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Expat Briefing Editorial Team, 09 December, 2015
This special feature gives the low-down on low-tax Guernsey, from setting up a business in the Bailiwick to moving to the island and taking advantage of its relaxed lifestyle.
Introduction to Guernsey
The Bailiwick of Guernsey includes the inhabited islands of Guernsey, Alderney, Sark, Herm, Jethou, Brecqou and Lihou. Guernsey itself is the second largest of the Channel Islands and is roughly triangular in shape. It is situated in the Gulf of St Malo 130 kilometres south of England and only 48 kilometres west of Normandy, France. The island has a land area of 65 sq. km.
Guernsey enjoys a maritime climate; snow and severe frost are rare. Annual rainfall is between 75 and 90 centimetres, but water on the island is sometimes in short supply, being supplemented by seawater distillation.
The main town is St Peter Port, which has the character of a traditional fishing village, and is overlooked by the mediaeval Castle Cornet.
Official figures put the population of Guernsey at just under 63,000 in March 2012. English is the main and official language, although French is widely spoken, and a Norman patois is used in the countryside.
Culturally, the Channel Islands owe far more to England than to any other source, although there are traces of French culture, and the legal and administrative systems are a hybrid of Anglo-Saxon and Continental forms.
As a Crown Dependency of the British Isles, the Government of the United Kingdom is responsible for the conduct of the external relations and defence of the Island, but otherwise Guernsey is self-governing, including in the area of taxation.
Internal affairs of Guernsey are governed by the island's parliament, The States of Deliberation. The States, as it is usually referred to, is both the legislative and executive body, and has 45 seats. The nearby islands of Alderney and Sark have their own parliaments. The virtual absence of party politics encourages a high degree of consensus and contributes to political and economic stability.
The island has its own courts. Historically, the legal system has continental (Civil Code) origins, but over time English common law has come to have greater influence. Commercial and business law is mostly Anglo-Saxon in nature, and English precedents are often followed. Some UK legislation is adopted as such by Guernsey by agreement with the British Government. The ultimate court of appeal is the English Privy Council.
Guernsey is not a member of the EU. Protocol No 3 of the UK's Treaty of Accession to the EU excludes the island from most of the effects of the Treaty, other than those concerning trade in goods. This means that there is free movement of industrial and agricultural goods between the island and the UK; and between the island and EU and EEA countries. The island also applies the external common customs tariff of the EU.
The Finance Centre
Traditionally, Guernsey's "offshore" industries were geared towards providing wealth management services, predominantly to wealthy residents of the United Kingdom. Successive tightenings of anti-avoidance legislation in the UK have compelled Guernsey's finance industry to seek out new markets with a number of high-profile marketing campaigns in the Near and Far East. These are now starting to bear fruit as interest grows in Guernsey's wealth management offerings among the rising population of newly affluent individuals in the emerging economies of the Middle East and Asia; one of the latest initiatives was the signing of a Memorandum of Understanding by Guernsey Finance and the Shanghai Family Office Union in December 2015 to support business development initiatives between the two bodies.
Guernsey has facilitated growth in its finance center by passing innovative new laws, such as the foundations law and a new image rights register. Guernsey also has burgeoning funds and insurance sectors, plays a vital role in capital raising on the London Stock Exchange, and has just opened an aircraft registry.
The first merchant bank was established in Guernsey in 1963 and according to the Guernsey financial regulator, the Financial Services Commission (FSC), as at June 30, 2015, there were 30 licensed banks in the island with deposits of just under GBP83.5bn. They represent a range of countries with concentrations of banks with head offices in the UK and Switzerland.
The range of services offered by banks in Guernsey is quite diverse. Some provide retail banking services essential to the local community; others target the affluent expatriate market or offer private banking services to high net worth individuals seeking a holistic wealth management solution. Banks also support the other financial services businesses operating in Guernsey providing custody, foreign exchange and other banking services to the investment, fund administration, fiduciary and insurance sectors.
Trust management remains an important activity for Guernsey's finance centre, and trust business has continued to grow based on a more international clientele.
There are approximately 200 licensed fiduciaries in Guernsey, and together these hold an estimated GBP200bn to GBP300bn worth of assets in trust. Licensed entities include subsidiaries of major European, North American and South African financial institutions, subsidiaries of international and Channel Islands accountancy and legal practices and owner-managed independent trust companies.
The island has a very well-developed legal and financial infrastructure for trust management; the highly sophisticated professional services which support the trust sector include lawyers, accountants, investment managers and stockbrokers.
The investment sector in Guernsey also provides a broad range of services including stock broking, investment advice and management, promotion, fund management and administration, and custody of assets to an international clientele. There are close links with the City of London as well as institutions in the European Union, North America, Southern Africa and Asia.
Other investment firms in Guernsey provide independent advice, private client and institutional stock broking, and non-fund portfolio management.
The EU Alternative Investment Fund Manager Directive (AIFMD) is bringing with it a regulatory shake-up of the investment fund landscape across Europe. However, Guernsey is capitalising on its "in but out" EU status by offering a dual AIFMD regime. This will allow funds targeting the EU to achieve compliance with the Directive, while also maintaining existing regulations for those investors and managers who are not obliged to follow the AIFMD route.
At the end of September 2015, the net asset value of all funds under management and administration stood at GBP225bn
Another of Guernsey's specialisms is insurance, and the island is now considered Europe's jurisdiction of choice for companies to register their captive insurance operations.
Guernsey's insurance business can be broadly divided into two types: international insurance business, comprising both captive and commercial insurance companies writing non-local insurance risks; and domestic insurance business, comprising domestic insurance companies writing local insurance risks, and insurance intermediaries advising on or arranging contracts of insurance from within Guernsey.
There were 816 licensed insurers in Guernsey at the end of June 2015. This compares with a total of 797 GFSC-licensed international insurers at the end of December 2014, a net growth of 19. Dominic Wheatley, the Chief Executive of Guernsey Finance, said: "These figures reinforce the fact that Guernsey is home to a vibrant international insurance center and is able to provide solutions to meet a range of different risk management needs.
Limited by its small geographical size, Guernsey is unsuitable as a base in which to position physical warehousing, distribution or processing operations. However, the island has recently emerged as one of the best jurisdictions for tax optimization for multinationals looking to access the European Union markets and Guernsey structures are frequently used by multinationals looking to raise capital on the stock markets. Indeed, Guernsey has more non-UK entities listed on the London Stock Exchange than any other jurisdiction globally, with 122 Guernsey-incorporated entities listed on the three LSE markets at the end of 2014.
In December 2013, Guernsey became the first of the two Channel Islands to launch an aircraft registry.
The registry is open to aircraft not currently used for commercial air transport, aimed mainly at owners, operators and asset managers of business aircraft, as well as aircraft lessors. Guernsey's nationality mark has been confirmed as "2" followed by four letters.
In April 2014, the Registry announced the registration of an Airbus 319 – its most significant signing since its launch. On May 26, 2015, the registry welcomed its 50th aircraft, just 17 months after its opening.
Although Guernsey is by no means "over-regulated," the Government takes regulation of the finance centre very seriously, and for this reason the jurisdiction is seen as one of the most reputable and transparent IOFCs in the world.
As mentioned, the finance centre is regulated by the Guernsey Financial Services Commission, which oversees the regulation of the banking, insurance, investment and fiduciary sectors. Anti-money laundering legislation is in place, and the International Monetary Fund concluded in 2003 and 2011 that Guernsey has demonstrated a high level of compliance with the standards set by the Financial Action Task Force.
Guernsey has its own system of taxation and a long-standing, fair and competitive tax regime that meets OECD standards of transparency and information exchange. The jurisdiction has a favourable personal and corporate tax regime with no capital gains, inheritance or value-added taxes.
Companies generally pay tax at 0 percent although financial services companies pay tax at 10 percent and utility companies at 20 percent.
The personal tax rate is a flat 20 percent, after deduction of personal allowances and reliefs with the facility, for those with high incomes, to cap their liability. Additionally, there is a special regime for those who are resident in Guernsey, but not solely or principally resident.
It is the employer's responsibility to deduct tax from employees and pay this to the Income Tax Office on a quarterly basis. This is done through the ETI (Employees Tax Instalment) Scheme, equivalent to 'pay-as-you-earn' in other jurisdictions. Free software is available to help employers manage Income Tax and Social Security payments.
On July 1, 2008 a new Guernsey Companies Law was introduced in parallel with a new Guernsey Registry. This saw the Island's system for company formation and administration move from a court-based model to a streamlined statutory process. The Registry is utilizing cutting edge online technology to provide users with incorporations in 15 minutes for prices starting from GBP100 whilst maintaining the Island's hallmarks of personalized service. The Registry also incorporates the office of the Intellectual Property Registrar. Online searches and online filing submissions are the norm.
The 2008 Companies Law consolidated much of the companies legislation enacted in the wake of the Companies (Guernsey) Law, 1994.
The 2008 Law has been well-received and has proved a successful piece of legislation for Guernsey - providing a competitive and leading framework from which to carry out business locally, nationally and on an international platform.
The following company formats can be formed under Guernsey company law: Limited Companies (both private and public and limited by shares or by guarantee); Limited Liability Partnerships; Limited Partnerships; Trusts; and Foundations.
When registering a business in Guernsey it is a legal requirement to inform the Income Tax Office about the nature of the business, the date of its commencement and an estimate of its profits in the first year of trading, if possible.
It is possible in certain cases to migrate an existing company from an overseas jurisdiction to Guernsey. This is known in Guernsey as registration of an overseas company as a Guernsey company.
This is usually dependent on whether the company laws in the jurisdiction in which the company is currently registered allow companies to migrate. UK companies legislation is one example of a jurisdiction which does not permit such migrations.
Guernsey's Government is pro-business and tends not to put administrative and regulatory obstacles in the path of businesses. Hence, many companies set up on the island with minimal or no contact with the Government. However, the Commerce and Employment Department has a Business Relationship Manager should new companies wish to establish contact with the Government.
There is a diverse range of opportunities for buying or renting business premises depending on the needs of the business. There are a number of significant office developments around the Island offering unique locations ranging from high quality new builds to prominent historic buildings in the centre of St Peter Port.
The refurbishment and re-use of the existing office stock in the main centres is encouraged and therefore there are always opportunities for purchasing or renting premises in prime locations.
A contract of employment is a legally binding agreement made between an employee and an employer when an offer of a job is accepted.
Under Guernsey law workers are entitled to be paid a minimum wage. From October 1, 2015, the Adult Rate (18 years and over) is GBP6.85 per hour (GBP6.65 prior to October 1, 2015) and the Young Person's Rate (16 and 17 years old )is GBP6.10 per hour (GBP5.55 prior to October 1, 2015).
The Employment Relations Service has created a straightforward guide on employment rights, including information on terms and conditions of employment, pay slips, periods of notice, unfair dismissal, discrimination and minimum wage.
A wide range of social security benefits are available to Guernsey and Alderney residents. Reciprocal agreements exist with a number of countries to preserve social insurance entitlements for migrant workers.
Benefits available include health benefits, sickness and unemployment as well as old age pensions and long term care. Employees pay 6 percent of their gross earnings towards social security and employers pay 6.5 percent.
Employees over age 65 do not have to pay the employed person's contribution rate, but the employer liability to pay remains for any employee over the age of 65.
In general terms, if businesses intend to employ nationals of countries outside the European Economic Area, then a work permit will be required for those people.
Work Permits in Guernsey are issued by the Guernsey Border Agency, part of the Home Department.
Guernsey is a small island with a growing population and economy, and as such the limited housing stock of about 22,000 dwellings is tightly controlled to ensure that there is enough housing to meet the needs of its residents.
While there are no controls over who can own a property on the island, there are rules in place regulating who can occupy the property.
The housing market is split into two sectors: the Local Market, where there are controls on who can live in the accommodation and for how long; and the Open Market where properties can be owned and lived in by anyone, subject to certain restrictions. There are currently around 1,700 properties (private dwellings) on the Open Market register and a number of local estate agents are Open Market specialists. The 15 transactions which took place on the open market in the third quarter of 2015 had a median average price of GBP872,500.
Most people in Guernsey live in local market accommodation and anyone seeking to take up residence in Guernsey who is not a qualified resident – essentially someone born in the islands - or the immediate family of one can generally only live in the local market under a license.
However, the process of relocating staff from abroad to work in a business in Guernsey is not as daunting as the above summary appears. The Housing Department grants Employment Related Housing Licenses, (also known as Right to Work documents) which enable employers to recruit staff who are not resident in Guernsey. These licenses enable essential staff to buy or rent local market accommodation. However, the Department will seek to determine whether the skills required by the business are already available on the Island before such a license is granted.
There are different types of essential license:
Short term - these are granted for periods of nine months up to a maximum of three years.
Essential - these are issued for up to 15 years but the vast majority are granted for five years.
Life In Guernsey
Although some people might consider Guernsey's diminutive size as a disadvantage, it certainly has its upsides too. With the island nine miles long by six miles wide, most places are little more than a few minutes' drive away from each other, so one doesn't have to worry about getting stuck on gridlocked motorways or broken-down trains. For business people this is a positive boon, giving them the ability to set up several face-to-face meetings in a single day.
"Guernsey is a great place to live and do business," says Business Guernsey. "A hidden gem nestled in the English Channel, the Island not only offers a geographically convenient business center close to many of the major European cities, but also a safe and friendly place to live, something often lost in the hustle and bustle of today's business world."
With its mild climate, abundant beaches (of which there are 27) and breathtaking coastal scenery, there are plenty of opportunities to enjoy the outdoor lifestyle in Guernsey. With over 28 miles of cliff paths, sweeping bays and rural lanes there are plenty of opportunities to get to know the Island. Naturally, water sports are also widely enjoyed, including yachting, kayaking, sailing and windsurfing to name just a few.
Private health and fitness clubs are also available offering a range of facilities, as well as two 18-hole and one 9-hole golf course.
What's more, crime rates are low in comparison to the UK and other large countries, making Guernsey a family-friendly location.
The main center of economic and social life is of course St Peter's Port, which offers a mix of boutique shops and larger branded shops, as well as small shops offering locally made products and antiques. There are also regular markets and other events taking place in the town, including an annual food festival. Indeed, Guernsey has a growing reputation for culinary excellence, with around 90 restaurants on the island mainly using fresh local produce.
Guernsey offers an excellent education system with free schooling for all students up to the age of 18. There are also three grant-aided private colleges on the Island.
The compulsory age of school attendance in Guernsey is from five to 16 years, with a number of opportunities available to pupils if they wish to continue their studies post 16.
Although Guernsey does not have its own university there are still plenty of opportunities for further education such as Open University and higher education courses.
The States of Guernsey spend more on health and social care than on any other area of government reflecting the high standard of these services within the Island and the value placed on ensuring healthy living. This is reflected in an average life expectancy of 80 years, higher than that of the UK.
The healthcare system in Guernsey is different to that of the National Health Service (NHS) in the UK. All primary care is provided on a private basis whilst some secondary care and specialist services are free. Specialist (secondary care) services are only accessed via a referral from a GP. There is no reciprocal health agreement between Guernsey and the UK so it is advised that prospective residents consider taking out health insurance. Visits to a general practitioner and accident and emergency will incur a charge, as will dental appointments, physiotherapy and use of an ambulance.
Getting To and From Guernsey
Although it may appear remote on the map, Guernsey is fairly accessible by air from the UK and a number of European cities, and there are regular ferry services between Guernsey and the south coast of England, France and Jersey.
By air Guernsey is about 45 minutes flying time from London Gatwick and about three hours by boat from Portsmouth, Poole and Weymouth.
Five airlines operate flights from Guernsey to destinations in the UK and Europe, including Aurigny, Flybe, Blue Islands, AirBerlin and Fly VLM.
Condor Ferries operates a fast service between Guernsey, England, France and Jersey while Manches Iles Express operates a route between Guernsey and Dilette in France.
Passengers arriving from the UK or the Republic of Ireland do not need a passport, but do need to provide some form of photographic identification. Passengers arriving from outside of these two countries do need a passport, although European Economic Area (the EU, Iceland, Liechtenstein and Norway) and Swiss nationals can use their national identity cards.
Certain Non-British/EEA nationals require a visa to enter Guernsey.