Guernsey Forms of Company

Guernsey introduced a '0/10' corporate tax regime from January 1, 2008 under which normal companies pay no tax, and companies regulated by the Financial Services Commission pay 10% tax. From that date the exempt company and international business company regimes as described below were abolished (other than for Exempt Collective Investment Schemes – “CISs”), as a consequence of which, most Guernsey registered companies are treated as resident for tax purposes. In addition, the GBP600 annual exempt fee ceased to be payable (again, other than for exempt CISs).

The change in the tax regime affects only companies and so unit trusts – which apply for exemption under Category A of the 1989 Ordinance – are not affected and they are able to continue to apply for exemption in the normal way.

Companies which were exempt under Category B (Guernsey registered companies) and under Category C (non-Guernsey companies) are able to continue to apply for exemption if they wish to do so.

Companies which were exempt under Category D are, as indicated above, now resident for Guernsey tax purposes (from 1 January 2008) and their income is chargeable at 0% unless it consists of income from: specified banking activities; profits derived from activities that are regulated by the Office of Utility Regulation; and income derived from Guernsey land and buildings.

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 utilising cutting edge online technology to provide users with incorporations in 15 minutes for prices starting from GBP100 whilst maintaining the Island’s hallmarks of personalised service. The Registry also incorporates the office of the Intellectual Property (IP) Registrar. Online searches and online filing submissions will be the norm. Directors, who will be issued with electronic signatures, will be notified automatically of all events at the Registry which affect their company. Annual returns have been replaced by an annual validation whereby companies simply validate the information held on them at the Registry once a year.

The 2008 Companies Law consolidated much of the companies legislation enacted in the wake of the Companies (Guernsey) Law, 1994, and many of the former Act's provisions remain in the updated legislation. Protected Cell company legislation was also consolidated into the new Act. Two other additions to the new law are the reduction of regulatory requirements, and the introduction of a comprehensive system of corporate controls and governance.

Advocates are no longer required to act in the incorporation process and corporate service providers (CSPs), are the only people who may make an application for the incorporation of a company. CSPs must obtain a fiduciary licence from the Guernsey Financial Services Commission.

The administrative procedures for amalgamating a company and migrating a company in or out of Guernsey have been streamlined by abolishing the requirement for Royal Court approval. Both procedures will now require the consent of the Guernsey Financial Services Commission, followed by an application to the Registrar.

A single test will be used in relation to all solvency related issues including companies converting into protected cell companies, transfer of incorporated cells between incorporated cell companies, conversion of companies into limited liability companies, migrations, dividends, distribution and financial assistance.

The powers of an auditor have been enhanced to investigate companies, which include giving auditors rights to obtain information about resolutions and meetings of the company.

The new law contains a ‘Takeovers’ section, which allows a purchaser of a company to use ‘squeeze out’ provisions in relation to dissenting shareholders if 90% of that company’s shareholders have otherwise agreed to transfer their shares to the purchaser.

The 2008 Companies Act also allows for the formation of mixed liability companies.

Provisions were made in the 2008 Companies Act for both Protected Cell Companies and Incorporated Cell Companies. The benefit of the cellular structure is the ability to segregate and manage risk – a feature which has made the use of these structures popular with the investment and insurance industries. The ICC provides additional inter-cell security in the event of insolvency and unlike the PCC, permits each cell of the ICC to contract with each other.

It was announced in April 2010 that two years after its introduction, the Companies (Guernsey) Law 2008 is to come under review. The law provides the legal framework for the establishment and operation of companies in the island.

“When it was introduced, the Law represented a fundamental overhaul of Guernsey’s existing legislation, involving the consolidation amendment and updating of existing provisions," Guernsey’s Commerce and Employment Department said in a statement on April 7. The statement continued:

"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."

“Given the significant nature of many of the changes introduced by the Law, Commerce and Employment has conducted a post implementation review in order to identify any amendments that may be necessary. These will address practical issues, take account of developments in company law elsewhere, and ensure that Guernsey maintains its reputation as a highly regarded and competitive business centre."

“In reviewing the Companies (Guernsey) Law (2008), the Department has taken note of feedback received from a number of individuals and organisations including local Advocates, local industry and the Guernsey Registry, as well as taking into account broader policy considerations.“

Explaining the purpose of the consultation, Deputy McNulty Bauer, Minister, Commerce and Employment, stated: “The Companies (Guernsey) Law 2008 represented the most significant change to Guernsey company law since protected cell companies were introduced 13 years ago. Guernsey cannot be complacent and must ensure that its law remains cutting edge, flexible and practical. I would encourage all those in industry to provide their feedback on the law and the proposed amendments by responding to the consultation.”

The department set a closure date of May 31, 2010 for the consultation.

Guernsey Private Company Limited by Shares

Guernsey private limited companies are governed by the Companies (Guernsey) Law 2008. It takes less than 24 hours to incorporate a company in Guernsey, and approval is required from the Registrar for company names.

Single member companies may be formed under the new law, dispensing with the need for at least two shareholders. There can be one or more directors, but there is no longer a requirement for a company secretary. There are no residence restrictions on directors.

There are 'default' standardised articles for incorporation, unless a company draws up its own constitutional documents.

Annual returns are no longer required, but companies are required to validate information held by the Companies Registry on an annual basis.

Every company shall hold a meeting of its members within 18 months of the date of incorporation and then once every calendar year thereafter. No more than 15 months may elapse between one annual general meeting and the next.

Guernsey companies may be incorporated under the laws of another jurisdiction under the Companies (Guernsey) Law 2008.

Guernsey Company Limited by Guarantee

Private companies limited by guarantee are otherwise similar to those limited by shares; this form is normally used for charities or other non-profit-making organizations.

Guernsey Exempt Private Company

N.B. Exempt Private Companies were abolished when Guernsey switched to the 'zero/ten' tax system on January 1, 2008. The following describes this company form prior to its abolishment:

Private Limited Companies can obtain exempt status under the Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 and 1992, and they are known as Category D bodies. This legislation was created within the exempt regime that had already existed for some time for Unit Trusts and Investment Funds, see below. Insurance companies and banks are also dealt with under separate legislation.

Guernsey residents may not have direct shareholdings in Exempt Companies. Exempt status must be applied for annually to the Administrator. Exempt Companies do not normally trade in the Bailiwick and must have declared local activity in previous years and paid tax on it; they must also disclose beneficial ownership to the Financial Services Commission. There is an annual fee of GBP600 for exempt status, and there is also a fee of GBP100 payable when dealing with an Application for Exempt Status and filing the Annual Return (in duplicate).

See Offshore Legal and Tax Regimes for details of the taxation of Exempt Companies.

Legislation came into force in 1984 (later amended in Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 and 1992) offering exempt status to Guernsey unit trusts and investment companies (Guernsey or otherwise, and including foreign limited partnerships). They are known as Category A, B or C bodies. The main conditions are that Guernsey property or investments may not be held (other than bank accounts) and that a Guernsey resident must have been contracted to provide administrative services for an arm's-length fee; there are various information requirements.

The application for exempt status has to be renewed annually, and a fee of GBP600 is payable annually. See Offshore Tax and Legal Regimes for details of the taxation of Exempt Investment Schemes.

Guernsey Exempt Insurance Companies

The Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 and 1992 also cover insurance companies, called Category E bodies. Guernsey residents may not have direct shareholdings in Exempt Insurers, and the exemption does not apply to income originating in Guernsey (other than from bank deposits).

The application for exempt status has to be made annually, accompanied by various types of information, and the fee of GBP500. Tax due from previous years must have been paid. See Offshore Legal and Tax Regimes for details of the taxation of Exempt Insurers.

Registered insurance companies may take advantage of the Protected Cell (Guernsey) Ordinance 1997, under which multiple cells may exist within one company; the taxation basis of protected cell companies is equivalent to that of exempt companies. Protected cell company status under the 1997 Ordinance is generally reserved for authorised collective investment schemes, insurance companies and closed-ended investment companies.

Guernsey International Company

N.B. International companies were abolished when Guernsey switched to the 'zero/ten' tax system on January 1, 2008.

The International Company (IC) form was introduced by the Income Tax (International Bodies) (Guernsey) Law 1993 and applies to 'bodies of persons' whether or not incorporated. The IC must be taxable in Guernsey either through residence or a business presence on the island, must not trade with Guernsey residents (except other ICs), must be wholly owned by non-residents or other ICs, and must never have been a bank, insurer or exempt company.

Prior to granting IC status, the Administrator requires extensive information, and usually needs to discuss the applicant's existing or intended business. An appropriate taxation rate can then be negotiated between nil and 30%, allowing the IC to obtain double taxation treaty or withholding tax benefits in other countries.

IC status and the agreed taxation rate are granted for up to 5 years, and are then subject to review. ICs are typically used for group financing operations, captive insurance companies, industrial and commercial activities and overseas investment companies. Exempt companies, banks and some insurers do not qualify for IC status.

Guernsey Branch of Overseas Company

There are no registration or filing requirements for foreign companies as such if they do not trade on the island; and they are not taxed in Guernsey except to the extent that they earn profits there, or if they are managed and controlled from the island. Thus, it can often be attractive for a company to administer operations in other jurisdictions from Guernsey, stopping short of 'management and control'.

Guernsey General Partnership

Partnerships are governed by the Partnership Law 1995. Guernsey partnership law is very similar to English law. In general partnerships, a partner's liability is unlimited. Annual accounts have to be submitted to the Administrator, but there are no statutory audit requirements.

Guernsey Limited Partnership

Limited partnerships are governed by the Limited Partnerships (Guernsey) Law 1995. As usual, the general partner or partners are liable for all debts, but individual limited partners are liable only to the extent of their contributions. Limited Partnerships must obtain a Certificate of Registration from the Greffier, and must maintain a registered office in Guernsey. Limited partnerships carrying on or providing services in relation to the business of banking, insurance, investment, asset management or administration, trusteeship, company or trust formation and administration also produce audited accounts.

Guernsey Trusts

Guernsey trust law has a mixed English/Norman pedigree, but the Trust Law 1989, which mostly reflects English common law, clarified many points, on the whole giving extra protection to beneficiaries. Appeal is to the English Privy Council. There are no registration or filing requirements for Guernsey trusts. (NB Guernsey law does not formally apply in Alderney and Sark but has a substantial influence on proceedings.)

Guernsey has ratified the Hague Convention, and has made specific provision for the non-recognition of foreign judgements and the exclusion of foreign inheritance laws. The maximum perpetuity period is 100 years. There is no specific provision for 'purpose' trusts or for asset protection trusts.

Guernsey International Trusts

It is possible to export a Guernsey trust replacing Guernsey trustees with non-resident trustees and changing the proper law of the trust; equally, a trust established in another jurisdiction may migrate to Guernsey by appointing Guernsey resident trustees. Trust accounts must be maintained although they do not require auditing and the trustees of a non-resident trust do not need to submit returns or provide trust accounts to the administrator of income tax.