| Direct
Corporate Taxation |
Special
rules apply to non-resident and exempt entities
Corporate
Taxation in Jersey
In
Jersey there is no capital gains tax, capital transfer tax,
purchase or sales tax. 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.
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.
A ‘zero/ten’
tax system for companies will apply from 2009. This will be
achieved by introducing a standard rate of corporate income
tax of 0% and a special rate of 10% for specified financial
services companies into the Island’s existing schedular
tax system. Utility companies will continue to be charged
at the standard rate of income tax of 20%.
Jersey
will also phase out income tax allowances for those on higher
incomes (20% Means 20%) over a five-year period beginning
in 2007. 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.
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Scope of Income
Tax
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.
Income Tax Rates
The
rate of Jersey corporate income tax is 20%; but for International
Business Companies' Jersey income the rate is a maximum of
30%.
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Calculation
of Taxable Base
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.
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Taxation of Trusts
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).
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Filing Requirements and Payment
of Tax
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.
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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.
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