GUERNSEY Law and Practice Contributed by: Matthew Brehaut, Carey Olsen
2.5 Fund Finance Subject to certain restrictions in respect of Class A funds (see below), Guernsey alternative funds may access fund finance for subscription financ - ing and/or leveraging, provided the appropriate borrowing powers and limits are set out in the fund’s offering documents and constitutional documents. A Class A fund may borrow up to 10% of the val - ue of the fund’s property on a temporary basis, subject to any restriction in its constitutional or offering documents, from an eligible institution or an approved bank. Any period of borrowing that exceeds three months must be approved by the fund’s trustee/custodian. Other than the above, there are no statutory or regulatory limits in relation to borrowing, and any such limitations would be a matter for the pow - ers/constitution of the relevant fund. Finance has traditionally been obtained from banks and/or banking institutions. However, borrowing by Guernsey funds is influenced by the trends in the finance market as a whole; as such, Guernsey-domiciled funds have access to finance from banks and other alternative institu - tional or personal lenders, including other funds and specialist debt providers, domiciled both in Guernsey and elsewhere. No common issues are experienced in relation to fund finance. 2.6 Tax Regime If the fund is structured as a company, it will be subject to income tax at 0% unless it obtains tax-exempt status (where no tax will be appli - cable) for an annual fee of (currently) GBP1,600. Funds structured as limited partnerships or unit trusts are not themselves subject to Guernsey
tax (they are “tax transparent” as they have no separate legal personality). Distributions made by a Guernsey fund to Guernsey-resident shareholders may be taxed on the shareholder at the standard income tax rate of 20% for individuals and 0% for corpora - tions, irrespective of whether the corporation is itself taxable in Guernsey on sources of income at a rate other than 0%. Distributions made by a fund to non-Guernsey-resident investors, whether made during the life of the fund or by distribution on liquidation, will not be subject to Guernsey tax, provided such payments are not taken into account in computing the prof - its of any permanent establishment situated in Guernsey through which such investor carries on a business in Guernsey. A Guernsey fund that is structured as a com - pany, and that has not obtained tax-exempt sta - tus at the time a distribution is made, would be required to withhold tax at the applicable rate in respect of any distributions made (or deemed to have been made) to shareholders who are Guernsey-resident individuals. Under Guernsey tax law, no withholding of tax should be required in respect of distributions to Guernsey-resident unit-holders of Guernsey funds which are not structured as companies or if, at the time a dis - tribution is made, the Guernsey fund structured as a company has tax-exempt status. There is no stamp duty or equivalent tax pay - able in Guernsey on the issuance, transfer or redemption of units in Guernsey funds. Guern - sey charges no document duty on the creation or increase of authorised share capital. The States of Guernsey has passed enabling leg - islation for the introduction of a system of goods
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