It's a reformed tax haven.
One golden, if imperfect, rule of investment is to follow the money. So let's head for the ancient bailiwick of Guernsey, one of the Channel Islands off the Normandy coast, where there's been a flood of funds pouring into its insurance, pension and banking industries in the last couple of years.
Except we can't go to Guernsey. At least, not physically apart from a visit. To live there, Fools would need a license and they're handed out only sparingly for fixed periods. As for permanent residency, that may take 15 years or never.
Accommodation is hard to come by too, with an official pool of property on the market at starting prices of around £850,000. The problem is the maximum sustainable population is about 60,000 and the bailiwick is pretty much full up.
Low, low taxes
It's not hard however to see Guernsey's attractions for investors, both individual and corporate.
- Take personal tax. The rate is 20% -- none of this "temporary" 50% that's been imposed on UK's high earners. Nor is there capital gains, wealth, inheritance or general sales taxes, although residents are liable for social security contributions, poor things. No wonder the banking sector accounts for 8,000% of GDP.
- Take corporate tax. It's "zero/ten" -- that is, no corporate tax aside from ten per cent on profits from bank lending. This nice little regime may be up for discussion because some European countries argue that zero/ten flouts the EU's code of conduct, but we can probably expect Guernsey's parliament to come up with an acceptable arrangement along similar lines. It's done so often enough before.
Guernsey's reputation as the place to be for investors, albeit in virtual form, took a hit in the assault on tax havens following the financial crisis. The IMF came knocking to discuss transparency.
Subsidiaries of Landsbanki and Northern Rock banks failed -- since then a depositor guarantee scheme has been implemented -- and there was a general disenchantment with the Channel Islands in general.
Comeback time
But now Guernsey is making an impressive comeback.
It's winning the battle with rivals Jersey and Isle of Man to bag the biggest share of the new qualifying recognised pension schemes (QROPs). Total funds under management and administration soared by 40% last year to £257.4bn -- they've grown for six straight quarters.
Total bank deposits have increased 37.5% in the last five years and now stand at £111bn, or £1.85m per resident, thanks partly to the Swiss who pump in their tax-efficient fiduciary deposits by the bucket-load.
And 106 LSE-listed companies are registered in Guernsey, way up on Jersey, Isle of Man and the Caymans who are the main rivals in this lucrative area.
Full up with finance
Unsurprisingly, the financial sector is the big game in town. Local accountancy firms such as BDO have just registered a 10% increase in clients. Law firms claim the lion's work of backroom administration for LSE and AIM-listed companies.
It's the most popular location by far for private equity administration. On top of that, the stock exchange is a haven for specialist listings such as debt securities.
There's some controversy over QROPs. The Channel Islands have come up with a clever wheeze that allows the individual to take much more out of the accumulated capital in a lump sum than was possible before. This has attracted a lot of non-Guernsey schemes to the crown dependency, but there's some doubt whether HMRC will accept it. However it's kosher for now and the money's flowing nicely.
Guernsey marches very much to its own drum. It's not part of the UK or the EU, it has its own parliament called, rather ponderously, the States of Deliberation.
Although it doesn't have a central bank and uses the pound sterling, it very much manages its own legal, regulatory and tax regime.
But would you want to live there, if you could?
In just two whirlwind years, Guernsey has tidied up its reputation as a tax haven under pressure from all directions and has been signing bilateral tax information exchange agreements like crazy, most recently with China and South Africa. The required minimum is 12 but a reformed Guernsey has put its monicker on 22 to date.
The Global Forum transparency body, IMF and OECD: they've all given Guernsey a pat on the back for its efforts but by no means a clean sheet. IMF, for example, wants to see more aggressive enforcement among other improvements.
More from Selwyn Parker:
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