Originally published in Longtail's A Guide to International Finance Centres, What Chinese Investors Need to Know, March 2011
Peter Niven, Chief Executive of Guernsey Finance, reveals why Guernsey is an increasingly key jurisdiction for Chinese investors.
Guernsey has been ploughing a furrow in the Chinese marketplace for several years now. From the outset, we recognised that there is a distinct difference between conducting business in China and working with our traditional introducers/clients.
We have a strong heritage in providing products and services to our European neighbours, and their understanding of Guernsey is now quite mature.
By contrast, in China, we have been working from a position where there has previously been little interaction between the two jurisdictions, but cultural expectations mean it is particularly important to develop meaningful relationships at a range of levels before there is a realistic prospect of doing business.
As such, Guernsey has taken a number of steps to show our commitment to the Chinese market, raise our profile and put the right building blocks in place to facilitate business flows:
- At the end of 2007, Guernsey opened an office in Shanghai led by our representative Wendy Weng.
- The Guernsey government has signed a Tax Information Exchange Agreement (TIEA) with Xiao Jie, Commissioner of the State Administration of Taxation for the Chinese government.
- The Guernsey government has signed a Memorandum of Understanding (MOU) for exchange and cooperation with Fan Yongjin, Deputy Director General of the Shanghai Municipal Financial Services Office.
- Guernsey's Chief Minister, Lyndon Trott, has both visited and hosted Tu Guangshao, Vice-Mayor of Shanghai; Dr Fang Xinghai, Director General of the Shanghai Municipal Financial Services Office; and Madam Fu Ying, formerly Chinese Ambassador to the UK and now Vice Foreign Minister in the Chinese Government.
- Guernsey officials are seeking an agreement that will allow our companies to be listed on both the Hong Kong Stock Exchange (HKEX) and the Shanghai Stock Exchange (SSE).
- Guernsey is making progress towards signing MOUs with each of the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC).
We believe that investing time and resources in building these strong relationships will provide us with solid foundations. From these, our industry will be able to further diversify into supplying Chinese organisations and individuals with our products and services.
What can we offer the Chinese market?
A distinguishing feature of our finance industry is its considerable depth and breadth. Guernsey's finance industry is based on a balanced range of providers, broadly comprising:
- Fiduciary services (trust and company administration)
- Investment funds
- Professional support services such as multijurisdictional law firms and the 'big four' accountancy firms
- The Channel Islands Stock Exchange (CISX)
- A Guernsey company registry
There is a team spirit among these providers, who work with an independent regulator, the Guernsey Financial Services Commission (GFSC).
A trusted gateway to Europe's capital markets
Guernsey offers a potential platform for investment either inward to or outward from China. In particular, we provide a solution to the fact that the (largely) non-convertible nature of the Renminbi currency restricts the ease with which capital can flow in and out of China. Establishing a Guernsey holding company avoids tying up funds in RMB and can also allow for access to a greater range of capital markets through listings on stock exchanges outside of China.
Guernsey offers an array of structures, including limited partnerships and a variety of different corporate structures, such as cell companies. We have modern company law and a cutting-edge registry utilising the very latest systems and online technology to provide a speedy, cost-effective and high quality service. All company formations are now completed within 24 hours, with 2-hour and 15-minute incorporations also offered, and prices starting from Ł100.
Formed entities can be used for a variety of purposes, including as a trading company, a holding company, an asset (e.g. property) holding company, a company holding intellectual property rights, a special purpose acquisition company (SPAC), an investment company or as investment funds.
Guernsey has a strong heritage in investment funds. The island has built up an infrastructure and developed the expertise to manage, administer and offer custody to the widest range of funds, from the traditional to the alternative (property, private equity and hedge funds/funds of hedge funds) and even the more esoteric – such as fine wine and timber funds.
Entities established in Guernsey can be listed on the CISX or on the London Stock Exchange (LSE), its Alternative Investment Market (AIM) or Euronext.
A leading provider of wealth management solutions
Guernsey companies and trusts offer a solution for managing the business and financial affairs of high net worth individuals (HNWIs).
Trusts allow individuals and families to manage their wealth and assets efficiently; for example, for investment purposes, tax planning and estate planning. The concept originates from and has been used successfully for many years in the UK and the US. The trust concept is less familiar in jurisdictions such as China where, for many people, the idea of handing over control of wealth and assets to complete strangers (albeit professionals) who may be halfway across the world is an uncomfortable prospect.
However, Guernsey can address these concerns. Firstly, within the arrangements of a standard Guernsey trust there are special provisions that allow for the settlor to take control of the wealth or assets. Secondly, the use of a structure involving a Private Trust Company (PTC) and a 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 U.S. precisely because the trustees have been financial professionals.
Guernsey has nearly five decades' experience of providing trust and company services. Now there are 150 licensees, ranging from large multinational organisations to independent, boutique operators with substantial expertise in using the innovative modern structures that are available on the island for the preservation of both corporate and individual/family wealth and assets. This infrastructure and expertise is supported by a strong banking sector, where many of the licensees offer a wide range of private banking services.
What differentiates us from the competition?
A study by The Banker magazine published in September 2010 ranked Guernsey number four in a list the world's specialised finance centres. In the same month, the eighth Global Financial Centres Index (GFCI) also ranked Guernsey very much within the top tier of 'offshore' financial centres.
Guernsey has 50 years experience as an international finance centre, which means that we are tried and tested, have developed significant infrastructure, and have accumulated a wealth of expertise across a broad range of products and services. We are also dynamic and forward-thinking, as demonstrated by the launch of our own regional stock exchange, the CISX, and our innovation of the cell company concept.
The GFSC has built a reputation for robust yet pragmatic regulation, an approach that encourages flexibility and creativity while ensuring agencies such as the International Monetary Fund (IMF) are able to declare that the Island is working to international standards.
The Guernsey government also continues to ensure that we adopt international standards of tax transparency. Indeed, Guernsey was within the first wave of territories placed on the Organisation of Economic Cooperation and Development (OECD) 'white list' at the conclusion of the G20 summit in London, April 2009.
Guernsey is close to and has good transport links with London and the other major European markets. We are in a convenient time-zone for doing business with China, and are situated in an area free from natural disasters and with a temperate climate.
In addition, while Guernsey does not have a Double Taxation Agreement (DTA) with China, we do have a corporate tax regime with a standard 0% rate for all companies. This is under review, but our government has made a commitment to retain a competitive regime.
However, perhaps above all, it is our efforts to build strong relationships that mean that we have provided solid foundations for long-term success in delivering financial products and services to the Chinese market.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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