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Investment Funds A guide to establishing a fund in

Investment Funds Guernsey September 2020

Investment Funds

Investment Funds A guide to establishing a fund in Guernsey

Introduction 4 Fund types 4 Modern legislation 4 Guernsey Financial Services Commission 4 International recognition 4 Application procedure for registered funds 5 Qualifying Investor Funds 8 Manager Led Product 8 Private Investment Fund 9 Open-ended funds 9 Closed-ended funds 11 Hedge Funds 11 Companies 11 Unit Trusts 12 Limited Partnerships 12 Limited Liability Partnerships 13 Recognised Funds and AIFMD 13 Country status 14 Selection of fund structure 15 Taxation and charges 15 FATCA 17 About Ogier 18 Contact 18

3 Investment Funds

A guide to establishing a fund in Guernsey The investment funds industry in Guernsey has continued to achieve significant growth in recent years.

Figures from the Guernsey Financial increasingly popular for use as a policy of selectivity which means Services Commission (the “GFSC”) special purpose vehicles in asset that great weight is given to the show that as at 31 March 2020, the securitisation, real property and status of the intended promoters. net asset value of all funds under other specialised schemes. management and administration in Only those of the first rank Guernsey was £267 billion. Modern legislation are encouraged. Normally a The growth of the investment demonstrable and favourable The Island has developed into funds industry in Guernsey is track record in the establishment a leading jurisdiction for the attributable in part to the policies and/or management of collective establishment of investment funds of the Guernsey authorities and the investment funds is required. and a large number of Guernsey flexibility of the regulatory system. Please visit www.gfsc.gg for further funds are listed on the London and Growth is also attributable to the information. other stock exchanges. Funds high quality of services available also be listed on The International in Guernsey in relation to fund International recognition Stock Exchange (TISE), formerly management and custody. Guernsey is one of the most known as the established, transparent and well- Securities Exchange, where special The Protection of Investors ( regulated offshore jurisdictions. procedures exist to enable the of Guernsey) Law, 1987 (as amended) Guernsey is a member of the OECD relatively easy listing of Guernsey (the “POI Law”) sets up a modern and was placed on the G20 white and funds. Please visit statutory structure for the regulation list of offshore jurisdictions in 2009. www.tisegroup.com for further and administration of collective It has also obtained designated information. investment schemes in Guernsey. territory status under the UK Financial The law provides a framework for Services and Markets Act, 2000 Fund types investor protection whilst retaining (the “FSMA”). There are a wide variety of funds the flexibility to adapt quickly to under management in Guernsey changing market conditions. Guernsey’s low tax status, proximity including equities funds, bond funds, to the financial markets of money market funds, commodities The Guernsey Financial Services and a sophisticated banking and and futures funds, hedge funds, Commission professional infrastructure have property funds, feeder funds, The GFSC seeks to maintain also contributed to the success of umbrella funds, private equity and Guernsey’s reputation for probity the Island as a base for investment venture capital funds and emerging in the international financial funds. markets funds. In addition, there community and its general duty are a large number of institutional to protect and enhance the investment schemes established Bailiwick’s reputation is reflected in in Guernsey which have become its approach to regulation. There is

4 Investment Funds

Regulatory framework Licensees are subject to conduct The diagram below demonstrates The establishment and operation of business and capital adequacy the various fund types and of both open and closed-ended rules. Funds (whether open or applicable rules. investment funds in Guernsey is closed-ended) must be authorised governed principally by the POI or registered before issuing units or Application procedure Law together with the rules made shares. All Guernsey funds (whether for authorised funds thereunder. An open-ended fund is open or closed-ended) are categorised Applications for authorisation of basically defined as a vehicle where as either: an authorised open or closed-ended investors are entitled to redeem fund are made under the POI Law their holdings at a price related to • Authorised (i.e. regulated) funds to the GFSC. the value of the underlying assets. which are subject to ongoing supervision by the GFSC; or There are three stages in the A closed-ended fund does not entitle • Registered funds which are not standard authorisation process: investors to redeem at a price related authorised and are subject to a outline authorisation, interim to the value of the underlying assets lighter touch regulatory regime. authorisation and formal although it is possible to structure authorisation. Where new and a fund to permit redemptions at Factors which may be relevant in innovative funds are proposed or the discretion of the directors or deciding between an authorised or some other part of the application manager. a registered fund may include the process is unsuitable or can be following: improved, the GFSC can be flexible POI Law in its procedures and it will generally Both funds and certain persons • Investor preference (whether be possible to discuss and agree providing services to funds are investors would prefer more or alternative application procedures regulated by the POI Law. less regulatory supervision); where necessary. • Other regulatory or listing In order to provide services such as authorities (e.g. Euronext) may Promoters should discuss applications management or custody, a person require the fund to be authorised. with Ogier as soon as possible in the must obtain a licence under the POI planning and launch of a fund. Law.

Guernsey Fund (Regulated)

Authorised Funds Registered Funds Private Investment Fund (Standard or QIF) (PIF) Closed-ended/ Open-ended Closed-ended Open-ended

Authorised Registered Manager Led Product PIF Rules Closed-Ended Class Class Class (MLP) Investment A B Q Scheme Rules Rules Rules Rules Registered Prospectus Collective Rules Investment Scheme Rules

5 Investment Funds

Outline authorisation Where the promoter of the fund is be required to complete a Form Form GFA (Application for Outline not known to the GFSC, in order to PQ (discussed below) if not Acceptance of a Collective facilitate the GFSC’s consideration already known to the GFSC. It is Investment Fund Open or Closed- of its suitability as a potential a requirement to provide details Ended) is submitted to the GFSC. sponsor, the promoter should also of the name and address of all The form sets out general information submit a completed New Promoter’s individuals or entity with any regarding the structure of the fund, Introductory Checklist form together interest of 5% or more but less its investment activities and the with the requested information than 15%; parties involved. Form GFA requires on the proposed promoter’s full • Third party evidence of a the supporting signature of the background and status, including favourable track record by the proposed administrator (and, in the details of any authorisation by a promoter in the establishment case of an open-ended fund, the regulatory authority, professional and/or management of collective proposed trustee/custodian). body, investment exchange, clearing investment schemes; house, etc. • If the promoter lacks a track At this stage, the GFSC also considers record in its own right, evidence of Alternatively, the New Promoter’s whether the promoter of the fund record of its principals; meets its stated policy as follows: Introductory Checklist and accompanying information may • A copy of the promoter’s latest audited accounts, or latest “The GFSC places great emphasis be submitted on its own or prior management accounts if no on the status of an applicant. to Form GFA. Where the Checklist audited accounts are available Essentially the applicant must is submitted on its own, the GFSC or the audited accounts are for have a favourable track record in will carry out its own due diligence a period ending more than six an established jurisdiction which checks and will notify the applicant months prior to the date of the appears free of malpractice, as to whether it would be willing to application; dishonesty or incompetence. consider a formal application from Authorisation by another regulatory the applicant as the promoter of a • To the extent known, a brief body will be taken into consideration Guernsey fund. description of the proposed but does not guarantee a favourable collective investment fund(s) outcome to an application. The The information (which should all to be established in Guernsey; ‘track record’ must be in business be in English) requested by the • If known, details of any individuals equivalent to that to be conducted Checklist includes: not already disclosed and not in Guernsey and should be financially already known to the GFSC who will successful. Selectivity criteria also • The full name of the promoter have key roles in the management apply to the specific nature of (being the party ultimately of the fund (for example, as director the business to be conducted in standing behind the proposal of the fund or any management Guernsey.” for new business); company, or as investment • Details of the promoter’s adviser). “The GFSC regards the “Promoter” authorisation by any regulatory of a fund as the party ultimately authority, including membership The GFSC also takes account of the responsible for its success. A promoter number. If the promoter is not other parties involved with a proposed may, for example, be a fund itself regulated, details of any fund including administrators, management company, a new regulatory approvals held by its custodians, auditors and lawyers investment boutique or a group principals may be provided; and, in cases where such other of experienced professionals. The • Details of the promoter’s main parties are not already known to the GFSC welcomes approaches from activities, including its operating GFSC, the provision of background promoters of the first rank who have history; information with the Checklist a favourable track record in the would be helpful. establishment and/or management • Details of the ultimate beneficial ownership of the promoter, of investment funds.” If the GFSC is satisfied that the fund including the full name of any and promoter appear acceptable, a individual and/or entity with an letter of ‘outline authorisation’ will interest of 15% or greater. Such be issued within a few days. individuals and/or entities will

6 Investment Funds

Interim authorisation Formal authorisation It should also be mentioned that an The final draft prospectus is Certified copies of the final investment fund established outside submitted to the GFSC. Other constitutive documents are filed Guernsey may obtain authorisation documents may also be required with the GFSC together with the in Guernsey, provided that it and its at this stage as follows: following, where relevant: licensees comply with any relevant provisions of the POI Law. • Forms PQ (for directors of corporate • Lawyer’s certificate (Class A open- funds and directors of managers); ended scheme); • Form APA (for a Class A fund), • Lawyer’s certificate or manager’s plus drafts of all constitutive certificate (Class B open-ended documents; scheme); • Form APB (for a Class B fund); • Manager’s certificate (Class Q • Form APQ (for a Class Q fund); open-ended scheme); and • Form APC (for a closed-ended • Certified copy of all final constitutive fund); and documents and agreements with relevant service providers. • Application fee. A formal letter of authorisation If the GFSC is satisfied with the follows in a matter of days or, if detailed submission, ‘interim prior arrangement is made with authorisation’ is granted, normally the GFSC, immediately. subject to amendment or clarification of the draft constitutive documents. Depending upon the complexity Before proceeding to the final stage of the investment structure and and usually within 10 business days the extent to which the proposals of receipt of the application, any have been finalised prior to the first amendments or clarifications are approach to the GFSC, the whole agreed with the GFSC. procedure can be completed within several weeks.

Application procedure for registered funds

As an alternative to the • Certified final copy of the of the fund and the associated authorisation process outlined prospectus or offer document; parties to the fund are fit and above, a promoter may instead • Certified copy of the constitutive proper; and elect for an open or closed-ended documents and material • The appropriate application fee. fund to be a registered fund which agreements; is registered with, not authorised • Forms PQ in respect of controllers by, the GFSC. Registration may be and directors of the promoter and obtained from the GFSC within three fund (as appropriate); business days of filing the required documents with the GFSC. • A certificate from the Guernsey administrator of the fund Certain documents must be confirming that, among other filed with the GFSC as part of matters, the administrator has the application for registration performed sufficient due diligence including: to be satisfied that the promoter

7 Investment Funds

Qualifying Investor Funds

The GFSC has issued guidance notes and the information required Qualifying Investor Funds are funds in respect of Qualifying Investor to be submitted to the GFSC in which are registered or authorised Funds which are applicable to open support of an application. Relevant following a particular procedure. and closed-ended funds, whether authorisation or registration from authorised or registered. Only the GFSC will be forthcoming in ‘Qualified Investors’ (as defined in three business days. the guidance notes) are permitted to invest. Qualified Investor Funds are likely to be attractive where the promoter is The guidance notes set out due seeking to establish an authorised diligence issues that need to be fund on an expedited time scale considered by Guernsey licensed where the minimum investment is service providers to such funds US$100,000.

Manager Led Product

Guernsey introduced the Manager duplication, (ii) a more efficient marketing is taking place into the Led Product (“MLP”) in May 2016. path to market and (iii) reduced through national The MLP seeks to regulate the administration fees in respect of private placement regimes then investment manager instead of the those vehicles no longer subject to equivalence is not, at present, underlying investment funds and various rules. The MLP allows one required and the manager should related vehicles. The regime applies investment manager to absorb all not need to subject itself to the full to open and closed-ended funds. the incidence of conduct of business scope of the Rules. and capital adequacy rules, while Under the MLP regime: permitting multiple fund structures To utilise the MLP, an investment to exist under its regulatory manager will need to be licensed • a single Guernsey regulated obligations. under the POI Law, as well as investment manager is required; opt into the Rules (subject to While, to make use of the MLP the derogations). New investment • by virtue of regulation of that investment manager needs to be managers will need to apply for investment manager, none of the subject to Guernsey’s AIFMD Rules, both a licence under the POI Law related funds, general partners or 2013 (the “Rules”), the Commission and for the Rules to apply to them managers formed solely for the has indicated in a guidance note (subject to derogations), while purposes of those funds will have that the investment manager may existing investment managers rules imposed on them by the apply for derogations from the Rules already licensed under the POI GFSC; and and it is anticipated that these may Law will need to opt into the Rules be significant if required. This would (subject to derogations). • a one business day fast track be subject to ensuring reporting notification process is available requirements are maintained to a A detailed briefing on the Manager for underlying funds and related sufficient standard and, practically, Led Product is available on request vehicles. regulation remains sufficient to or online at www.ogier.com. market into relevant jurisdictions. Regulatory oversight remains This ability to obtain derogations through an appropriately regulated from the Rules is important and investment manager within the relevant at the present time structure, while at the same time because the third country investors and promoters benefit has not yet been made available from (i) the removal of regulatory under the AIFMD. Accordingly if

8 Investment Funds

Private Investment Fund

Guernsey introduced the Private The PIF requires a licensed manager funds – whether local or sovereign. Investment Fund (“PIF”) in in respect of the entire fund November 2016 following a structure. For example, it is not Excepting a period of one year consultation by the GFSC. The permitted to have separate advisers commencing from the date of first consultation found that certain in respect of individual cells. Only subscription, there is a “rolling test” investment funds are characterised the PIF Rules will be relevant and no applied on a continuous basis. In by a relationship between other rules will be applied against the previous twelve months, a PIF management and investors that is the licensed manager. can add no more than 30 new closer than that of a typical agent. ultimate investors. The licensed There is no limit on the number of manager of the PIF is responsible for A PIF will be subject to the Private investors to whom a PIF may be applying, recording and evidencing Investment Fund Rules 2016 (“PIF marketed, however a PIF should such tests. Rules”). The PIF Rules contain contain no more than 50 legal or requirements for managing conflicts natural persons holding an ultimate As part of the applications process of interest, the submission of annual economic interest in the PIF, save in the proposed licensed manager is returns notifying changes to the the instance where the investment required to make a straight-forward warranties made (see below), is made by an investment manager declaration to the GFSC in relation the submission of annual audited acting as agent for a wider group to the ability of the investors in the accounts and certain mandatory of stakeholders. For example, an PIF to assume loss. The GFSC has characteristics of a PIF. The PIF Rules investment manager acting as has recently released guidance to do not contain any requirements agent for investors in a collective assist managers in complying with relating to information particulars investment scheme or equivalent, this requirement. to be prepared. PIFs may be open or pension holders in an occupational closed-ended. pension scheme, or government

Open-ended funds

It is central to the concept of an under the POI Law and will be one of (“FSMA”) to be marketed in the UK. open-ended fund that it has the three categories: power to issue and redeem its own That position changed as a result units or shares with the redemption • Class A, Class B or Class Q. of the Alternative Investment Fund price of the units or shares being Managers Directive (“AIFMD”) and a calculated by reference to the net Alternatively an open-ended fund Class A scheme will now be required asset value of the fund, divided by may be registered. to apply on a scheme-by-scheme the number of units or shares then basis by means of section 272 FSMA. in issue. Whilst the fund will retain Class A schemes discretion as to whom it may issue A Class A scheme is the nearest Whilst Guernsey introduced and units or shares, an investor will be equivalent in Guernsey to a UCITS. published new and updated Class entitled to redeem in accordance A Class A scheme subject to the A Rules in 2008, those rules did not with its constitutive documents. Collective Investment Schemes become approved or recognised for the purposes of section 270 FSMA. Open-ended funds will generally (Class A) Rules 2002 (the “Class A For that reason, they have tended require a Guernsey administrator Rules 2002”) was eligible up until July not to be used in practice and the and a Guernsey custodian who are 2013 to apply to the UK Financial Class A Rules 2002, which have not licensed so to act under the POI Law. Conduct Authority, (the “FCA”) been repealed, have continued to be under section 270 of the Financial applied. Open-ended funds are authorised Services and Markets Act 2000

9 Investment Funds

A Class A scheme under the Class • There are no investment The main characteristics of the A Scheme Rules 2002, will be restrictions set out in the Class Class Q Rules are as follows: categorised as a securities fund, a B Rules. The principle of risk money market fund, a futures and spreading applies. • Only qualifying professional options fund, a geared futures and • A Guernsey administrator and investors may hold units or shares. options fund, a property fund, a Guernsey trustee/ custodian are • No investment restrictions, warrant fund, a feeder fund, a fund required. valuation or dealing restrictions. of funds or an umbrella fund. The • There are no restrictions set out • A Guernsey administrator and a main characteristics of the Class A in the Class B Rules concerning Guernsey trustee/custodian are Rules 2002 are as follows: valuations, dealing or expenses. required. • Investment restrictions for each • Annual accounts are required. • Annual reports are required. type of fund are set out in the • Annually reviewed scheme • Information particulars must be Class A Rules 2002. They are particulars are required. revised to include any significant similar to the FCA Rules and UCITS change. requirements. Class Q schemes • Derogations from the requirements • A Guernsey manager and a The Collective Investment of the Class Q Rules are permitted. Guernsey trustee/ custodian Schemes Qualifying Professional are required. Investor Funds) (Class Q) Rules Note that the procedural • The method of valuation of assets 1998 (the “Class Q Rules”) seek to requirements of a Qualifying is set out in the Class A Rules 2002. provide a clear and concise set of Investor Fund are different from the requirements for the operation of requirements for a Class Q fund and • The fund must be incorporated or professional investor funds and do not necessarily apply to a Class Q constituted under Guernsey law. have been designed to encourage fund (please see above). • The method of dealing in units is innovation. The Class Q Rules set out in the Class A Rules 2002. incorporate a measure of flexibility, Registered The manager may act as principal consistent with meaningful investor An open-ended registered fund is or agent and may operate a box. protection. Accordingly, the Class subject to the Registered Collective • The expenses and fees which may Q Rules allow greater discretion in Investment Scheme Rules 2018 and be charged to the fund are set out respect of investment restrictions the Prospectus Rules 2018. The main in the Class A Rules 2002. All usual and place more emphasis on characteristics of a registered open- fees and expenses are permitted. disclosure of risks inherent in the ended fund are as follows: • Annual and interim accounts are investment vehicle. required. • The fund must be established with The manager and directors must the objective of spreading risk. The • Annually reviewed scheme take reasonable steps to ensure particulars are required. criteria for the spread of risk must that units or shares are only held by be specified in the fund’s offering qualifying professional investors (at document. Class B schemes the time of investment) which are • The Prospectus Rules 2018 make defined as: The Collective Investment Schemes provision for disclosures in the (Class B) Rules 2013 (the “Class B • A government, local authority or fund’s offering document. Rules”), are intended by the GFSC to public authority; • There are provisions for both be as flexible as possible consistent • A trustee of a trust which has net immediate and periodic with meaningful investor protection. assets in excess of £2,000,000; notifications to the GFSC The Class B Rules are essentially a • A body corporate or limited regarding changes to the fund, codification of best practice, with partnership if it or any holding as well as financial and statistical reliance placed on disclosure. The company or subsidiary of it has net information. GFSC also has power to derogate assets in excess of £2,000,000; or • A Guernsey licensed custodian is the requirements of any of the Class • an individual who has, together required (unless a derogation is B Rules. The main characteristics of available). the Class B Rules are as follows: with any spouse, a minimum net worth (excluding main residence and household goods) of £500,000.

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Closed-ended funds

An investment vehicle is a closed- Authorised • There are provisions for ended fund if investors are not Authorised closed-ended funds are both immediate and periodic entitled to redeem their units or subject to the Authorised Closed- notifications to the GFSC regarding shares at a price related to the Ended Investment Schemes Rules changes to the fund, as well value of the underlying assets. 2008. The main characteristics are as financial statements and Redemptions may be made at the as follows: statistical information. discretion of the directors or manager. • The fund is authorised and subject Registered Closed-ended funds have been used to continuing supervision by the A closed-ended registered fund is for many varied and innovative GFSC. subject to the Registered Collective funds. Such funds may be quoted on • The fund must be established with Investment Scheme Rules 2018 any stock exchange, subject to its the objective of spreading risk. The and the Prospectus Rules 2018. rules. The structures of such funds criteria for the spread of risk must The main characteristics of a may be simple or complex, involving be specified in the fund’s offering registered closed-ended fund are as many different entities and classes document. set out above for registered open- of security. Closed-ended funds may ended funds, save that there is no be authorised or registered. • Specified disclosures to investors requirement to appoint a Guernsey must be included in the offering custodian. document.

Hedge Funds

The GFSC has published framework for alternative investment products. jurisdiction and having substantial guidance for the authorisation of The full text of the framework policy net worth, to be appointed without hedge funds in Guernsey, including document can be found on the the need for a Guernsey domiciled a policy of relaxing certain of the GFSC’s website (www.gfsc.gg) or we and licensed custodian. Further, requirements discussed above (e.g. can supply a copy on request. the GFSC will not, for institutional to permit direct appointment of and expert investor funds, insist on prime brokers). The framework puts The framework document referred complex segregation requirements Guernsey squarely in the class of to above provides that, especially for prime brokers holding fund assets. jurisdictions which recognises the for institutional and expert investor particular needs of hedge funds and funds, the GFSC will permit a prime offers a secure, well-regulated home broker, regulated in an acceptable

Companies

Funds may take the form of a being reviewed by the GFSC and, capital requirements imposed on a company. The incorporation of a if applicable, any other regulator Guernsey company. company under the laws of Guernsey interested in the incorporation of the is by means of registration under fund (i.e. the UK Listing Authority, in Share capital may be denominated The Companies (Guernsey) Law, the case of a London-listed fund). in any convertible currency and the 2008 (as amended) and the process issue of fractional shares is permitted may be carried out while the terms There are no authorised share and shares may be issued at a of the draft offering documents are capital or minimum issued share premium.

11 Investment Funds

Investment companies may have incorporation of protected cell cell company - an arrangement any appropriate share structure companies. The relevant legislation which entails similar ring-fencing from one class to many classes provides that each class of shares but provides that each cell is to be having different rights. is ring-fenced from the insolvency treated as a separate legal person. of the other classes. From this Guernsey law also provides for the has developed the incorporated

Unit Trusts

In contrast to an investment to the offer of units in the trust. In order to obtain regulatory company, a is not a The management group will authorisation or registration, separate legal entity as such but typically also undertake the the explanatory memorandum in a trust arrangement whereby legal management and general connection with the offer of units ownership of the fund’s assets is administration of the trust. and the trust instrument and other vested in a trustee, who holds the constitutive documents of the fund assets of the fund on trust for the The subscription proceeds will must be approved by the GFSC. benefit of the unitholders. be paid to the trustee which, The trust instrument will also contain thereafter, will act as the custodian provisions for the appointment The unit trust will be constituted of the investment assets of the and removal of the trustee and by means of a trust instrument fund. In addition, the trustee will the manager, their duties and made between a Guernsey trustee generally supervise compliance by remuneration, borrowing powers, company and an independent the manager with its obligations investment restrictions and provisions Guernsey management company. under the trust instrument. for the winding-up of the trust.

Typically the management company It is usual for the trust instrument For most practical purposes a unit will be a Guernsey subsidiary of to contain, for example, provisions trust scheme will operate and be one of the international fund regulating the issue, redemption regulated in the same manner as management groups, which will and valuation of units as would, in a corporate investment fund. undertake promotion of the scheme the case of shares of an open-ended by means of publication of an investment company, be found in its explanatory memorandum relating articles of incorporation.

Limited Partnerships

The Limited Partnerships (Guernsey) mutual funds, in particular for the limited partnership will come into Law, 1995 (as amended) provides a venture capital industry. A limited existence upon registration of the comprehensive statutory framework partnership will also be an attractive declaration by the Registrar of for the establishment and operation structure for various tax planning Limited Partnerships. of limited partnerships in Guernsey. purposes. The general partner will manage A limited partnership may be an In order to establish a limited the business of the partnership appropriate structure for a number partnership, following execution of and have unlimited liability for of different purposes. A principal a limited partnership agreement, its debts. The liability of investors use will be to provide an additional the general partner executes a taking interests as limited partners form of investment vehicle for declaration of partnership. The (and who do not participate in the

12 Investment Funds

management of the partnership) A Guernsey registered limited the partners (whether limited or will be limited as to the amount of partnership may elect to have general) fall to be examined for tax their investment. In recent years separate legal personality. For the purposes in their own right whether the limited partnership has been purposes of Guernsey’s or not the partnership has elected particularly favoured for use in Law, a Guernsey registered limited to have separate legal personality. private equity and venture capital partnership (meaning a limited projects, as the partnership is partnership either with or without generally treated as being fiscally legal personality) is neither a transparent. ‘person’ nor a ‘company’. Therefore,

Limited Liability Partnerships

The Limited Liability Partnerships liable for its own debts. Members of general partnership into an LLP and (Guernsey) Law, 2013 (“LLP Law”) an LLP may be bodies corporate or sets out a procedure for so doing. provides the framework for the individuals. In addition, there are provisions establishment of limited liability in the LLP Law permitting certain partnerships in Guernsey. Limited Every LLP must have a written LLPs incorporated under the laws liability partnerships combine members’ agreement but the of jurisdictions other than Guernsey the flexible features of general contents are not prescribed, thereby to migrate to Guernsey and partnerships with the benefit of allowing considerable organisational become registered as an LLP and to limited liability for the LLP members. flexibility. However, unless otherwise migrate out of Guernsey to another As such, it has become a vehicle included within the members’ jurisdiction. The LLP Law requires, of choice for professional persons agreement, the LLP Law provides for both migrations in and out, the in jurisdictions in which it has been that all members are entitled consent of the Guernsey Financial introduced. The flexibility of the to share equally in the profits of Services Commission in the context LLP means that it may be used in a the LLP and may take part in the of regulated businesses. variety of commercial contexts. conduct and management of the LLP. A detailed briefing on Limited The LLP has a legal personality Liability Partnerships is available on separate from its members and will The LLP Law expressly provides request or online at www.ogier.com. own the business’s assets and be for the conversion of a Guernsey

Recognised Funds and AIFMD

The ability of applicable adequacy tests to be the FCA together with the required funds to offer shares directly to considered as UCITS equivalent. supporting documentation and fee. investors in the UK is restricted by Section 270 FSMA, under which Certain facilities must be maintained the FSMA and as a result of AIFMD. Guernsey obtained designated in the UK, for example, to enable territory status for Class A schemes inspection of scheme documents by The FSMA provides a procedure making them eligible for recognition any member of the public. under section 272 for individual in the UK, no longer applies. recognition of investment funds Under AIFMD, the National Private established in countries or territories Under section 272 FSMA, a detailed Placement Regime (‘NPPR’) applies outside of the EEA which meet the application must be submitted to until such time as a marketing

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passport for Third Countries is Guernsey was well prepared for opt-in AIFMD Rules have also been made available. In July 2016, ESMA the introduction of AIFMD and the introduced. This allows Guernsey announced its recommendations marketing of Guernsey investment fund managers and depositaries to grant Guernsey a marketing funds to EU investors after 22 July to opt in to a set of Guernsey rules passport. Following the vote, 2013. The required supervisory which are aimed at achieving it is now increasingly unclear if and cooperation agreements are in compliance with AIFMD, should they when a marketing passport will be place with regulators in 27 out of 31 wish to do so. made available to Third Countries. EEA countries. For further information in NPPR permits the marketing of non- Marketing Guernsey investment connection with AIFMD and EU alternative investment funds to funds under NPPR in the UK involves Guernsey investment funds, please EU investors, subject to national law (among other things) compliance refer to our briefings on this topic, and regulation. In addition, certain with the UK Alternative Investment which are available upon request, conditions set out in AIFMD must be Fund Managers Regulations 2013. or contact a member of the Ogier met. Those conditions include the funds team in Guernsey or your need for supervisory cooperation The GFSC has issued AIFMD usual Ogier contact. agreements to be entered into Marketing Rules to help ensure between the GFSC and regulators in compliance by Guernsey investment the relevant EEA countries in which funds and their managers with the marketing is to take place. the AIFMD NPPR conditions. New

Country status

A list is maintained on the GFSC Japan Switzerland website at www.gfsc.gg of those FCA-recognised Class A schemes are Equivalency of Guernsey regulation/ countries where agreement has eligible for public marketing. Class supervision to Swiss standards was been reached for the marketing B schemes may also be marketed recognised by SFBC in January 1994. of stated types of Guernsey to Japanese investors subject to Applications to SFBC must be made investment funds subject to regulatory approval. by a body holding the appropriate specified conditions. Those countries licence. A Swiss bank must be include the following non-European appointed as paying agent. Economic Area (“EEA”) countries: Guernsey authorised funds are required to enter into a As regards EEA countries, the GFSC representative agreement or maintain a separate list under Agreement signed by ASC and GFSC maintain a representative office its AIFMD FAQs, which should 1996 to allow Class A schemes and to satisfy the FSB that they are be referred to for the up to date to be marketed in Australia. regulated to an equivalent standard position on the NPPR arrangements to South Africa funds. Class A for specific EU/EEA member states. schemes and also some Class B Class A schemes are granted schemes have been accepted. certain waivers from standard HK regulatory requirements. Class B schemes are considered on a case by case basis.

14 Investment Funds

Selection of fund structure

Investment funds under having a high minimum investment transparency. A limited partnership management in Guernsey take threshold which is to be offered to on the other hand will, for tax a number of different forms and investment institutions, a limited purposes, generally be treated as new types of fund structures partnership may be the appropriate being transparent and the total are constantly being developed. form. tax take will be determined by the However, in practice the types of partners’ individual circumstances. investment vehicle most often While regulatory and marketing For fiscal purposes a unit trust has encountered are closed-ended and considerations are important in mixed tax characteristics. In certain open-ended companies and unit selecting whether the corporate, jurisdictions it may be treated trusts and closed-ended limited trust or limited partnership form as being transparent for income partnerships. is used, the fiscal implications and non-transparent for capital for investors will generally be the gains distributions. The revenue The prospective investor at whom determining factor. The promoters authorities may regard income in the investment product is to be of the investment fund will generally the hands of the trustee as the targeted will be an important wish to ensure that, at the least, income of the unit-holder. consideration in determining the the scheme achieves tax neutrality, selection of the appropriate form whereby an investor will be in the Accordingly, for certain types of of investment vehicle. Where, for same tax position whether he investments in certain jurisdictions, example, a retail fund is to be makes his investment directly in the it may be advantageous for investors offered to the public in the UK a underlying assets or through the to use a trust vehicle. However, unit trust may be the most familiar medium of the investment fund. by virtue of the greater flexibility structure, whereas if the fund is provided by the corporate form for to be marketed in Europe or in the In most tax jurisdictions the listing on stock exchanges and the US, an open-ended mutual fund corporate form, by virtue of being a wider acceptability of companies for company may be the appropriate separate legal entity, is treated as marketing purposes, the majority form. It is also worth noting that being fiscally non-transparent, the of investment funds established Japanese investors have tended to fund’s tax position being determined in Guernsey in recent years have show greater interest in the trust without regard to its shareholders. been closed-ended and open-ended form because of the flexibility of a However, it has been possible to investment companies. unit trust in enabling distributions structure companies as entities to be made out of capital. For which satisfy the relevant conditions a complex investment product within other jurisdictions for fiscal

Taxation and charges

Guernsey offers a location for tax, profits tax or withholding tax to the Director of Income Tax in investment funds which does not applicable to or payable by a closed Guernsey, normally qualify for impose its own tax burden on an ended or open-ended company, exempt status for income tax. investment fund or its investors. unit trust or partnership or their Accordingly, distributions made by a respective shareholders, unit-holders Guernsey investment fund company Under current legislation in or partners. No stamp duty is may be paid to shareholders Guernsey, there is no capital gains payable on the transfer of shares without deduction of any Guernsey tax, capital transfer tax, wealth tax, or units in an investment fund and tax, notwithstanding that central or estate or payable Guernsey levies no annual taxes or management and control of the in respect of the issue or realisation charges by reference to a company’s company is exercised from within of shares in a closed-ended or open- issued share capital. Guernsey. The Guernsey investment ended company, units in a unit trust fund company will, however, be or interests in a limited partnership. A Guernsey investment fund required to report to the Guernsey There is no Guernsey corporation company will, upon application Director of Income Tax any

15 Investment Funds

distributions made to holders who unit trust arising outside Guernsey Licensee Fees are resident in Guernsey. (including, by concession, bank Application Fee interest arising in Guernsey), but £2,322 per licensee (one-off payment) The conditions for the grant of the manager will be required to tax exempt status are that the report to the Guernsey Director Annual Fee company files the appropriate of Income Tax any distributions Designated Manager/Custodian election to be exempt from tax and made to holders who are resident in (open-ended funds) pays a flat rate annual charge of Guernsey. £3,322 per licensee (annually) £1,200, irrespective of the level of Designated Manager its profits. If an exempt company Although no stamp duty or (closed-ended funds) election is made there is no similar tax is payable on the issue, £3,322 per licensee (annually) requirement on the company to file transfer or redemption of shares tax returns. in a company, units of a unit trust Principal Manager (open-ended or limited partnership interests, or closed-ended funds) As there is no a Guernsey grant of probate or £1,661 per licensee (annually) in Guernsey it is possible to administration (each of which may accumulate income and realised incur ad valorem fees) may be Manager of Closed-Ended Fund gains tax-free in Guernsey. required to deal with the shares, £1,661 per licensee (annually) units or partnership interests of Other Licensees a deceased holder. Guernsey is A standard fee for incorporating £3,322 per licensee (annually) a company is £100 (note that free from all exchange control the fees of a Corporate Service restrictions. Open-Ended Funds Provider will be in addition to this Annual fee - scheme incorporation fee). It should be mentioned that the £3,435 per scheme (annually) basic rate of income tax on company Registration fees of £350 are profits will be 0%. However, certain Application fee - scheme payable upon registration of regulated businesses will be subject £3,435 per scheme a limited partnership. to income tax at 10%. Annual fee per additional class There are no taxes, registration fees Both open and closed-ended funds £221 or duties payable to the Guernsey must pay application and annual Application fee - new class of authorities in respect of the fees to the GFSC. According to the umbrella/multi class scheme establishment or administration of GFSC’s website at www.gfsc.gg the £721 per scheme a unit trust. main current fees are as set out over the page: Closed-Ended Funds Neither the trustee nor the assets of Application fee - fund a unit trust will be liable to Guernsey £3,435 per fund (one-off payment) income tax on the income of a Annual fee - fund £3,435 per fund (annually) We can advise up-to-date fees on request or check the GFSC’s website. Legal fees and other start-up costs will be incurred in the year of inception but it is usual practice for these to be amortised over a five year period.

16 Investment Funds

FATCA and CRS

The object of the US Foreign Tax Jersey and Guernsey (together with If you have any queries in respect of Compliance Act (“FATCA”) regime the ) have jointly released how the IGAs will operate in Jersey is to require “foreign financial revised draft guidance notes dated and/ or Guernsey, then please do institutions” (“FFIs”) to report to the 31 March 2014 (the “Guidance contact a member of Ogier’s funds IRS US persons’ direct and indirect Notes”) relating to the automatic team or your usual Ogier contact. ownership of non-US financial exchange of information with the accounts and non-US entities. UK and the US under the IGAs Guernsey has also signed up to the An offshore investment fund will entered into in 2013 by each Crown Common Reporting Standard (CRS). constitute a FFI for this purpose. Dependency, in order to improve This means that from January international tax compliance and 2017, comparable information will On 13 December 2013, the United the implementation of US FATCA. start to be exchanged by Guernsey States of America and the States and other signatory jurisdictions. of Guernsey entered into an The revised Guidance Notes (on To date, over 100 jurisdictions are intergovernmental agreement which the local finance industry has signatories including the majority of (“IGA”) relating to the automatic had the opportunity to comment) the OECD countries. CRS will replace exchange of information with are intended to provide practical reporting under UK FATCA. the US. This IGA was successfully assistance to both business and amended on 9 and 14 October 2015. Dependency staff who An IGA has also been entered into deal with entities affected by the between the and UK and US IGAs and seek to clarify Guernsey on 22 October 2013, which any areas of uncertainty as to the has similar reporting requirements operation of the registration and to the ones contemplated by the US reporting provisions set out in the IGA. UK and US IGAs.

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Contacts

Tim Clipstone Craig Cordle Bryon Rees Partner Partner Partner +44 1481 752265 +44 1481 752282 +44 1481 752312 [email protected] [email protected] [email protected]

Richard Doyle* Charlotte Brown* Michelle Watson Bunn* Managing Associate Senior Associate Senior Associate +44 1481 752393 +44 1481 752234 +44 1481 752220 [email protected] [email protected] [email protected]

*Not admitted in Guernsey

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This client briefing has been prepared for clients and professional associates of the Ogier Group. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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