Jersey: Domestic Corporate Taxation

Jersey Corporate Taxation

In Jersey there is no capital gains tax, capital transfer tax or purchase tax. The States agreed to introduce a broad-based, 3% Goods and Services Tax (GST) in 2008, with a registration threshold set at GBP300,000 of taxable turnover. This rate increased to 5% from June 1, 2011. The only significant other tax is income tax which is levied on the permanent establishments of 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 5%) and individual parishes levy property taxes.

A ‘zero/ten’ tax system for companies has applied from 2009. This was 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, rental income and property development profits continue to be charged at the standard rate of income tax of 20%. See Offshore Legal and Tax Regimes for further details of financial services company taxation.

All companies resident for tax purposes in Jersey prior to June 3, 2008, switched to a tax rate of either 0% or 10% for the year of assessment 2009 onwards. However, a company that became resident for tax purposes in the Island on or after June 3, 2008, was taxed at either a 0% or a 10% rate immediately. Companies have been unable to elect for exempt company status from this date.

Permanent establishment, in relation to a company, includes a branch of the company, a factory, shop, workshop, quarry or a building site, and a place of management of the company, but the fact that the directors of a company regularly meet in Jersey will not, of itself, make their meeting place a permanent establishment. For the avoidance of doubt, it is the Comptroller’s view that clerical functions, such as invoicing operations; and management and administration services; and the entering into of contracts in respect of a company’s international business (to include, for example, swap financing and loan funding agreements) at the address of the company’s registered office will not amount to the carrying on of a trade through a permanent establishment in the Island. All the profits of such entities are taxed. Taxable profits are determined under normal and existing tax law and principles.

New provisions for relief for groups of qualifying financial services companies have been introduced. A company in a group that suffers a loss can surrender that loss to be offset against the profits or gains of another company in the same group. The loss can only be offset against profits or gains determined for a financial period that is the same as, or overlaps with, the financial period for which the loss arises. If a company’s financial period is more than a year, the profits or gains, or losses, for that period must be apportioned and only so much of the profits or gains, or losses, as are attributable to a 12 month period may be taken into account. A qualifying company for these purposes means a financial services company that is taxed at 10%, or a ‘grandfathered’ international business company that is taxed at 10% or more. The claim for relief must be made within 1 year following the year of assessment in which the financial period for which the surrendering company suffered the loss ended.

Companies taxed at 0% and which are part of a group are also allowed to pass on losses so as to offset the profits of another company in the group. Although the companies are themselves taxed at a 0% rate, group relief will benefit the Jersey resident shareholders of the owners of the shares in the company whose profits are reduced, as these shareholders will be liable to tax in their personal assessments on actual and deemed distributions from such a company.

Jersey is also phasing out income tax allowances for those on higher incomes (20% Means 20%) over a five-year period which began in 2007. Tax exemptions and allowances were frozen for year of assessment 2006. At the same time a revised Income Support system is being used to provide some protection to those on low incomes. Further research has also been undertaken into Environmental Taxes, Development Levies and a Land Value Tax to see whether they might be appropriate for Jersey.

The 2010 budget, announced in December 2009, contained some environmental initiatives, including the planned introduction of a Vehicle Emissions Duty in September 2010. Alongside a proposed increase of GBP0.03 on petrol and diesel duties, the VED will provide GBP2 million for environmental projects.

The long-awaited Land Transaction Tax (LTT) was also introduced in 2010, on January 1. The LTT is a tax on share transfer transactions is equivalent to stamp duty on freehold property. Anyone who buys property by share transfer is legally obliged to pay a tax exactly equal to the amount of stamp duty that would have been paid had the property been freehold.

The LTT has been introduced to create fairness between the costs of buying freehold property and the costs of buying share transfer property. Previously share transfer did not attract any form of property tax.

The Future of the Zero/Ten Tax Regime

Jersey's 0/10 corporate tax regime may prove to be short-lived due to concerns expressed by the EU that it does not adhere to the 'spirit' of the Code of Conduct on Business Taxation. In common with Guernsey and the Isle of Man, the Jersey government has announced a comprehensive review of the its fiscal strategy, with a view to introducing further changes to the tax regime.

“Three years ago we made significant changes to our tax system to keep our island competitive and to maintain the high quality public services and way of life we are all used to,” Phillip Ozouf, Jersey’s Treasury Minister, explained in the 2010 budget announcement in December 2009. He continued:

“The early decision to move to a 0/10 corporate tax structure, introduce GST, 20 means 20 and ITIS may have been unpopular, but was undoubtedly right.”

“These policies have provided certainty, encouraged investment and supported high levels of economic growth. We all benefit from the strong position Jersey has maintained. Responsible governments however always keep their fiscal strategies under review, not only to ensure they meet changing international standards, but above all to ensure they remain appropriate and competitive.”

“In light of the global financial crisis, which is prompting most countries to review their tax structures, we too need a Fiscal Strategy Review - not only because of the structural deficit but also because of the need to plan for the costs of an ageing population, infrastructure renewal and growing health demands."

“The FSR will review all taxes and charges including personal income tax, GST, duties and, importantly, our social security contributions. Any tax options coming out of the review will be assessed for efficiency, competitiveness, who pays, fairness, the cost of collection and revenue stability. Islanders will be consulted on the options and their responses will help formulate any proposals for change."

“While I am not going to rule anything in or anything out, and I believe that our success has been built on low taxes and high economic growth, members must appreciate that in trying to generate as much revenue as possible from export services, and particularly financial services, we must remain internationally competitive and protect jobs.”

“A key part of the FSR is a review of business taxation. This was always intended to be part of the Review but clearly recent events have increased our focus on this area. I am conscious that recent press speculation has created uncertainty in the finance industry and it is important that I respond to this."

Ozouf emphasized, however, that the 0/10 regime has not been found to be non-compliant with the EU Code of Conduct on Business Taxation.

“We do however understand that certain EU Member States have questioned whether 0/10 could be interpreted as being outside the ‘spirit’ of the Code,” he continued, adding:

“The international tax world is changing. Jersey is already committed to the tax ‘norms’ of non-discrimination, which is why we introduced 0/10. However, we must be alert to this and understand the concerns that have been raised.”

“I will look for other precedents from established international and European tax codes, not only to ensure compliance with international standards, but also to ensure a level playing field for Jersey’s businesses, trust and other structures.”

According to Ozouf, the findings of the review, to be carried out during 2010, will be finalised in time for inclusion in the 2011 budget.

The pre-Zero/Ten Tax Regime

The following information describes Jersey's corporate tax regime prior to the introduction of the 'zero/ten' reforms in 2009.

Jersey 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:

Jersey 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%.

NB: The 0/10% tax regime applies as from 2009.

Jersey 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.

NB: The 0/10% tax regime applies as from 2009.

Jersey 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.

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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Jersey 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.

Jersey 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.

Under the EU's Savings Tax Directive, withholding tax (known as a retention tax) is deducted from interest payments on savings made to people resident in EU member states, as from July 1, 2005, initially at a rate of 15%, (20% from July 1, 2008 and 35% from July 1, 2011).

NB: The 0/10% tax regime applies as from 2009.