Jersey direct corporate taxes

In Jersey there is no capital gains tax, capital transfer tax, purchase or sales tax or VAT. The only significant tax is income tax which is levied on persons or 'bodies of persons' which expression includes companies. There are some administrative charges in addition. There are stamp duties on the transfer of immovable property (up to 1%) and individual parishes levy property taxes.

In November, 2002, the authorities announced that they were planning to reduce the rate of income tax on corporations to zero. Financial institutions are however likely to continue to be liable to income tax at a rate of 10%. In November, 2003, Jersey announced that it would start compensating for the GBP100m deficit caused by abolishing business tax with new measures, including VAT or sales tax, two years before it moves to a zero corporate tax rate.

In October, 2004, the States of Jersey published a consultation paper on the reform of the jurisdiction's taxation structure and the issue has proven to be highly contentious in public debate.

The paper, entitled ‘Jersey’s Taxation Structure – A Goods and Service Tax – The right way for Jersey?’ outlines the reasons for considering a goods and services tax (GST) and the various alternatives that are available.

The Finance and Economics Committee published its Fiscal Strategy proposals in February 2005 and these were approved by the States Assembly in May 2005. The States agreed to introduce a broad-based, 3% Goods and Services Tax (GST), with a registration threshold set at GBP300,000 of taxable turnover, in 2008. The 'zero/ten' tax system will be introduced in the following year. It also agreed to phase out income tax allowances for those on higher incomes (20% Means 20%) over a five-year period beginning in 2007, and tax exemptions and allowances were frozen for year of assessment 2006. At the same time a revised Income Support system will be used to provide some protection to those on low incomes. Further research will also be undertaken into Environmental Taxes, Development Levies and a Land Value Tax to see whether they might be appropriate for Jersey.

Jersey income tax is based on the Income Tax (Jersey) Law 1961 as amended by subsequent Finance Laws and Income Tax (Amendment) Laws. Until 1989, corporation tax was payable by limited liability companies registered in but not managed and controlled from Jersey. Such companies were still liable to Jersey income tax on income from Jersey sources (except Jersey bank deposit interest, by concession). The tax was abolished from the beginning of 1989, when exempt companies were introduced. Income tax is now payable by all limited companies, as follows:

Resident 'income tax' companies pay full income tax on their world-wide income
International Business Companies pay full income tax on their income arising in Jersey (see Offshore Legal and Tax Regimes for the treatment of non-Jersey income)
Exempt companies pay full income tax on their income arising from an established place of business in Jersey (see Offshore Legal and Tax Regimes for the treatment of other income)
Jersey branches of foreign corporations pay full income tax on income arising in Jersey if they are managed and controlled outside the island; otherwise it is treated as a Jersey resident 'income tax' company.

The rate of Jersey corporate income tax is 20%; but for International Business Companies' Jersey income the rate is a maximum of 30%.

For companies, income tax is normally assessed for income arising in the calendar year (the Year of Assessment). Income is defined fairly comprehensively.

Allowable expenditure needs to be incurred 'wholly and exclusively' for the business; however, mixed private/company expenses can often be apportioned.

There is a system of capital allowances whereby capital expenditure is pooled and 25% of unamortised capital expense is charged off against income in each year. The rules are reasonably complex. There are special rules for glasshouses (important in Jersey).

Subject to some conditions, losses may be carried forward; there are no provisions for terminal loss relief. There is no group relief for company losses, but it is often possible to adjust an intra-group situation by making inter-company management charges, provided all companies are Jersey-resident.

Tax paid at source on foreign investment income can be deducted from that income.

In the normal trust situation, ie with settlor, life tenants and beneficiaries all being non-resident, full exemption from Jersey taxation is given to foreign income and Jersey bank interest, by concession. This exemption is automatic, and does not need to be applied for.

However, if any of the settlor, the life tenants or the beneficiaries are Jersey-resident, the tax picture becomes more complex, and exemption from Jersey tax will be partial, at best; however if only the settlor is Jersey-resident, full exemption may be available on application to the Comptroller, subject to stringent conditions. If tax is due on a Jersey trust, then it is assessed on the trustee; a non-resident trustee will however be assessed only on income arising in Jersey.

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.

Taxation of Partnerships

Jersey partnerships are liable to income tax, and the calculation of tax due is along similar lines to that for companies (see above) including allowance of losses (limited carry-back is allowed as well as carry-forward). Normally, assessment is on a preceding year basis, other than at the commencement of a partnership. The assessment is made on the partnership as a 'body of persons' rather than on the individual partners. Personal allowances may be claimed against the partner's share of partnership profits.

Foreign partnerships (ie one with control and management abroad) are charged to tax only in respect of Jersey income; assessments may be made on the firm in the names of Jersey resident partners. If there are no Jersey-resident partners, returns can be made by a Jersey agent or representative.

Limited partnerships are not assessed as such: resident partners are assessed on the whole of their share of partnership income; non-resident partners are assessed on their share of Jersey income only, excluding Jersey bank interest (by concession).

The year of assessment for income tax purposes commences 1 January through to 31 December. The Comptroller of Income Tax, appointed by the States is the chief administrator of the Income Tax (Jersey) Law 1961. He is responsible for taxation assessments, handling claims, allowances and returns and collecting income tax. The Treasurer of the States make repayments of income tax on a certificate of the Comptroller. Returns are sent out in the January following the year of assessment, although in practice, the accounts are accepted instead of a return. The return or accounts must be submitted within seven months of the end of the accounting period and the tax paid within nine months of it. A preliminary assessment is made if the accounts are for less than one year.

Withholding Tax

Withholding tax is not imposed on dividends, but they are deemed to have borne income at 20% for a resident company, or at the lower rate payable by an international business company. Income tax is deducted at the standard rate of 20% from any payment of interest, royalties or annuities by a Jersey 'income tax' company, to either a resident or a non-resident. An exempt company or an IBC is not obliged or entitled to deduct tax when paying interest or royalties to non-residents. For all companies, interest and royalty payments are deductible as trading or management expenses when calculating the profits chargeable to income tax, although mechanisms vary; however there are some limitations on the deductibility of interest paid abroad by resident 'income tax' companies. Deposit interest from Jersey banks payable to non-residents is exempt from Jersey income tax.