Guernsey's Offshore Legal and Tax Regime

The term 'offshore' is not used in Guernsey legislation or in describing company forms. Corporate non-residence and/or the avoidance of ownership by residents are the key factors which will ensure low-tax treatment in Guernsey. The main forms useful for offshore operations in Guernsey are the various types of Exempt and International Body, the Limited Partnership, and the Trust. Normally, non-resident tax treatment is given to foreign income, while income arising in Guernsey is taxed more highly.

In 2002, the Guernsey States agreed that an overhaul of the taxation system was necessary to ensure that the island remains competitive. 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%. The changes to the tax system will also bring Guernsey into line with the European Union's code of business conduct over taxation. Introduction of the 'zero/ten' regime in 2008 will see the end of the 'exempt' company regime in Guernsey.

In making the announcement, Advisory and Finance Committee president, Deputy Laurie Morgan observed that: 'Ireland is going to 12.5% - that doesn't make 20% look very attractive any more. 20% is still a relatively low rate but it is now higher than the emerging rates from elsewhere - and we are in competition,' he said.

In June, 2003, Guernsey confirmed it would introduce a retention (ie withholding) tax, initially at a rate of 15%, under the EU's Savings Tax Directive in respect of EU resident individuals' savings interest. This Directive entered into force on July 1, 2005. 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.

Forms of Offshore Operation

Offshore operations may take place within the following forms:

See Domestic Corporate Taxes for the general principles of Guernsey corporate taxation, which also apply to offshore entities except as indicated below.

This section refers to the taxation of foreign employees of non-resident operations and International Business Companies; see Domestic Personal Taxes for the general principles of individual taxation in Guernsey, which also apply to the resident employees of non-resident entities. There is in fact no distinction between the employees of resident or non-resident operations. It is a question of individual status. Most types of compensation and benefit paid to employees are taxable; there are no special privileges or exemptions for expatriate workers.

An individual is resident in Guernsey if he is on the island for a total of 182 days in the year of charge (the calendar year), or if he is on the island for a total of 182 days in the year to 31st July in the year of charge; and the use or possession of a dwelling-place usually leads to residence (the rules are complex). Resident means solely or principally resident. It is possible to be 'resident but not solely or principally resident' (essentially by not having a dwelling-place, but it's complicated); such an individual will pay Guernsey income tax on income sourced from or received in Guernsey (with exemptions for some sorts of local dividend, interest or royalty income).

Non-residents are liable to pay Guernsey income tax only in respect of income arising in Guernsey or from Guernsey sources (again, with exemptions for some sorts of local dividend, interest or royalty income).

In August 2004, proposals were offered in a States report seeking to amend the current legislation which determines residence for tax purposes. The reason for seeking the change is that the present rules are complex and not easily understood. Although for the majority of the population the changes will have no effect on their tax bills, the rentier sector may be affected. For this reason the accountancy profession was consulted. The simplification should lead to a reduction in the need for correspondence with the Tax Office on residence matters.

For International Bodies, activities on the island must not involve transactions with Guernsey residents (except other International or Exempt Bodies), but are not otherwise specifically limited. For Exempt Companies, there is no specific bar against local activities; the more important factor is the whereabouts of the beneficial owners.

Exempt Investment Schemes must not invest in Guernsey, other than through bank deposits or through other Exempt Bodies.

Exempt Insurers are not limited as regards local activities, but must notify them to the Administrator.

In most cases of non-residence there are no specific rules about Guernsey activities; income is simply split according to its source and taxed or not accordingly.

There are no special privileges or disabilities for the employees of non-resident or offshore operations as such. Nationals of European Union member states have free right of movement in Guernsey for the purposes of work and establishment. Non EU nationals must complete immigration formalities and obtain a work permit. Generally a work permit will be granted only if no suitably qualified local exists. Preference is given to UK and other European Union nationals.

The work permit policy is primarily export sector based and, except as provided for within this policy, issued solely to Keyworkers. A Keyworker Permit may be issued to skilled/qualified workers normally allowing a maximum of 4 years continuous employment. The Home Department will, however, consider a longer period if a high degree of essentiality to the Bailiwick can be demonstrated.

New businesses moving into the Island will be advised how many, if any, licences will be made available to them before they set up business. At present the supply of licences is very meagre, and new businesses must be prepared to buy/rent on the open market in order to house staff.

Housing in Guernsey is carefully controlled and this is the means by which the island prevents excessive immigration. Under the Housing Control of Occupation (Guernsey) Laws 1982 to 1990 the housing market is divided into 'local market' houses, and 'open market' houses. Prices for properties on the local market start at about GBP160,000, but applicants for licences would be expected to buy a higher priced property, probably over GBP250,000. There is a register of those properties which are on the open market. These properties are available for occupation by any person who wishes to take up residence in the Island and who satisfies immigration requirements. However, the number of these properties is restricted to about 2,500 and cost upwards from GBP450,000.

Broadly speaking, local market homes are available only to natives of Guernsey and their children (if they have spent 10 years living there). A further class of licence-holders with access to local market homes includes essential workers; however senior executives are often not given licences, forcing them to shop on the open market.

NB: The Guernsey housing laws are complex, and the above is a simplified statement.