By Wendy Weng, Guernsey Finance.
Guernsey,as a leading International Finance Centre (IFC), has significant experience and expertise in supplying offshore wealth management services to individualsfrom around the world, including China.
With a heritage dating back more than 50 years in the provision of financial services, Guernsey’s wealth management sector is made up of more than 150 lead corporate licensees, ranging from local, boutique providers to large, multinational organisations.
The Island provides a third country location from which Chinese individuals and families, who may be spread across the globe, can protect and manage their wealth and assets in a tax efficient manner for the benefit of future generations. This wealth planning may be provided through a variety of sophisticated structures including trusts, companies or foundations.
Trusts and companies
Unlike Caribbean jurisdictions such as the British Virgin Islands (BVI) and Cayman Islands which promote the use of ‘off the shelf companies’, Guernsey’s use of sophisticatedstructures such as the Private Trust Company (PTC) ensures that trusts can be built bespoke to client requirements – recognising that each individual’s or family’s needs are different.
The trust has been successfully used in the United Kingdom (UK) and United States (US) for many years but the concept is less familiar in civil law jurisdictions such as China and as such, for many clients, the idea of handing over control of wealth and assets to complete strangers – albeit professionals –is an uncomfortable prospect. Yet, Guernsey can address these concerns.
Firstly, Guernsey has well-established legislation and supporting legal infrastructure including courts which have many decades of experience in dealing with judicial matters. Secondly, within the arrangements of a standard Guernsey trust there are special provisions which allow for the Settlor to take control of the wealth or assets; the use of structures involving a PTC or purpose trust gives the Settlor greater control – they may sit on the board of the PTC and also be in command of the purpose trust which is the ultimate authority over the PTC board.
It should be stressed though that, aside from the tax implications, there are dangers in the Settlor controlling the wealth or assets, especially if they are not experienced or have particular expertise in managing such affairs. Indeed, trusts have been successfully used for many years in the UK and US precisely because the trustees have been independent financial professionals.
Similarly, where dynastic planning is the goal, for the family wealth to successfully pass down through the generations, the client will have to give up control at some stage. The PTC structure allows for control to be handed over gradually with following generations brought in as and when most appropriate.
Foundations
For some clients a trust is not the right option and therefore, at the start of 2013, the Guernsey Foundation was introduced. It can be used as an alternative to the PTC and purpose trust arrangements that have traditionally been used to allow Settlors to retain control over assets and wealth.
Compared to a trust, a foundation is more like a company in that it is an incorporated entity with a separate legal personality where assets are owned by the structure rather than the trustees. Having said that, a foundation differs from a company in that it does not have shareholders to whom the board are accountable but instead it holds assets (in its own name) on behalf of the beneficiaries, for particular purposes, or both. There are no trustees but instead council members provide much the same role of acting in good faith and cannot, without express authorisation, profit from their position.
The foundation’s constitution comprises a charter setting out the foundation’s purpose, initial assets and duration (which may be unlimited) as well as rules prescribing, among other things, the functions of the council and procedures they must follow.
Guernsey has taken note of the fact that some clients may worry about confidentiality because as foundations are registered entities, they are, unlike trusts, publicly visible. In Guernsey, only very limited details are available to the public whereas in some other jurisdictions the whole charter is commonly visible. Yet, Guernsey’s approach also means that this limited visibility offers the benefit of easily proving the foundation’s existence.
The early foundation registrations in Guernsey were for philanthropic purposes and we expect to see this continue going forward but we are also now seeing structures set up for more traditional private wealth management, estate planning purposes and other family arrangements.
Managed services
Guernsey also offers a particularly unique solution to help banking groups establish a presence in the Island – the administered bank. This is where a group new to the Island utilises the infrastructure and expertise of an existing provider to establish a presence in Guernsey. Using an administered banking service provider is a cost-effective, time-efficient way to establish a banking subsidiary or branch in Guernsey which can act as a ‘test-bed’, or incubator, for something more substantial in the future.
In a similar way, a Managed Trust Company (MTC) is the arrangement by which an existing licensed service provider takes responsibility for the operational functions of a trust business, set up and owned by another company. For example, they allow company ‘A’ to beneficially own a Guernsey MTC ‘B’, which then provides services to company A’s clients. This MTC would be administered by a Guernsey based fiduciary services company which would provide all necessary officers and ensure it complies with local regulations.
Guernsey advantages
A major advantage that Guernsey has over other jurisdictions is that it is located in between the UK and Europe. This means that it offers quick and easy access to both these markets and, being in the same time zone as the UK, enables business to be conducted with both Asia and the Americas in the same day. The Island is also situated in an area free from natural disasters and with a temperate climate so that business continuity is ensured.
A number of Guernsey-based firms have also developed their own presence in the region following the opening of our Guernsey representative office in Shanghai in 2007. Law firm Ogier has offices in Hong Kong and Shanghai and MourantOzannes is now established in Hong Kong. Wealth managers Louvre, Nerine and Newhaven have established offices in Hong Kong and Richmond Fiduciary Group has opened an office in Shanghai.
