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 (NB the Exempt Company and
International Company regimes were abolished
with the introduction of corporate tax reforms
in January 2008. See
below). 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 have been subject to
income tax at 0% from the 2008 tax year.
However, businesses regulated by the Guernsey
FSC are charged tax at 10%. The changes
to the tax system were intended to bring
Guernsey into line with the European Union's
code of business conduct over taxation,
although it seems that the EU has performed
an about turn, casting the future of Guernsey
corporate tax system in some doubt.
The
introduction of the 'zero/ten' regime in
2008 saw 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
retention tax rate increased to 20% from
July 1, 2008 for three years, after which
it will rise to 35%. 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.
In
July 2009, the Guernsey government released
a statement regarding the Isle of Man’s
decision to switch from a withholding tax
system to the automatic exchange of information
from July 1, 2011, when the withholding
tax option currently available to customers
having accounts with Isle of Man banks as
part of a transitional arrangement will
be withdrawn.
The
Guernsey government has underlined that
it has always considered the withholding
tax arrangement to be transitional, and
has begun a consultation with industry about
a review of the position in the island.
Mike
Brown, Chief Executive of the States of
Guernsey commented at the time that
"The
international climate is changing with regards
to exchange of information. We are fully
aware of those developments and have had
the position under review for some time.
"Guernsey’s
commitment to the highest international
standards in transparency is constant."
A
report from Guernsey’s Policy Council,
supported in a vote by States members in
October 2009, has said that in all probability
the island, under pressure from the EU,
will have to accept an increase in the general
corporate tax to 10%.
“While
no clear direction at this stage has been
provided by HM Treasury [in the UK], it
is believed that that a movement from a
limited to general corporate tax rate of
at least 10% is the likeliest route to achieve
such support and success, as 10% is the
lowest general rate of corporate tax within
the EU," explained the report.
The
report added that during a recent series
of meetings between representatives of the
States of Guernsey and HM Treasury it was
communicated that that the EU Code of Conduct
Group now considers the 'Zero-10' corporate
tax regime of the Crown Dependencies to
be non-compliant with the "spirit"
of the European Union (EU) Code of Conduct
for business taxation.
The
Treasury went on to advise that the Crown
Dependencies would need to review general
corporate tax rates to comply with the Code
not just technically, but with the "spirit"
of the Code.
The
report makes it clear that the UK Treasury
had confirmed that the general approach
was compliant with international standards
and the EU Code of Conduct. Previous indications
from the Code of Conduct Group were that
Zero-10 would be deemed compliant.
The
Policy Council blamed the unprecedented
global economic turbulence of the previous
12-18 months and the significant deterioration
of the fiscal position of many European
countries for the ruling that the Zero-10
regime is no longer compliant with the spirit
of the Code.
In
reviewing corporate tax rates - which will
be carried out in close consultation with
Jersey and the Isle of Man - the Policy
Council says that Guernsey must look to
provide certainty for investors, and seek
to maintain the respect of the international
community.
“It
is also of fundamental importance that Guernsey
ensures the outcome of the next stage of
the corporate tax strategy be fully sustainable
in the long term, and mitigate any negative
economic effects on our economy,”
added the report.
Guernsey’s
Chief Minister, Lyndon Trott announced to
the States in April 2010 that proposals
for a new corporate tax regime, to replace
its 'zero-ten' system, will be tabled when
the budget is debated in December.
According
to Trott, a public consultation is to be
launched in the summer, with the results
of this to be published in the autumn of
2010.
Trott
said that any new corporate tax regime must
be "simple, competitive, internationally
acceptable, based on a solid rationale,
promote a sustainable economy, and must
give rise to other benefits such as double
taxation agreements."
In
May 2009, Guernsey’s Commerce and
Employment Department published a consultation
paper on a proposal for an industry levy,
which will fund GuernseyFinance, the promotional
agency for Guernsey’s International
Finance Centre.
The
publication of the consultation paper followed
the Department's commitment at the March
2009 States Debate to consult with all interested
parties. The Department is proposing a flat
charge of GBP75 per full-time equivalent
staff member on those businesses regulated
and licensed by the Guernsey Financial Services
Commission with a maximum charge per company
of GBP7,500 in the first year. This was
estimated to generate GBP380,000 towards
GuernseyFinance's costs in 2009.
Guernsey's
Minster of Commerce and Employment, Carla
McNulty Bauer, said at the time that: “Today
we issue consultation on this future proposal
for business funding to support the promotion
of GuernseyFinance. As part of the process
we welcome feedback from all members of
the community as the achievements of GuernseyFinance
affect us all. As part of the consultation
we are asking for responses on several key
questions which will help to frame the future
funding methodology for the organisation.”
The Situation From 2008
With effect from 1 January 2008, Guernsey’s
Corporate Tax Regime changed radically.
The standard rate of income tax for
companies moved from 20% to 0%. From
that date the exempt company and international
business company regimes were abolished
(other than for Exempt Collective
Investment Schemes – CISs), as a consequence
of which most Guernsey registered
companies are treated as resident
for tax purposes. In addition, the
GBP600 annual exempt fee ceases to
be payable (again, other than for
exempt CISs).
The change in the tax regime affects only
companies and so unit trusts – which
previously applied for exemption under
Category A of the 1989 Ordinance –
are not affected and they are able
to continue to apply for exemption
in the normal way.
Companies which were previously exempt under
Category B (Guernsey registered companies)
and under Category C (non-Guernsey
companies) are able to continue to
apply for exemption if they wish to
do so.
Companies which were previously exempt under
Category D are, as indicated above,
resident for Guernsey tax purposes
from 1 January 2008 and their income
is chargeable at 0% unless it consists
of income from:
-
specified banking activities
(which would include money lending,
lease purchase, hire purchase and similar
financing arrangements carried on in
the island) – in which case they would
be taxable at 10%;
-
profits derived from activities
that are regulated by the Office of
Utility Regulation – in which case they
will be taxed at 20%; and
-
income derived from Guernsey
land and buildings (whether from property
development and exploitation of land
or rental income) – in which case tax
will be charged at 20%.
For companies previously exempt under Category
D, there is no restriction on the
company having a Guernsey source of
income but if it does (other than
bank deposit interest) it has to pay
tax on that income.
Information given below relates to the tax
regime in force until 2008.
Guernsey
Forms of Offshore Operation
Offshore operations may take place within
the following forms:
Guernsey Tax Treatment
of Offshore Operations
See Domestic
Corporate Taxes for
the general principles of Guernsey corporate
taxation, which also apply to offshore entities
except as indicated below.
Offshore Guernsey entities are taxed as follows:
- Non-Resident
Foreign Companies (ie those not managed
and controlled from Guernsey) will be charged
with income tax at 20% only on income from
Guernsey sources (other than bank interest,
by concession); a Guernsey registered company
cannot be non-resident - it is either resident
or it is exempt or it is an International
Body.
- Exempt
Private Limited Companies (Category D Bodies)
pay a fee of GBP600 along with their annual
application for exemption and also a fee
of GBP100 payable when dealing with an Application
for Exempt Status and filing the Annual
Return (in duplicate). Generally they do
not trade locally, but will pay income tax
at 20% on local income if there is any (except
bank interest, by concession).
- Exempt
Investment Schemes (Category A, B or C Bodies)
pay a fee of £600 along with their
annual application for exemption. Income
tax at 20% is deducted from dividends paid
to Guernsey investors, but there is no deduction
from dividends paid to non-residents.
- Exempt
Insurers (Category E Bodies) pay a fee of
GBP3,380 along with their annual application
for exemption. Generally they do not trade
locally, but will pay income tax at 20%
on local income if there is any (except
bank interest, by concession).
Cells of Protected Cell Companies pay GBP1,100.
Insurance managers pay according to the
number of companies managed, from GBP3,000
for 1 - 10 companies, up to GBP10,000 for
over 100 companies.
- International
Bodies (Companies or Partnerships) negotiate
a rate of tax between nil and 30% (typically
2%) to be paid on their international income.
An application is made to the Income Tax
Authority, which considers eligibility,
the nature of trading activities conducted,
and the economic interests of Guernsey before
issuing a certificate of International Tax
Status, which is usually valid for 5 years
at the specified rate. The intention is
to help companies, particularly investment
companies, conform to minimum tax requirements
imposed by other jurisdictions.
- Branches
are subject to tax (income tax at 20%) only
on income from Guernsey sources (other than
bank interest, by concession).
- Trusts
with non-resident beneficiaries are taxed
only on Guernsey-sourced income (other than
bank interest, by concession), and the assessment
is made on the trustee.
-
Trust management (Fiduciary) companies pay
an application fee of GBP1,071 plus GBP107
for each entity managed; Personal Fiduciary
Licences cost GBP536. Annual fees depend
on the volume of trust business managed:
GBP2,678 for up to GBP250,000; GBP5,356
for up to GBP1m; GBP13,000 for up to GBP2m;
GBP15,080 thereafter.
- Trust
management (Fiduciary) companies pay an
application fee of GBP1,125 plus GBP112.50
for each entity managed; Personal Fiduciary
Licences cost GBP565. Annual fees depend
on the volume of trust business managed:
GBP2,810 for up to GBP250,000; GBP5,615
for up to GBP1m; GBP13,625 for up to GBP2m;
GBP15,805 thereafter.
- Non-resident
partners in a Guernsey partnership or Limited
Partnership are liable for tax only on Guernsey-derived
income (with the usual concessions regarding
bank interest), and then as individuals
(see Personal Taxes).
Guernsey Taxation of
Foreign Employees of Offshore Operations
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.
BACK
TO TOP
Guernsey Exchange Control
Guernsey has no exchange controls.
BACK
TO TOP
Guernsey Offshore Activities
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.
BACK
TO TOP
Guernsey
Employment and Residence
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. By the end of 2006, the average price
of a house on the open market exceeded GBP348,000.
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 2,000 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.
Lowtax Network Portal
Front Page
Tax Jurisdictions
Featured Content
