Why are listed vehicles so popular?
By Caroline Chan – Guernsey had 106 listed vehicles on the combined London Stock Exchange markets at the end of 2010, with listed closed-ended private equity, property and infrastructure funds particularly popular. The island had the highest number of London-listed vehicles of any offshore jurisdiction; its nearest competitor had 66.
Guernsey vehicles are also listed (or approved to list) on other international exchanges including the Australian Securities Exchange, Euronext Amsterdam, the Frankfurt Stock Exchange, the Luxembourg Stock Exchange, the Nasdaq OMX Stockholm Exchange and the Toronto Stock Exchange.
Earlier this year, the Hong Kong Stock Exchange approved Guernsey as an “acceptable overseas jurisdiction” (with the author having provided legal assistance to the island’s government). As a result, a Guernsey company wishing to list its shares on the HKEx can now follow a streamlined listing process.
Guernsey has gained a reputation as a jurisdiction of choice for listed vehicles, including investment funds. Widely regarded as a first-class international financial centre, it has a proven track record of attracting investment from around the world. As of June 30 this year, assets under management and administration in Guernsey’s fund sector stood at more than GBP274bn.
The island is politically, economically and financially stable, with a well-developed court system based on English common law principles. Experienced professionals work within the island’s financial services industry.
Guernsey offers tax-neutral structures for listed vehicles. Investment funds are exempt from Guernsey tax, provided they meet the requisite criteria, while tax-resident companies are generally subject to an income tax rate of zero per cent. There is neither capital gains tax nor capital transfer tax.
No stamp duty or similar taxes are payable on the issue, redemption or transfer of a Guernsey company’s shares (although stamp duty may be incurred in the jurisdiction where its listed shares are traded), and there is no withholding or deduction of Guernsey income tax in respect of non-Guernsey resident shareholders.
In 2009, Guernsey was in the first group of jurisdictions ‘white-listed’ by the OECD as having met international tax transparency standards. It now has tax information exchange agreements with 29 countries including the US, China and 13 EU member states.
The island has enhanced its reputation by applying high regulatory standards, but retained a flexible regulatory regime for funds, enabling promoters with alternative investment classes to promote their offerings through a well-recognised product. It is anticipated that the island’s position under the EU’s Alternative Investment Fund Managers Directive will continue to attract these types of investment opportunity.
Guernsey’s corporate law is familiar, being largely modelled on English legislation, but it is also flexible. Changes can be made to a company’s constitutional documents to meet investor expectations and satisfy the requirements of particular listing rules.
Of particular note is the ability of a Guernsey company to make a distribution out of, or repurchase shares from, any source of its capital, provided the company’s directors are satisfied that it is able to meet the statutory solvency test, comprising a balance sheet test and a cash flow test. On a practical level, shares in a Guernsey company may be held in dematerialised form and can be settled into, and cleared in, the UK’s Crest system.
In summary, Guernsey offers a well-recognised listed vehicle product, in a well-regulated jurisdiction that is highly regarded by promoters and investors alike.
Caroline Chan is a partner in Ogier’s Guernsey office
Please click here to download a copy of the Private Equity Wire special report: Guernsey Private Equity 2011
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