Island gears innovation to assist HNWIs from China

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Recent innovations have made Guernsey an ideal jurisdiction for high net worth individuals (HNWIs) in the China market seeking to optimise their asset protection and wealth planning strategies.

Guernsey is a sophisticated financial centre ideally situated midway between North America and Asia, so the time zone allows same-day transactions between those continents.

Fiona Le Poidevin
Fiona Le Poidevin

Guernsey acknowledges the growing middle class in China and the sharp increase in high net worth individuals. We appreciate that these individuals often have extensive business interests – often linked through families that are spread out over multiple jurisdictions – and we can only stress the attractiveness of Guernsey as a location for the fiduciary services geared to such holdings.

Guernsey is extremely well placed to provide wealth creation, asset protection and succession planning services. As a jurisdiction, Guernsey has been involved in family trusts since the 17th century. The island is also a very significant offshore banking centre. Alongside that rich history is a desire to be on the cutting edge of financial innovation.

For example, Guernsey introduced the foundation as an important additional financial product from this year. For China clients, a foundation represents a simpler and better accepted concept than a trust.

The Foundations (Guernsey) Law 2012 is a flexible and well thought out law. Importantly, it is now possible for an existing foundation established in another jurisdiction to be migrated to Guernsey and registered there without creating a new legal person, and there has been an inflow of foundations into Guernsey since January.

China is a rapidly growing segment of fiduciary business in Guernsey. Guernsey Financial Services Commission (GFSC) statistics show that China-originated business accounted for 1% of the total at 30 June 2012, but represented 4% of new business coming to the island in the year to 30 June 2012, so Guernsey’s popularity is definitely on the increase.

Guernsey fiduciary services offer world-class dynastic wealth planning services. For Chinese clients who might have children studying in the UK, or investments in Europe, or property in the UK, for example, Guernsey entities can provide concierge services that can, say, find a student a place in Eton or Harrow, or offer full visa services to work. We can help with everything from buying a jet to paying the gardener.

Guernsey is transparent, and has always been among the first offshore finance centres to embrace international guidelines and directives, such as the recommendations of the Financial Action Task Force, the European Union Savings Tax Directive, and European Union Code of Conduct on Business Taxation. Chinese clients might use a Guernsey vehicle for accessing European capital markets or alternatively, managers and investors globally might use funds domiciled in Guernsey for investing into China. Guernsey is a fund management leader. According to the GFSC, the net asset value of total funds under management and administration has increased over the quarter ended 31 December 2012 by £2.4 billion (0.8%) to reach £276.8 billion (US$431.2 billion). For the year since 31 December 2011, total net asset values increased by £15.4 billion (5.8%). These funds include highly esoteric asset classes.

Guernsey is a listings leader, and is home to more non-UK entities listed on the London Stock Exchange (LSE) than any other jurisdiction globally. In 2011, Guernsey businesses were approved to list on Hong Kong’s stock exchange. One recent innovation in Guernsey is the introduction of the protected cell company (PCC), first devised in Guernsey in 1997, and the incorporated cell company (ICC) that followed several years later.

PCCs consist of a single legal entity made up of a number of self-contained cells. While the PCC has its own core funds, each cell also carries its own capital and operates individually as a separate ring-fenced account. Its assets are statutorily protected from the creditors of another cell. An ICC follows a similar structure in that it is made up of individual cells. However, each cell has its own legal identity and can therefore operate as a separate corporate entity, but not as a subsidiary of the ICC.

Cell companies were originally vehicles for the captive insurance industry but are now used more widely in Guernsey. Each cell, for example, can represent an individual family member. Thus the assets and liabilities of each family member are segregated, so there is no cross-contamination.

Guernsey is home to the first offshore fund giving international investors exposure to renminbi. The long-only Stratton Street Renminbi Bond Fund was launched in November 2007. It exists as one cell of a PCC.

Guernsey’s finance industry has worked closely with its counterparts in China and Hong Kong since 2006, particularly since the establishment of a Guernsey Finance office in Shanghai at the end of 2007. Guernsey signed a tax information exchange agreement with China in 2010.

This year, Guernsey signed a full double taxation avoidance agreement with Hong Kong, bringing significant commercial benefits to Guernsey’s finance sector by resolving issues relating to potential double taxation and leading to greater opportunities for new business.

Guernsey’s maturity, adaptability, flexibility and innovation mean that it remains very well placed to maintain its position as a leading centre for the Chinese market.

Beijing’s ambassador to the UK, Liu Xiaoming, visited Guernsey in April and pledged to assist with a number of initiatives that Guernsey has been developing with the Chinese market, including those culturally as well as commercially orientated.

Guernsey is committed to fostering deep and broad relationships with China beyond the provision of financial products. Guernsey conducts student exchanges with Inner Mongolia and a breeding programme involving Guernsey’s iconic dairy cattle and those of Inner Mongolia has begun. Interactions like these help build a long-term relationship between Guernsey and China.

Fiona Le Poidevin is chief executive of Guernsey Finance, the promotional agency for Guernsey’s finance industry internationally. She can be contacted on +44 (0) 1481 720071 or by email at f.lepoidevin@guernseyfinance.com