Guernsey tax system: audit, reporting and optimization of taxation of Guernsey companies and individuals: VAT, income tax and capital gains
Basic taxes (briefly)
|Corporate tax (in detail)||The corporate income tax rate is 0%, with a few exceptions when the tax rate is 10% or 20%.|
|Capital gains tax. Details||Capital gains in Guernsey are not subject to tax.|
|Other taxes||Social Contributions, Property Transfer Tax|
International tax agreement
|Estonia, Hong Kong, Isle of Man, Jersey, Cyprus, Liechtenstein, Luxembourg, Malta, Mauritius, Monaco, Qatar, Singapore, UK.|
|Australia, Austria, Anguilla, Argentina, Bahamas, Belgium, Bermuda, British Virgin Islands, Botswana, Brazil, Bulgaria, Canada, Cayman Islands, Chile, China, Costa Rica, Czech Republic, Denmark, Faroe Islands, Finland, France, Hungary, Iceland, India, Indonesia, Ireland, Italy, Germany, Gibraltar, Greece, Greenland, Latvia, Lesotho, Lithuania, Macau, Mauritius, Mexico, Montserrat, Netherlands, New Zealand, Norway, Poland, Portugal, Republic of Korea, Romania, Saint Kitts and Nevis, San Marino, Seychelles, Slovakia, Slovenia, Spain, Swaziland, Turkey, Turks and Caicos, Sweden, Switzerland, South Africa, United Kingdom, Uruguay, USA, Japan.|
Personal Income Tax
Personal income tax is levied on worldwide income of residents and ordinarily residents, and Guernsey-source income of non-residents in Guernsey. Resident-only individuals either are taxable on their worldwide income or they can elect to pay an annual “standard charge” of GBP 27,500, plus tax on Guernsey-source income (excluding bank interest), with the proviso that the standard charge is available for offset against the tax liability arising on Guernsey-source income. Residence is a question of fact and is based on the number of days spent on the island. The primary test of residence is whether an individual spends 91 days or more in Guernsey in the year of charge. If the individual spends 91 days or more in Guernsey and does not spend more than 91 days in a year of charge in another jurisdiction, he/she will be deemed to be solely resident in Guernsey. An individual who spends 182 days or more in Guernsey will be classed as principally resident. In Guernsey, an individual is treated as present on the island if he/she is present at midnight at the end of the day. Personal allowances are available to the taxpayer and his/her spouse. Further allowances are subject to certain restrictions. Deductions include pension contributions, up to a maximum of GBP 50,000 per individual; interest paid on an individual’s main residence, subject to a GBP 400,000 cap (though this relief currently is under review); interest paid to acquire an interest in a business or shares in a trading company; and certain deductions from an individual's salary if they relate to employment. There also is an annual tax cap for high net worth individuals. The tax cap on non-Guernsey source income from 2014 is GBP 110,000. There is an option to cap the total tax liability arising from worldwide income at GBP 220,000, under which no Guernsey resident can pay more than a maximum of GBP 220,000 of tax in Guernsey each year. Due to the extension of the cap to Guernsey-source income, specific anti-avoidance provisions are included. Guernsey resident shareholders are liable to tax at 20%. Tax on salaries is deducted at source. For individuals tax year is a calendar year. The tax return must be submitted by 30 November following the end of the tax year. Tax is due in respect of a year of charge in two installments: by 30 June and 31 December of the year of charge, with a final balancing payment once the final assessment has been made. Employees are subject to deduction of tax from wages and salaries under the ETI Scheme. A late filing penalty may be levied if the tax return is not submitted by 15 January following the year after the relevant tax year. Also, a 5% surcharge is imposed on amounts overdue, with an additional 5% surcharge added at six-month intervals on the outstanding tax and any previous surcharge or additional surcharge imposed, until the debt is fully paid.
Corporate income tax is levied on worldwide income of resident companies and Guernsey-source income of nonresident companies. A general rate of tax of 0% applies for all companies carrying on business on the islands. Certain specified activities in Guernsey are taxed at higher rates, including limited banking operations, fiduciary business, domestic insurance business, insurance management and insurance intermediary business, which are taxable at 10%. Activities regulated by the Office of Utility Regulation are taxable at 20% and Guernsey property rental/development income is taxed at 20%. Certain collective investment schemes may continue to apply for tax-exempt status.
Capital Gains Tax
Capital gains in Guernsey are not subject to tax.
Business or other losses incurred in a year of computation may be set off against other assessable income taxable at the same rate for that year of charge. However, only unrelieved business losses may be carried forward to the following year. Losses brought forward by a company taxed at 0% before 1 January 2013 may be relieved against future profits of the same business taxable at a higher rate in that company. Terminal losses arising on the permanent discontinuance of a business may be carried back two years.
Tax year conforms to a calendar year.
Guernsey does not have a VAT or sales tax system.
Dividends, interest, royalties, and technical service fees paid to a nonresident are not subject to a withholding tax in Guernsey. Companies paying dividends to a Guernsey resident individual must deduct or account for the difference between the tax incurred by the company and the shareholder’s individual tax rate (20%) on actual distributions. Exempt companies may pay actual distributions to a Guernsey resident individual on a gross basis, although details must be provided to the tax authorities of the recipient and the amounts paid.
Stamp duty in Guernsey is levied on real property related documents. It is graduated, depending on the value of the transaction. The rates are 2% (if the value of the transaction is less than GBP 250,000), 2.5% (for dwellings valued at GBP 250,001 to GBP 400,000) and 3% (if over GBP 400,000).
There is an annual validation return fee in Guernsey. For non-regulated companies it is £250.
Other Taxes and Duties
|Real property tax||based on the unit value of the property. “Rates” are payable by the occupier of property to the local government at various rates. Social security contribution||employers withhold 6.5% of an employee’s gross earnings. The upper earnings limit is GBP 132,444. Employees pay 6% on their gross earnings.|
General rule: There is a general anti-avoidance rule to counter any type of avoidance of Guernsey tax. Loans granted to shareholders are subject to a 20% charge on the company (with provisions for the company to claim relief where the loan is repaid). Special rules: Special rules counter the use of service companies set up to avoid employment taxes by requiring such companies to operate under the Employees Tax Instalment (ETI) Scheme. Guernsey Employment Benefit Trusts (EBTs) have specific provisions to ensure that a charge to income tax cannot be delayed; hence, contributions to an EBT will qualify for a deduction only when the amount is taxed in the hands of the employees of the company. Transfer pricing: No, although there are general anti-avoidance provisions. Thin capitalization: No Controlled foreign companies: No Disclosure requirements: No
Double Tax Agreements
Guernsey has entered a whole range of double tax and tax information exchange mechanisms:
- 13 DTC: Cyprus, Hong Kong, Isle of Man, Jersey, Liechtenstein, Luxembourg, Malta, Mauritius, Monaco, Qatar, Singapore, United Kingdom. 60 TIEA: Argentina, Australia, Austria, Belgium, Bermuda, Bahamas, Botswana, Brazil, Bulgaria, British Virgin Islands, Canada, Cayman Islands, Chile, China, Costa Rica, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Hungary, Iceland, India, Indonesia, Ireland, Italy, Japan, Korea (Republic of), Latvia, Lesotho, Liechtenstein, Lithuania, Macao (China), Mauritius, Mexico, Netherlands, Slovenia, New Zealand, Norway, Poland, Portugal, Romania, Saint Kitts and Nevis, San Marino, Seychelles, Slovakia, South Africa, Spain, Swaziland, Sweden, Switzerland, Turkey, Turks and Caicos Islands, United Kingdom, United States, Uruguay.
Foreign Exchange Control
There is no exchange control in Guernsey. Both residents and nonresidents can hold bank accounts in any currency. The import or export of money in excess of GBP 10,000 must be declared to the authorities.
The Companies Law requires a Guernsey company to keep accounting records which are sufficient to show and explain its transactions and are such as to disclose, with reasonable accuracy at any time, the financial position of the company at that time and enable the directors to ensure that any accounts prepared by the company are prepared properly and in accordance with any relevant enactments for the time being in force. Accounting records of a Guernsey company must be kept for a period of six years, and if the original records are not kept in Guernsey, accounts and returns in respect of the business must be available in Guernsey ‘sufficient to disclose with reasonable accuracy the financial position of the business at intervals not exceeding six months’.
Financial statements must be prepared annually, but there is no general requirement to file accounts with the Registrar of Companies or any public registry or body. The annual accounts should contain the following information:
- Profit and Loss account Balance Sheet Statement they give a true and fair view Statement they are prepared with generally accepted accounting principles Disclose of accounting principles adopted (nearly all companies use United Kingdom (UK) or International Accounting Standards) Approved by the directors and signed by at least 1 director Directors must prepare an accompanying or separate report
Guernsey companies are usually required to have their accounts audited. However, the members of a company may pass a resolution exempting the company from the requirement to have its annual financial statements audited, provided the company meets the qualifying conditions set out in the Audit Exemption Regulations and it is not a regulated entity. These regulations came into force on 22 July 2008 and state that a company may be exempt if two of the following conditions are met in both the financial year and the previous financial year:
- annual turnover less than £6.5 million, net balance sheet less than £3.26 million, average number of employees less than 50.
Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
- Incorporation information (registration date, registered address); Information about directors and their resignation; Information about secretaries and their resignation; Information about registered capital, nominal value of shares and amount of issued shares; Information about shareholders and share transfer.
- Registered office address Details of directors as contained in Directors register Confirmation that the company and Registrar have the current usual residential address of all directors Details of the resident agent Business category data Confirmation of whether the company is exempt from audit Confirmation that the Members register is up to date Number of issued shares and amounts paid-up or unpaid Aggregate value of the shares Distinction between shares issued for cash and those for other consideration Shares redeemed during the year Details of any treasury shares held Declaration of compliance (a declaration, signed by a director or the secretary, confirming the requirements of the Law have been fulfilled)
The tax return must be submitted by 30 November after the tax year. Tax is due in two installments (by 30 June and 31 December) in respect of a year of charge, with a final balancing payment due once the final assessment has been made. Electronic filling for company tax returns is mandatory in respect of 2012 and subsequent periods. Guernsey-resident companies file quarterly or monthly returns in respect of the ETI scheme. A surcharge of 5% of the amount overdue is imposed, with an additional 5% surcharge added at six-month intervals on the outstanding tax and on any previous surcharge or additional surcharge imposed, until the tax is fully paid. Penalties apply for failure to submit company tax returns by the surcharge date of 15 January following the tax year (up to GBP 300, plus GBP 50 per day during the failure to comply).
Taxes of Guernsey
|Min. rate for corporate tax||0%|
|Capital gains tax||No|