Guernsey Country and Foreign Investment Regime

Guernsey Geography

The Bailiwick of Guernsey includes the inhabited islands of Guernsey, Alderney, Sark, Herm, Jethou, Brecqou and Lihou. Guernsey itself is the second largest of the Channel Islands and is roughly triangular in shape. It is situated in the Gulf of St Malo 130 kilometres south of England and only 48 kilometres west of Normandy, France. The island has a land area of 65 sq. km.

Guernsey rises in steps from a plateau in the north to ragged cliffs about 90 metres above sea level. It is drained mainly by northward-flowing streams into deeply-incised valleys. In the low-lying north, the soil is made up of blown sand, raised beach deposits and the fill of old lagoons.

Guernsey enjoys a maritime climate; snow and severe frost are rare. Annual rainfall is between 75 and 90 centimetres, but water on the island is sometimes in short supply, being supplemented by seawater distillation.

The main town is St Peter Port, which has the character of a traditional fishing village, and is overlooked by the mediaeval Castle Cornet.

Guernsey Population, Language and Culture

The population of Guernsey is 65,700 (July, 2008, est). English is the main and official language, although French is widely spoken, and a Norman patois is used in the countryside.

In the 11th century the Channel Islands, including Guernsey, belonged to the Duchy of Normandy, and formed part of the combined kingdom of England and Normandy after the Battle of Hastings. When in 1204 King John of England lost Normandy to the French, the Channel Islands remained part of the British Isles, and have done so ever since despite numerous attempts by the French to regain them. The islands were occupied by the Germans during the Second World War.

Culturally, the Channel Islands owe far more to England than to any other source, although there are traces of French culture, and the legal and administrative systems are a hybrid of Anglo-Saxon and Continental forms.

Guernsey Relationship with the EU

Guernsey is not a member of the EU. Protocol No 3 of the UK's Treaty of Accession to the EU excludes the island from most of the effects of the Treaty, other than those concerning trade in goods.

There is free movement of industrial and agricultural goods between the island and the the UK ; and between the island and EU and EEA countries. The island applies the external common customs tariff of the EU.

Guernsey does not impose Value Added Tax, and does not form part of the fiscal area of the EU, although it has been obliged to apply the EU's Savings Tax Directive, which came into force in July 2005.

The Guernsey's constitutional position in relation to the EU cannot be changed without unanimous agreement of the member states, including of course the UK. Along with its neighbour, Jersey, the island sees its current relationship with the EU as beneficial, and does not seek to change it.

Guernsey Government

Guernsey is a self-governing British Crown dependency. The Queen of England, as Duke of Normandy, is Head of State, and she is represented on the Island by the Lieutenant Governor, who is appointed by the Crown for a five year term. The Government of the United Kingdom is responsible for the conduct of the external relations and defence of the Island.

Internal affairs of Guernsey are governed by the island's parliament, The States of Deliberation. The States, as it is usually referred to, is both the legislative and executive body, and has 45 seats. The nearby islands of Alderney and Sark have their own parliaments. The virtual absence of party politics encourages a high degree of consensus and contributes to political and economic stability.

The island has its own courts. Historically, the legal system has continental (Civil Code) origins, but over time English common law has come to have greater influence. Commercial and business law is mostly Anglo-Saxon in nature, and English precedents are often followed. Some UK legislation is adopted as such by Guernsey by agreement with the British Government. The ultimate court of appeal is the English Privy Council.

Guernsey The Edwards Report

In 1998 the British government announced that there would be a review of financial regulation and structure in Jersey, Guernsey and the Isle of Man. The review was carried out by Anthony Edwards, a former senior Treasury civil servant, and was published in November, 1998. Saying that 'the islands are in the top division of offshore centres' Mr Edwards gave the islands a generally satisfactory report, making a number of recommendations that applied to Guernsey. The great majority of these covered matters that were already in the legislative pipeline or were readily agreed to by the administration. Some recommendations however were more contentious for the island. It is fair to say that Mr Edwards himself did not expect all recommendations to be accepted. His report concluded (in part):

"They (the islands) have infrastructures of legislation, judiciary, prosecution, regulation and law enforcement, mostly based on UK models, which for the most part are extremely good for such relatively small jurisdictions. In many areas they have co-operated well, sometimes remarkably so, with the authorities of other countries in the pursuit of crime and regulatory breaches."

In 2008 the British government saw the need for yet another review of the Crown Dependencies (Jersey, Guernsey and the Isle of Man) in response to the financial crisis which rocked the country's banking industry throughout that year. According to the UK Treasury, the review, chaired by Michael Foot, Chairman of the UK office of Promontory Financial Group, will look at "the immediate and long-term challenges facing British offshore financial centres in the current economic climate," including: financial supervision and transparency; taxation, in relation to financial stability, sustainability and future competitiveness; financial crisis management and resolution arrangements; and international cooperation.

Guernsey Economy and Currency

Guernsey's economy is stable, with an expanding financial services sector that accounts for over half of the island's total income. Unemployment is very low (0.9%, 2006); inflation was slightly above that of the UK at 5.5% in mid-2008.

Outside the financial arena, the main business sectors are manufacturing, tourism and agriculture, although their relative importance has declined in the face of a booming financial sector. Income derived outside Guernsey by wealthy immigrants also makes a substantial contribution to the island's economy.

The economic cycle in Guernsey tends to mirror that of the UK. GDP has risen more than 300% since 1965, and in 1998 topped GBP1bn for the first time. GDP stood at an estimated USD2.7bn in 2005 with GDP per head of USD44,600 at purchasing power parity.

The government of Guernsey has consistently favoured development of the island's offshore sector, but the island's economic success puts pressure on internal resources, so that the administration operates a highly selective immigration policy for both individuals and businesses. For the same reason, the island offers no incentives, grants or exemptions to inward investors.

The island's currency is the British pound; there are no exchange controls.

Guernsey Entry and Residence

Nationals of European Union member states have free right of movement in Guernsey for the purposes of work and establishment. Non EU nationals must apply to the States immigration department for permission to reside or work in Guernsey. Generally a work permit will be granted only if no suitably qualified local exists. Preference is given to UK and other European Union nationals. Long-term residency in Guernsey is carefully controlled; with certain exceptions consent for residency will be given only to a person owning a residence, and in turn the purchase of a residence is subject to consent, which is given in only a limited number of cases, usually involving a luxury dwelling or an individual who is clearly going to contribute significantly to the island through payment of local taxes.

On the other hand, consent is usually granted quite readily for commercial property transactions.

Guernsey Business Environment

With a stable economy, low taxes, good communications, excellent professional services and a convenient location near the EU, Guernsey is an attractive destination for offshore businesses.

The development of the island as a centre for financial services in the last 25 years owes much to the care taken by the administration to admit only reputable businesses. In the early days selection was exercised informally, but a formal regulatory structure was steadily been put in place, culminating in the formation of the Financial Services Commission. Partly as a continuation of this process, and partly in response to the Edwards Report, the administration conducted a three-year programme to introduce additional regulation affecting almost all types of offshore activity. With the new laws in place, the island now offers a level of regulatory control and protection at least equal to that in the world's leading economies.

Guernsey Import of Foreign Capital

There is no exchange control in Guernsey. Guernsey companies may be freely incorporated with a share capital denominated in any currency and there are no restrictions on inward or outward investment or on the repatriation of dividends, interest and profits. Bank interest on deposit payable to non-residents is exempt from Jersey income tax. Royalties are treated for the purposes of tax in the same way as interest. However, under the EU's Savings Tax Directive, from July 1, 2005, Guernsey was obliged to deduct withholding tax, initially at 15% (20% from July 1, 2008 rising to 35% from July 1, 2011), from returns on savings paid to citizens of EU Member States.

Guernsey The Channel Islands Stock Exchange

The Channel Islands Stock Exchange ("CISX") commenced operations on 27 October, 1998 with 23 founder members. Its aim is to provide trading and listing of investment funds, debt instruments and shares in companies and to bring the expertise available in the Channel Islands to the expanding network of international businesses requiring expert offshore financial services in the European time-zone. Ownership of the CISX lies in the hands of its listing members, who have to be established in the Channel Islands. Management and control are vested in a board of directors who are elected. Based in St Peter Port, Guernsey, the CISX provides a listing facility and screen-based trading. Trading members do not have to be established in the Channel Islands, but must be licensed, regulated or supervised by a regulatory body in a jurisdiction recognised by the CISX.

The CISX's screen-based trading platform is based on Reuter's Triarch network installed at the Exchange's St Peter Port offices. Reuters has been involved with the financial markets in The Channel Islands for over 20 years, with offices in Guernsey and Jersey in 1984. Reuters was chosen by the CISX because it offers a first class system for the delivery and management of the Exchange's market data. There is also the opportunity to access the considerable communications network and range of information services available from Reuters.

Trading in the shares of local companies may be settled via Crest or Crest Residual. International debt issues, and other eligible issues, may be settled through either Cedel Bank or EuroClear unless otherwise agreed, by the parties to the transaction, at the time of trade.

Since commencing operations, the CISX has grown rapidly, reaching a total of 2,000 listings in May, 2007, with total market capitalisation in excess of USD17bn. The exchange's 3000th listing was achieved in December 2008. The exchange prides itself on a personalised approach and fast track processing of listing applications within a highly regulated and innovative marketplace.

In September, 2002, the US Securities and Exchange Commission's awarded the Channel Islands Stock Exchange (CISX) designated offshore securities market status. In December, 2003, the CISX gained approval by the UK Financial Services Authority as a Designated Investment Exchange.

Although the CISX is as open to listings from Jersey as from within Guernsey, in practice the Exchange trades four times as many Guernsey-domiciled securities as those from Jersey. The exchange said in 2004 that it was trying to remedy this imbalance; it is also promoting several new product areas, including eurobonds, floating property funds, open and closed-ended investment funds, debt, securities and special purpose vehicles. The exchange is also attracting interest from alternative investment funds, and plans the listing and trading of products such as insurance related instruments.

GUERNSEY: COUNTRY AND FOREIGN INVESTMENT REGIME

On this Page: