ESR in Guernsey

Those planning to start a business in the Bailiwick of Guernsey should bear in mind the economic substance rules (ESR) that have recently come into effect on the island. They’re applicable to the tax residents of this jurisdiction if:

• they register a holding company in the Bailiwick of Guernsey whose primary function consists in purchasing stocks of other companies.
• their company isn’t involved in any commercial activities (PEHC).
• if they perform some of the below activities:
  1. providing banking services in the Bailiwick of Guernsey;
  2. managing funds;
  3. financing & leasing;
  4. obtaining an insurance company license in the Bailiwick of Guernsey;
  5. establishing a head office;
  6. managing in-scope companies;
  7. managing IP companies.

Those seeking to register a bank in the Bailiwick of Guernsey or open a PLC in the Bailiwick of Guernsey should keep in mind that their activities are also regulated by the ESR. 

ESR: Primary Provisions

The above requirements are solely applicable to holding companies in the Bailiwick of Guernsey. It should be kept in mind that commercial entities conducting similar or related activities through a head office or an in-scope company are also regulated by the ESR.

The ESR are applicable to the tax residents of this jurisdiction if:

• they receive income from certain types of activities;
• they manage a holding company in the Bailiwick of Guernsey;
• they manage an IP company within an applicable tax period.

Those interested in incorporating a company in the Bailiwick of Guernsey should keep in mind that it is to be managed in this jurisdiction. Proving that requires complying the below criteria:

• BoD meetings are to be conducted with sufficient frequency;
• a quorum must be ensured; physical presence of BoD members is required;
• BoD members must make strategic decisions & see to it that they’re reflected in the minutes;
• documentation is not to be stored some outside of Guernsey;
• BoD members are to possess the required expertise.

CIGA

Those wishing to set up a company in the Bailiwick of Guernsey are required to prove that their main business activities are conducted directly or via structures located in the jurisdiction.

Holding Companies

Individuals looking to establish a holding company in the Bailiwick of Guernsey are to comply with the following criteria:

• ensure a sufficient number & physical presence of their employees in the Bailiwick of  Guernsey;
• adhere to applicable laws (it should be kept in mind that some commercial entities can pay taxes in this jurisdiction, while their managers may reside outside the island).

Penalties

Failure to comply with the ESR entails:

• fines; 
• exclusion from from the company register; 
• administrative penalties.