The EU Council’s Economic Substance legislation came into effect on 1 Jan 2019 and could mean big changes for companies registered in the crown dependencies. Marcel Cariou, Legal Director at Equiom Guernsey gives an update on how Guernsey-registered companies are dealing with the new requirements.
Guernsey’s domestic Economic Substance laws (the Regulations) were implemented to address the EU’s concerns that Guernsey companies could be used to attract profits that are not commensurate to the company’s activity and economic presence in Guernsey.
The Regulations generally require Guernsey companies which conduct any relevant activity (banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution / service centres, holding intellectual property or pure equity holding) to ensure that they are:
- directed and managed in Guernsey
- conducting their core income generating activities in Guernsey
- have adequate people, premises and expenditure in Guernsey to conduct those activities, although there are different substance requirements for pure equity holding companies
With corporate governance often scrutinised by onshore tax authorities, directors and administrators of Guernsey companies have long been accustomed to ensuring that mind and management sit squarely in Guernsey. The Regulations go beyond mere mind and management, but Guernsey companies have a good base on which to build.
As a proactive administrator with a strong focus on corporate governance, Equiom is assisting its clients to establish frameworks to ensure the following for companies in scope and receiving income from a relevant activity:
- the board of directors is adequately constituted (including providing experienced individuals to boost knowledge and expertise where needed)
- board meetings are held with sufficient frequency with a quorum on-island
- strategic decisions relevant to the core activity are effectively raised, considered and minuted
The Regulations and guidance allow administrators to provide staff and premises, so a Guernsey company’s personnel and office space requirements can be met or augmented by using a Guernsey company administrator. For the purposes of the Regulations, the administration fees are a valid staff / premises expense.
With its commendable track record in corporate governance and transparency, Guernsey is attracting business from other corners. Equiom has seen a rise in requests from clients with companies in other jurisdictions with weaker substance infrastructure wanting to migrate those companies to Guernsey. This clearly demonstrates the Island’s ability to respond resourcefully to this latest challenge from the EU.
For further details on EU substance rules and how it affects registered companies in the Crown Dependencies, read Kevin’s article here or get in touch.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this [article/publication] or for any decision based on it.