Corporate Taxation
in Guernsey
In
Guernsey there is no general capital gains tax,
capital transfer tax, purchase or sales tax or
VAT. The main taxes are income tax, which is levied
on resident individuals, and companies in Guernsey
and Alderney, and dwellings profit tax, which
amounts to a capital gains tax on property sales
- its intention was to defeat speculation, somewhat
similar to the one-time UK DLT, and it has largely
succeeded. There are property rates (taxes), duties
up to 2% on transfers of real property, some minor
charges on issuance of capital, an annual charge
of GBP100 on submission of a company's return.
Individual parishes levy minor property-related
taxes.
In
2002, the Guernsey States agreed that an overhaul
of the taxation system was necessary to ensure
that the island remains competitive as a low tax
jurisdiction and international finance services
centre. The centrepiece of Guernsey's Future Taxation
Strategy is a 'zero/ten' rate of corporate tax,
under which Guernsey's businesses and corporate
entities will be subject to income tax at 0% from
the 2008 tax year. However, businesses regulated
by the Guernsey FSC will be charged tax at 10%.
In
July, 2006, Guernsey's parliament passed a set
of economic and taxation changes that includes
the zero rate of corporate tax and the capping
of personal tax at GBP250,000.
The
package of measures includes:
- A
zero rate of income tax on company profits,
except for specific banking activities which
will be taxed at 10%;
-
Guernsey residents continue to pay tax at 20%
on assessable income;
-
Personal tax capped at GBP250,000 on non-Guernsey
income and investment income;
-
Taxation of Guernsey-resident shareholders on
distributed company profits only; and
-
Wealth taxes such as inheritance tax and capital
gains tax will not be introduced.
"I
am delighted that this package has been agreed
by the States – it really is very good news for
what is an already buoyant finance industry,"
Peter Niven, the Chief Executive of GuernseyFinance,
announced last week, adding that:
"Firstly,
this decision provides the industry and its clients
with certainty going forward and secondly, the
set of measures agreed will further enhance the
environment for doing business in the island."
He
continued: "Importantly this package has the support
of not just the finance industry but also the
much wider business community. The measures reinforce
the message that Guernsey is very much open for
business and welcomes high net worth individuals."
"They
also clearly promote enterprise within the economy
as a whole, in particular high-earning, low footprint
activities and the feeling within the finance
industry is that they will help attract new business
to the island, especially activities such as hedge
fund management"’
The
main strands of the package will come into effect
from 1 January 2008. The
government is continuing to study various proposals
to replace an estimated GBP48 million shortfall
in revenues under the proposed system, including
a general sales tax, higher social security levies
and additional duties on petrol, alcohol and tobacco.
In
July 2005, Guernsey adopted a 15% retention (ie
withholding) tax under the EU's Savings Tax Directive
(STD) in respect of EU resident individuals' savings
interest (although depositors retain the option
to exchange information on savings income with
the tax authority of their home member state).
As
originally drafted, the STD aimed at a uniform
'information exchange' regime to apply across
the Union, with all countries agreeing to report
interest on savings paid to the citizens of other
Member States to those States' tax authorities.
Because of resistance from EU Member States with
strong traditions of banking secrecy, the Commission
had to allow Austria, Luxembourg and Belgium to
apply a withholding tax. The STD also extends
to a number of Third Countries which are not members
of the EU, including Andorra, Liechtenstein, Monaco,
San Marino and Switzerland. Many of the UK's offshore
financial centres (including Jersey and the Isle
of Man) have been forced to join the STD, along
with the Netherlands Antilles and Aruba.
Information
given below relates to the tax regime in force
until 2008.
Scope of Income Tax
Guernsey
income tax is based on the Income Tax (Guernsey)
Law 1975 as amended. The States Income Tax Authority
(a permanent committee) controls income tax, through
the Administrator, who assesses and collects tax.
Appeals on income tax matters are heard by the
Guernsey Tax Tribunal. Until 1990, corporation
tax (which amounted to an annual fixed charge)
was payable by limited liability companies registered
in but not managed and controlled from Guernsey.
Such companies were still liable to Guernsey income
tax on income from Guernsey sources. The tax was
abolished after exempt status was introduced for
companies in 1989. Income tax is now payable by
all companies resident in Guernsey or Alderney
on income arising from 'business' widely defined
but excluding income chargeable to Dwellings
Profits Tax :
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Income Tax Rates
The
rate of Guernsey income tax is 20%.
Exempt
companies pay an annual fee of £600.
International Companies pay a rate between nil
and 30% according to the agreement they have negotiated
with the Administrator.
See
Offshore Legal and Tax
Regimes for further details of the taxation
of offshore entities.
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Calculation
of Taxable Base
For
companies, income tax is normally assessed for
the year of charge (the calendar year) on income
arising in the year of computation, which is the
accounting year of the company which ended in
the year preceding the year of charge, or with
the permission of the Administrator, in the month
of January in the year of charge. Calendar year
(the Year of Assessment). There are special rules
for the opening and closing years of a business.
Income
is defined fairly comprehensively and includes
capital gains. Land and buildings (unless, broadly
speaking, occupied for the purposes of the business)
are chargeable on the basis of 'annual rental
value' (ARV); the rules for calculating ARV are
quite complex and include deductions for various
types of expense.
Banks
which are subsidiaries or branches of non-resident
parents are allowed, by concession, a deduction
of 90% of the profits made from international
lending business.
Click
here for details of Guernsey's Double Taxation
Treaties with Jersey and the UK. There are some
provisions for unilateral relief on taxed income
received from other countries.
Allowable
expenditure needs to be incurred 'wholly and exclusively'
for the business and includes a fairly normal
range of types of expense; mixed private/company
expenses can often be apportioned.
There
are capital allowances for buildings (1 1/4 %
annually if it is a normally substantial structure)
and for glasshouses (important in Guernsey). For
plant and machinery there is a pooling system
for capital expenditure allowing deduction of
20% of the pool balance annually. The rules are
reasonably complex.
Subject
to some conditions, losses may be carried forward;
terminal losses may be carried back two years.
Group relief was introduced by the Income Tax
(Group Loss Relief Amendment) (Guernsey) Law 1997.
Groups must consist of resident, non-exempt Guernsey
businesses and outside ownership of a subsidiary
company in a group is effectively limited to 10%.
No
deduction is permitted for dividends paid out
by a company; but a Guernsey-resident company
may deduct standard rate tax from dividends paid
out of taxed income (or which would have been
taxed if an actual current year basis was applied).
Resulting overpayments are refunded.
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Dwellings Profit Tax
The
Dwellings Profits Tax came into force in Guernsey
in 1973, and is governed by the Dwellings Profits
Tax (Guernsey) Law 1975 as amended. The tax is
managed by the Administrator. The purpose of the
tax was to deter speculation in land and buildings;
it imposes a tax of 100% on the profits from sale
of a dwelling or land, unless used
for bona fide residential purposes. The rules
are quite complex, but in practice the tax has
succeeded in its object and it is not very often
imposed. Nonetheless, a business needs to be aware
of it, and to be careful when purchasing or dealing
in real estate or companies owning real estate.
With
regard to property taxation, stamp duty on property
worth GBP150,000 or less was abolished to encourage
first time buyers in Guernsey's November Budget
2001.
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Taxation of Trusts
When
the beneficiaries of a trust are non-resident,
full exemption from Guernsey taxation is given
to foreign income and Guernsey bank interest,
by concession, whether or not the income is distributed.
The
trustee of a trust with Guernsey-resident beneficiaries
may be charged with tax due on trust income, although
the tax is normally assessed directly on the beneficiary.
The trustee is entitled to any allowances which
would apply to the beneficiary.
Unit
trusts are treated in the same way as other trusts;
the existence of Jersey unit-holders does not
affect exemption, subject to some conditions.
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Taxation of Partnerships
In
Guernsey partnerships each partner is liable for
income tax on his share of profits, including
partnership income other than from the business
of the partnership. Limited Partnerships are treated
in the same way as ordinary partnerships.
Partnerships
are treated as businesses under Guernsey law,
and the calculation of profits follows the same
rules as it does for companies (see above) including
allowance for losses and capital allowances. The
treatment of capital items used by the partnership
is the same whether the items are owned by all
the partners or only some of them. This provision
does not apply to lettings or to capital items
provided to the partnership in return for a consideration
which is itself deductible from profits.
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Taxation of Insurance Companies
In
Guernsey there are various special regimes for
taxation of insurance companies.
A
life insurance company, or the life insurance
business of a composite insurer, is taxed according
to the decision of the Administrator, either
- as
a normal business, with investment gains and
losses being counted in (other than profits
reserved or expended for policy-holders or annuitants);
or
- on
the basis of gross investment income adjusted
for various types of expense and income, as
long as the final taxable amount is not less
than it would be under 1., with any excess being
carried forward as a loss to future years.
(NB:
This is a highly simplified version of a set of
complex rules).
Depending
on their circumstances, other types of insurer
can choose between a number of different taxation
regimes:
- to
be taxed as normal businesses;
- to
be taxed on a sliding scale - the rules are
complex, but broadly this results in no tax
on underwriting profits, 20% income tax on Guernsey
income and on the first £250,000 of other
(investment) income, and a nominal rate of tax
on the balance;
- to
be an Exempt Company;
or
-
(an irrevocable choice) to be an International
Body.
It
is impossible here to set out the bases on which
a choice might be made, since so much depends
on the nature and circumstances of individual
companies.
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Filing
Requirements and Payment of Tax
The
tax year is 1st January to 31st December and is
referred to as the year of charge. Tax due on
an assessment is payable in two halves, one before
30th June of the year of charge and one before
31st December; or if the assessment is late, tax
is due within 21 days of the issue of the assessment.
Withholding Tax
Dividends
are subject to income tax at 20%. Payments of
interest to a non-resident by a Guernsey 'income
tax' company (ie resident company) are also subject
to 20% income tax. By concession, payments of
interest by Guernsey banks to non-residents or
exempt companies are untaxed. Royalties are treated
on the same basis as interest.
As
from 1st July, 2005, interest and other returns
on savings paid to citizens of EU Member States
are subject to withholding tax at 15% under the
Savings Tax Directive.
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