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Guernsey Captive Insurance

The Bailiwick of Guernsey is a British crown dependency in the English Channel off the coast of Normandy.

Guernsey is Europe's largest and longest-established captive centre. The offshore captive was initiated in Guernsey in 1922, although it was in the 1970s that the industry started to grow to its current level. At the beginning of 2003 there were 330 captive insurance companies in Guernsey. As a result there are a large number of qualified and experienced captive insurance managers on the island, together with considerable expertise in the support services of accountancy, legal services and investment management.

Guernsey's captive insurance business is regulated by the Guernsey Financial Services Commission, which has a specific division dedicated to the regulation of insurance business. Regulations, rules and codes of conduct covering captive insurance companies are included in:

• The Insurance Business (Bailiwick of Guernsey) Law 2002.
• The Protected Cell Companies Ordinance 1997 as amended by The Protected Cell Companies (Amendment) Ordinance 1998.

There are a number of options relating to the taxation of a Guernsey captive insurance company, the choice of which depends upon the tax position of the group or organisation for whom the captive is formed. The three options available are:-

• The company can claim exempt status on the payment of a fee of £600 per annum. Thereafter no other Guernsey tax is payable.
• By agreement with the Guernsey tax authorities, the company can pay tax on a sliding scale.
• The company can register as a resident Guernsey company and pay tax at the normal rate of 20% on net profits. Payment can be postponed until claims are paid, or profit is taken.

The option chosen will depend upon a number of factors such as the country from which the premium is paid and the location of the ultimate parent. Tax advice will need to be taken to ensure that the most preferential structure is selected.

Tax treatment of captive operations in Guernsey is very favourable. However the tax treatment of such offshore structures by onshore countries often means that the set-up of an offshore captive operation is not driven by tax considerations.