial resources, notification, conduct of business and compliance rules made under the Law, and may be subject to compliance visits (pre-arranged or unannounced) from staff at the Commission.
In addition to immediate and annual notification requirements under the rules:-
- the designated managers of all authorised schemes are required to submit quarterly statistical returns regarding the schemes managed;
- the designated managers and designated custodians/trustees of all authorised schemes are subject to compliance visits (pre-arranged or unannounced) from staff at the Commission;
- unresolved complaints against licensees must be notified to the Commission; and authorised schemes and licensees are required to submit detailed reports and audited accounts to the Commission at least annually;
- The Commission reserves the power to conduct compliance visits to any licensee whether or not it has cause for concern.
All licensees are also expected by the Commission to comply with The Principles of Conduct of Finance Business and The Principles of Conduct of Derivatives Business. Failure to comply with any of the Principles will be taken into account by the Commission when reviewing whether licensees remain fit and proper, and may thus lead to the suspension, cancellation of a licence or revocation of an authorisation of an open ended scheme.
All licensees are subject to the Licensees (Financial Resources, Notification, Conduct of Business and Compliance) Rules 1998 and the Collective Investment Schemes (Designated Persons) Rules 1988.
Who can establish collective investment funds in Guernsey?
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/sponsors. Only those of the first rank are encouraged and normally a demonstrable and favourable track record in the promotion of established collective investment funds is required.
The authorisation of intended promoters/sponsors by regulatory authorities in other jurisdictions is not, in itself, generally sufficient. Subject to the foregoing, the Commission's policy is to be as flexible as possible and consistent with meaningful investor protection. The Commission is always prepared to meet potential promoters/sponsors or their professional advisers in order to discuss matters of policy and practice regarding proposed open or closed ended funds.
Are Guernsey collective investment schemes covered by any compensation scheme?
The Collective Investment Schemes (Compensation of Investors) Rules 1988 (as amended) provide for compensation for investors in Class A schemes of up to £5mn in any year. Subject to this limit, the maximum compensation payable per investor is 90% of the first £50,000 and 30% of the balance of up to £100,000 (i.e. a maximum total of £60,000). To date, no call has been made on the compensation scheme.
There is no compensation scheme covering investors in Class B schemes, Class Q schemes or closed ended funds.
Now starting up a Guernsey business or Guernsey company is not all plain sailing. For a start you will have to meet certain criteria determined by the G.F.S.C. ( the Guernsey Financial Services Commission ). These regulations are very specific, and are there to prevent such crimes as , terrorism, money laundering etc. Even to become a Director of a company the requirements are strict, and many newly appointed Directors are forced from their positions by the G.F.S.C. when information about their past business dealings elsewhere come to light.This is often due to the company that appointed them failing to do the necessary research into what exactly is required legally to hold a Directorship of a Guernsey business.
Terrorism Order 2001
Under Article 5, it is a criminal offence for any person to make any funds or financial services available to or for the benefit of persons involved in terrorism. In addition to this general prohibition, Article 6 provides that HM Procureur, as the Bailiwick’s licensing authority, may by notice [referred to here as a Freezing of Funds Notice] direct that particular funds are not to be made available to any person, where HM Procureur has reasonable grounds for suspecting that the person by, for or on behalf of whom any funds are held is or may be involved in terrorism. It should be noted that HM Procureur may issue a licence permitting the release of specified funds which would otherwise be caught by the provisions of Articles 5 and 6. No offence is committed in respect of such funds provided that the terms of the licence are complied with. Obligations under Freezing of Funds Notice– if you receive a Freezing of Funds Notice your obligations are twofold. You must: (i) Refuse to make the funds available to the person for or on behalf of whom the funds are held, unless authority has been given to release funds in accordance with the terms of a licence; (ii) Send a copy of the Freezing of Funds Notice, without delay, to the person whose funds they are, or on whose behalf they are held. You will be treated as complying with this requirement if, without delay, you send a copy of the Freezing of Funds Notice to the owner at his last-known address or, if you do not have an address for the owner, you make arrangements for a copy of the notice to be supplied to the owner at the first available opportunity. Failure to comply with either of these requirements is an offence under the Terrorism Order 2001. The Al-Qa’ida Order 2002 This Order contains similar provisions in respect of the provision of funds to listed persons. A listed person as defined in Article 2 is (a) Usama bin Laden or (b) any person designated by the Sanctions Committee in the list maintained by that Committee in accordance with resolution 1390 adopted by the Security Council on 16th January 2002 as: (i) a member of the Al-Qa’ida organisation; (ii) a member of the Taliban; (iii) an individual, group, undertaking or entity associated with the persons covered by (a), (b)(i) or (ii) above. Under Article 7 it is an offence for any person to make any funds available to or for the benefit of listed persons or any person acting on behalf of a listed person. Under Article 8 of the Al-Qa’ida Order 2002, HM Procureur as the Bailiwick’s licensing authority may by notice [referred to here as a Freezing of Funds Notice] direct that particular funds are not made available to any person, where he has reasonable grounds for suspecting that the person by, for or on behalf of whom any funds are held is or may be a listed person or a person acting on behalf of a listed person. It should be noted that HM Procureur may issue a licence permitting the release of specified funds which would otherwise be caught by the provisions of Articles 7 and 8. No offence is committed in respect of such funds provided that the terms of the licence are complied with. Obligations under Freezing of Funds Notice– if you receive a Freezing of Funds Notice, your obligations are twofold. You must: (i) Refuse to make the funds available to the person for or on behalf of whom the funds are held, unless authority has been given to release funds in accordance with the terms of a licence; (ii) Send a copy of the Freezing of Funds Notice, without delay, to the person whose funds they are, or on whose behalf they are held. You will be treated as complying with this requirement if, without delay, you send a copy of the Freezing of Funds Notice to the owner at his last-known address or, if you do not have an address for the owner, you make arrangements for a copy of the Freezing of Funds Notice to be supplied to the owner at the first available opportunity. Failure to comply with either of these requirements is an offence under the Al-Qa’ida Order 2002. Delisting requests Any person within the Bailiwick who wishes to challenge or seek a review of a particular designation by the Sanctions Committee of the United Nations as set out in Article 2 should contact HM Procureur. Applications for licences HM Procureur will entertain applications for licences under the Terrorism Order 2001 and the Al Qa’ida Order 2002 from any party. Such licences will normally only be issued in respect of funding for necessities such as food, medical treatment and accommodation, but funding for extraordinary expenses will also be considered. A licence may be made subject to conditions, and it is an offence to breach any such conditions. Applications for licences, setting out the grounds on which the application is made and including any supporting documentation, should be made in writing to HM Procureur at firstname.lastname@example.org or by post to St. James Chambers, St. Peter Port, Guernsey, GY1 4BY. It is an offence under both Orders for any person knowingly or recklessly to make a false statement or to furnish false information for the purposes of obtaining a licence. Further information about licences is available from HM Procureur’s office at the address above. Unfreezing of funds HM Procureur may revoke a Freezing of Funds Notice under Article 6 of the Terrorism Order 2001 or Article 8 of the Al –Qa’ida Order 2002 by notice [referred to here as a Revocation Notice] at any time. HM Procureur will entertain requests to issue a Revocation Notice from any party. If you wish a Freezing of Funds Notice to be revoked, you should make a request in writing to HM Procureur at email@example.com or by post to St. James Chambers, St. Peter Port, Guernsey, GY1 4BY. Your request should set out the grounds on which a Revocation Notice is sought, for example if you or a person for whom you act are a non-listed person unconnected with terrorism whose assets have inadvertently been affected by the Freezing of Funds Notice, or if you or a person for whom you act were a listed person at the time when the Freezing of Funds Notice was issued but are now a de-listed person. Further information about Revocation Notices is available from HM Procureur’s office at the address above. Applications to the Royal Court Any person by, for or on behalf of whom funds are held under a Freezing of Funds Notice under either Order may apply to the Royal Court to set the Freezing of Funds Notice aside, in accordance with Article 6 of the Terrorism Order 2001 or Article 8 of the Al-Qa’ida Order 2002. Related offences The two Orders create various offences related to the funding of terrorism. Financial institutions should note in particular that, under both Orders, it is a criminal offence for an institution to fail to disclose its knowledge or suspicion that a present or former customer is involved in terrorism, is a listed person or has committed any of the specified offences in the Orders.
Fighting Crime and Terrorism: You can help
Crime and terrorism need cash. Criminals turn the ‘dirty’ cash made from fraud, drug trafficking, smuggling and robbery into ‘clean’ money by using false identities or taking the names of innocent people – like you. You can make life harder for criminals and terrorists.
How can you help?
You may find your bank or other financial services provider asks you to present information or documents about yourself, so that your identity can be confirmed. By providing this information you make it harder for criminals and terrorists to use false names — including yours — in committing their crimes.
Making sure that people are who they say they are is essential in the fight against crime and terrorism.
As has always been the case, when you first become a customer you will be asked to complete an account opening form specifying details about yourself, such as:
¥ Your full name and residential address
¥ Any former names
¥ Your date and place of birth
¥ Your nationality
¥ Your telephone number
¥ Your occupation
¥ The name and address of your employer.
In addition, if you have been a customer for some time but there is any significant change in the nature of your transactions or circumstances, you may be asked to re-confirm your identity. If you use a variety of banks or financial services providers each of them may at some time ask you to confirm your identity. The information you provide is held confidentially.
It does not mean in any way that suspicion is falling on you. Information is needed that clearly identifies or reconfirms who you are. This makes it harder for criminals to use false or stolen identities to access the financial system and turn their dirty criminal money into clean funds.
In Guernsey, all banks and financial services providers are involved, together with the States of Guernsey, the Guernsey Financial Services Commission and law enforcement agencies. We are all united in our determination to continue to crack down hard on crime and terrorism. We need your help as well.
What proof of identity will you need?
The best documents are those that are issued by an official authority, cannot be easily forged, and include a photograph. Separate documents are needed to prove your identity and your home address. Some examples are shown below.
Documents you can use to confirm your identity:
¥ Original or certified copy of a current signed passport
¥ Original or certified copy of a current driving licence which bears a photograph
¥ National ID card
¥ Armed Forces ID card.
Examples of documents you can use to confirm your home address:
Bills — recent utility bills, or cadastre bills where appropriate
Official letters — e.g. from Government Departments
Statements — bank, mortgage.
What if you think you are being treated unreasonably or don’t have any documents you can use?
There are additional procedures in place to help customers who cannot provide the preferred documents or who need assistance.
Your bank or other financial services provider will take a common sense approach to individual situations and should deal with any problems in a sensitive and understanding manner to ensure customers are not inconvenienced unduly. If you have difficulties ask for an explanation or for further assistance.
Please remember though, the law requires your bank or other financial services provider to be satisfied as to your identity.
Fighting Crime and Terrorism:
You can help
Your co-operation is vital to the successful fight against crime and terrorism
Information Largely Courtesy of the G.F.S.C.
G.F.S.C. Fees for Offshore Company Formation in Guernsey
It is relatively cheap for offshore company formation in Guernsey. The following information was accurate as of January 2009, but is likely to be reviewed in the very near future.
Summary of Fees to Open your Own Investment Company:
Regulatory Fees with effect from 1 January 2009 Collective Investment Schemes
Annual fee - scheme £2,900
Annual fee - per additional class £180
Application fee - scheme £2,900
Application fee - new class of umbrella/multi class scheme £625
Application fee - Non Guernsey scheme £1,450
Closed-ended Investment Funds
Annual fee - fund £2,500
Application fee - fund £2,900
Annual fee - Designated Persons of authorised or registered open-ended collective investment schemes
£2,900Annual fee - Designated Manager of authorised or registered closed-ended collective investment schemes £2,600
Annual fee - Principal Manager of authorised collective investment schemes £1,400
Annual fee - Manager of a closed-ended fund £1,400 Annual fee - Other Licensees £2,600
Application fee £1,450