Doing Business Internationally: Guernsey

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Christy: Hello, everyone, and welcome to today's webinar, "Doing Business Internationally: Guernsey." My name is Christy DeMaio Ziegler, and I will be your moderator.

Please join me in welcoming our host, Helena Ledic, an associate general counsel for CSC in the Chicago office. Helena?

Helena: Thank you so much, Christy, and thank you to the audience for joining us today for our "Doing Business Internationally" series, which is focused today on Guernsey. And I'm joined by our experts in Guernsey. We've got Alison Parry, who is the Global Head of Private Clients, Amit Taylor, the Head of Corporate Services, and then Kees Jager, the Head of Funds. Alison?

Alison: Hello. Please to meet everybody. I am Global Head of Private Clients and based here in Guernsey, but look after the international side as well. I hope to have the pleasure to either meeting or speaking or communicating with you all kind of separately sometime after the presentation and, yeah, look forward to telling you a little bit more about Guernsey. Amit?

Amit: Thanks, Alison. Hi. It's Amit here. Having moved here from London 13 years ago, I'm also so pleased to be able to showcase Guernsey for you today.

Kees: Hi. I'm Kees. I'm here today to give you an insight into the fund regime here in Guernsey and to give you a bit more information why it's a great place to do business both for your investors and fund managers alike.

Helena: So let's talk about our Guernsey agenda today. We'll learn a little bit about CSC, and then we'll get into why Guernsey. We'll learn about that country profile. We're going to also talk about the legal and regulatory considerations for doing business in Guernsey and then how CSC can help.

A little bit about CSC. For more than 120 years, CSC has been the partner of choice for companies around the globe, trusted to handle everything from incorporating a company through maintaining compliance, to corporate transaction work, protecting digital assets from the threats of the online world, and everything in between. We offer the solutions and technology that keep businesses running in the background, allowing clients to focus on the important work of growing their business.

Let's now look at the global footprint for CSC. You can see our headquarters are in the United States, with the star over there for Wilmington, Delaware. But we've got offices and capabilities in more than 140 jurisdictions across Europe, the Americas, Asia-Pacific, and the Middle East. We're a global company capable of doing business wherever our clients are, and we accomplish that by employing local experts, such as Ali, Amit, and Kees, in every business we serve.

Now let's learn a little bit about Guernsey. Guernsey is roughly the size of Manhattan, but with a fraction of the population at only about 65,000 people. It's part of the Channel Islands and located about 27 miles off the coast of Normandy, only a one hour flight from London. As we'll soon learn, it's a British Crown dependency.

Guernsey has been a center of finance since the 1960s and specializes in private capital funds, investment structures, and private clients. Financial services account for 37% of the GDP, and there are three different levels of corporate taxation. There are approximately £120 billion of regulated funds in private equity.

Let's now dig a little bit more into Guernsey and learn why it is such an attractive place to be able to do business. We're going to hear from all of our speakers on this slide, but we're going to get started off with Alison, who's going to talk to us about the legal and fiscal structures. Alison?

Alison: Thank you. Helena has already mentioned the fact that Guernsey is part of a Commonwealth kind of country. And really to describe kind of where that actually kind of came from, we have to go and go back into history.

So if we go back to 1066, which was the Battle of Normandy, where the Duke of Normandy invaded England and took over England and also the British Islands. Fast-forward, kind of 200 years later, the English fought back and actually retook over England. And at that point, the Channel Islanders, so Guernsey was able to decide did it want to kind of stay then with England, or did it actually want to kind of go to Normandy. So the islanders negotiated a kind of pact, if you like, whereby they retained then their English identity. However, they were able to make their own legislation. So in other words, what they did was they recognized the Crown. So on the island, we recognize King Charles as our king. However, we have no representation in the courts of England, and we are not bound by the rules of the legislation of England or of the UK.

So when we look at the kind of Guernsey law, the law is actually founded in Norman law, and then over time has now developed into much more of the English common law. England and the islands, as we've already mentioned, they're only an hour away by flight, and a lot of the kind of links between the two have actually resulted in kind of the legal environment that we have.

The main court in Guernsey is the Royal Court, and it's well versed in standard applications, such as blessing applications, and more complex disputes. And certainly the advisors that I speak to name the quality of the courts and the clarity of Guernsey's legal framework as reasons why Guernsey is an attractive jurisdiction to actually do business in.

From a fiscal point of view, so the tax point of view, we have an extremely simple tax regime. There is no capital gains tax. There is no value-added tax. There's no inheritance tax. We don't have any goods or services. We don't have any wealth tax. The island only has a flat rate of 20% income tax, and that is taxed on residents of the island. There are certain companies on the island which will be applied a 10% rate, and again that's applicable on the activities which they do, so that will include things like banking and insurance. So for anybody outside of the island, who's either investing in or doing business in the island, they will only be taxed on what their tax rate is in the country of their actual kind of jurisdiction or their residence.

So having done kind of the legal and tax piece, I'm going to pass on to Amit now, who can tell you a little bit more about kind of how the island does business. Amit?

Amit: Thanks, Alison. So in terms of speed to market, one of the key advantages of Guernsey is that it's quite a small island. And so what you've got is an ecosystem of service providers, such as CSC, lawyers, accountants, and government who are all working together really with a common objective, which is about serving clients' needs.

Our regulator, the Guernsey Financial Services Commission, the GFSC, also works to tight deadlines alongside us on approvals as does the Registry. So the Registry has a fast-track service where you can actually incorporate a company in under an hour. And I guess the combination of this results in real speed to market, and it's one of the factors why a number of our clients choose Guernsey over other jurisdictions.

In terms of innovation, for the same reasons, Guernsey has had a real history of being innovative as an island. So it's had to adapt from being known for growing tomatoes and flowers, its dairy industry and the iconic Guernsey cow, which is renowned for the quality of its milk, to developing a first-rate finance industry from the 1960s onwards. And the finance industry continues to constantly innovate and serve the changing needs of clients, with structures such as the protected cell company, the PCC, and the incorporated cell company, the ICC, and the Private Investment Fund, which Kees will come onto in more detail later on in the webinar.

And so coming back to the previous point, that ecosystem allows Guernsey to be very nimble in launching new products or adapting laws. Kees, do you want to take us through the remaining points?

Kees: Sure. Thanks, Amit. As already mentioned, Guernsey is an established finance center, and it has been for really over 60 years. And over that time, Guernsey has developed its offering in a diverse range of sectors, some of them listed in the slide, obviously the investment funds, trust companies, pensions, insurance, and banking, for example. As these industries have become more established, so have the products available in these sectors, and as you would expect so has the sophistication of the service providers that administer or advise on them.

Service providers range from administration firms, such as ourselves, to audit and law firms, banks, financial advisors, insurance specialists, etc. But for both service providers and clients, using Guernsey is considered a very stable place to do business.

Ali has already taken you through the dynamic of Guernsey and that financial services play a key part in the Guernsey economy. This has been reinforced by the development of the regulatory environment alongside that in which we operate. So, for example, Guernsey was an early adopter of the OECD's requirements to improve transparency and to establish an effective exchange of information for tax matters under CRS, which is the Common Reporting Standard.

Guernsey has also been whitelisted by the EU for substance purposes since 2019, and it continues to be to this day. And substance has become a key part of our day-to-day, which provides a significant amount of comfort to our clients. Of course, substance is only applicable to certain entities that are undertaking certain activities, which I'm happy to expand on should that be of any interest at a later date.

Helena: Our speakers are now going to walk us through the U.S. perspective of why Guernsey. We're going to hear from all three of them on this slide, but we're going to get started off with Kees talking about funds. Kees?

Kees: Thanks. As you can see from the first bullet in this slide, the relationship between Guernsey and the U.S. is fairly successful to date, and Guernsey has facilitated in the region of £43 billion of investment into the U.S. through its fund regime per annum. That number continues to grow and grow pretty rapidly. The latest stats will probably reinforce that statement even more. Guernsey is seeing a similar figure in committed capital from U.S. investors into Guernsey structures. Again, that is a number that is continuing to rise, and it's a great news story. And I think the relationship between the U.S. and Guernsey from that fund perspective is a real success story.

Trends are showing that over two-thirds of the invested capital has been deployed into private equity. It remains the prime sector that investment is going into, with over 90% of the cash being invested globally, particularly into mainland Europe.

Amid greylisting of other jurisdictions by the Financial Action Task Force, Guernsey is a low-risk option for investors and managers. We're seeing a trend of clients migrating entities to Guernsey from higher risk areas. And the island has been pretty innovative and fast-moving in implementing systems and making this fairly straightforward for clients.

Finally, on the point on NPPR, which is the National Private Placement Regime, it allows U.S. managers to market their funds and products to countries in mainland Europe without the requirement of a full AIFMD passport, which is a much quicker and often cheaper and easier alternative.

Guernsey is also considered a third party for access to the EU under the Trade and Cooperation Agreement signed in 2020, and it's also considered a third country, which means it voluntarily adopts certain EU legislation to allow access to the EU.

There is mention of the Private Investment Fund there, which is one of the fund products which has proven to be very popular in the last few years. I'll come onto a little bit more detail about the PIF specifically, but it is an example of the nimbleness of the regulator and reinforces Amit's point earlier about the speed to market.

I'll just pass over now to Ali to give you a bit more background on private clients.

Alison: Thank you, Kees. On the private client or in the private client world, I guess one of the things we need to talk about is kind of who our clients are. So from a private client point of view, we're looking for the individual. So we're looking for the entrepreneurs, we're looking for the families, those who are looking for a safe, secure, a well-regulated jurisdiction in which they know that their assets, that their wishes, their wealth is going to be managed correctly in a compliant, from a legal and taxation point of view.

We spoke on the last slide about the compliance. We also spoke about the taxation and also the wealth of experience that the island has got. This all leads really nicely into kind of the private client world. We have a raft of fantastic experts here on the island to be able to help your clients. The island, because it's so closely linked through to London, on a day-to-day basis the three of us are working regularly with the top lawyers based in London or internationally on some of kind of like the major structuring that's being done kind of internationally.

From a U.S. perspective, we've spoken about the regulatory side, and what that does mean is that means that the island has full access to all of the investment managers, all of the banks who are available to our clients. The use of the PTC, so the private trust company, we see quite regularly used where we have international U.S. families with members of their family now outside of the U.S., where we can have commonly managed controlled boards, allowing for a U.S. compliant structure to sit alongside a more international structure.

It's certainly an ideal place for the family office establishment. And again, we have many individuals who have a wealth of experience in kind of working in this sort of area, working with the families to ensure that the governance structure is put in place to allow for succession of wealth down to the next generation and the generation after that.

So from a U.S. perspective, onshore we have a fantastic kind of tax regime. International kind of trusts allow for they can last indefinitely. Our Guernsey law is well recognized internationally and has a very robust legal system.

I'm going to pass on to Amit, who's going to talk a little bit about the kind of corporate side of things.

Amit: Thanks, Ali. So one of the key reasons why U.S. clients, especially private capital fund managers, are advised to structure through Guernsey is that Guernsey company law allows for efficient flow of capital. So more specifically, the law allows that dividends do not need to be paid from either profits or reserves.

So many of our corporate structures are actually investment structures, which are ultimately owned by a fund, sometimes a Guernsey fund, sometimes not. And these structures then ultimately own the underlying investment, be it private equity, infrastructure, or real estate. And having these companies domiciled in Guernsey allows for capital to be upstreamed to the fund more easily than in other jurisdictions whose company law does not cater to this.

We're also seeing a structure called the Guernsey property unit trust or GPUT being used by many institutional investors, including U.S. fund managers to structure investments in UK real estate, not exclusively UK real estate, but predominantly. And the key reasons for using GPUT include, firstly, there's no stamp duty payable in Guernsey or the UK on transfers of units in a GPUT. No income tax or capital gains tax is payable in Guernsey by a GPUT trustee. And there's the potential to be transparent in the UK for tax purposes. And lastly, it's a structure recognized and accepted by lending banks in the UK and elsewhere. So in summary, this structure is often used by investors as a tax-efficient structure with exit in mind, therefore allowing a higher sale price to potentially be achieved.

Helena: Now that we've learned from Ali, Amit, and Kees all about Guernsey with the different fiscal and legal structures and its attractiveness as an investment location, let's now talk about how CSC can help you with your clients.

So now let's dig a little deeper into how CSC can help you in Guernsey. We're going to learn about the different aspects with entities and their formation and management. We'll also be learning about private clients and then the fund administration. So Amit is going to get us started off with the entity formation and management. Amit?

Amit: Thanks, Helena. So CSC are actually one of the largest service providers in Guernsey. We've got over 150 experienced and qualified staff who offer an extensive suite of services to support our clients, and we can be really flexible in tailoring these to clients' needs. So we can help with the whole life cycle, through entity formation, working alongside clients and their advisors to set up the structure. We'll take care of the KYC and due diligence work. And we'll work with clients' advisors and when necessary with the regulator on any regulatory applications.

So once the entity has been established, we can then provide a similar flexible suite of services. We can act as registered office and resident agent. We'll provide a company secretary to take care of organizing board meetings, taking minutes, and taking care of the various governance requirements and necessary filings to keep the entity in good standing.

We've also got specialists which take care of bookkeeping and accounting and local tax compliance and some UK tax compliance work and reporting. We'll also act as trustee, and we can provide either corporate directors or individual directors to funds and companies. And Kees mentioned the EU Economic Substance legislation, which came in a few years back. Our clients increasingly, in the light of this legislation, ask us to act as directors in Guernsey structures.

At the end of the life of the entity, we'll work alongside the client and advisors and in the case of liquidation alongside the liquidator to terminate the structure.

Moving on to corporate services, so I've already talked earlier in the webinar about investment SPVs and also about Guernsey property unit trusts. Many private capital managers also use Guernsey structures for incentivizing employees and management of the underlying investment companies, and these can be as simple as another class of shares, sometimes help for a nominee on behalf of senior management. And then for the wider employee base, in the portfolio company, employee benefit trusts or EBTs are often then used to facilitate and direct share ownership to employees.

Another area that Guernsey has deep expertise in and that we can provide support for is for listed vehicles. So we supported the establishment of several special purpose acquisition companies or SPACs, which have been listed on the main market of the London Stock Exchange in recent years.

I'll now hand you over to Ali to talk you through our private client offering in Guernsey.

Alison: Thank you, Amit. So private clients, this is a world I actually really enjoy kind of talking about. Private clients are individuals. These are people who are looking for our services to help manage their wealth going forward. And their needs will be very, very, very different. Often we're talking to the entrepreneur, the business owner. They get into a stage either in their kind of career or their life, their family stage where they're thinking about succession planning, so how they can preserve the continuity of the ownership and how it's going to be kind of managed through into the next kind of generation and hopefully the generation after that.

Estate planning is another area that we quite often kind of get involved with. This allows the client to think about, again, their wealth, how they actually want it to cascade, if you like, down to the next kind of generation. Very often they want a degree of control, before their death, in deciding what happens and putting limits. So, for example, they might be looking at the grandchildren and think, "I only want them to receive kind of enough benefit to allow them a fantastic education at this stage. And I want to see that they're actually doing something with their lives, that they're actually involved in some sort of career before they actually start getting any benefit."

Each family is very, very different. And with that, comes a number of different kind of asset classes. So we deal with residential property, aircraft leasing, and investment portfolios. Employment companies, they're quite often used particularly where you've got family offices involved. And finance companies, again, these are individual kind of family-owned financing companies where it allows you to be able to move kind of monies between different kind of structures, which can allow them to be able to use and to finance the next project that's kind of going on.

It's absolutely fascinating, and again we've got experience kind of here of dealing with charitable trusts, the family kind of governance frameworks, the trusts and the foundations. I will be very, very happy if anybody else on the call wants to kind of get in contact, happy to kind of share some case studies and talk about any way we can help you. But for now, I'll pass over to Kees so he can tell you all about the fund administration side.

Kees: Thanks, Ali. At CSC, we provide services to clients through the full life cycle of a fund, and it really is an end-to-end solution for clients. As Ali alluded to at the start of this slide, we take clients through the take-on and due diligence process, all the way up to the closing of the fund and through the close process. To get to that stage, we will take clients through the regulatory approval process, and then we'll provide administration services, back-office administration services to the fund through the investment cycle and also through the exit cycle of the fund.

We provide directorships and regulatory prescribed positions to the structure as required, such as a compliance officer or money-laundering reporting officer. We also have longstanding and strong relationships with specialty service providers required to sit alongside funds, such as audit firms and legal firms that we can provide introductions for.

Investor reporting and fund regulatory compliance is very high up on our clients' and fund managers' agenda at the moment, and it's getting a lot more focus from clients, particularly in regard to accuracy, timeliness, and having a cost-effective solution. And through our robust systems and processes, we ensure clients are in good standing and have a good relationship with their investor base, from a reporting standpoint, as well as the regulator, which is obviously also very important.

There's a range of structures which we administer. The majority of the Guernsey fund structures are a GP, so a general partner and a limited partnership type structure, with AIVs being the funds sitting inside there and carry vehicles sitting alongside. We also look after private investment funds, which I'll give you a bit more information on shortly, but also PCCs, regulated PCCs and ICCs, and associated carry vehicles, as I already mentioned.

The PIF is the private investment fund. It's quite a new structure to Guernsey over the last couple of years, and it has been developed and the regulator has refined some of the requirements under the PIF. It does give new clients as well as existing managers quite a nice product to get to market quickly. Some of the advantage of a PIF it is light touch from a regulatory perspective. That's not just from filings, but also from oversight from the regulator. When you're establishing the PIF, there's no requirement for a PPM or an offering document. The regulator will give you regulatory approval within 24 hours from when the application is submitted, which is very, very fast.

We've done several of these, and they do stick to what they promise. So it's very impressive. The PIF is limited to 50 investors at close of the fund, and it does require a regulated administrator, such as CSC, because we have to give warranties to the regulator. But the structure, it reduces the financial burdens particularly for new managers into the island and looking to set up their first funds, but also for established managers to have a new structure or a different type of structure in their portfolio. So it provides speed, but it's also a regulated structure, which investors require.

Helena: Now let's talk about CSC's global coverage. As I mentioned earlier, our headquarters are in Wilmington, Delaware, but we deliver services in more than 140 jurisdictions. We have the distinct advantage to be able to serve our clients wherever they are. We have regional hubs around the globe, with in-country experts, such as Ali, Amit, and Kees, who understand the ins and outs of various jurisdictions. You'll work with a dedicated service team in your time zone, fulfilling all your service needs. In all, our team is wherever you need us to be.

At CSC, we like to say that we're the business behind business. As you can see from the solutions listed here, we're the partner of choice for global companies needing expertise in business administration and compliance, fund solutions, transactions and lending, capital markets, and domain security and brand protection. Whatever your company needs to stay in compliance, transact business, or become secure against the threats of the online world, CSC can help.