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Guernsey: Country and Foreign Investment

Executive Summary

Guernsey Not in EU Fiscal Area

The island of Guernsey, one of the Channel Islands between England and France, is a British Crown dependency although in practice is it self governing. Britain is responsible for its external affairs including negotiations with the European Union; under the UK's accession treaty with the EU, Guernsey forms part of the single market but is outside the EU fiscal area. Guernsey does not generally enter double-tax agreements, but has treaties with the UK and Jersey.

Economy Buoyant But Guernsey Is Full Up!

Guernsey has a buoyant economy dominated by the finance sector. Unemployment is very low. The political stability in Guernsey together with its consistently low tax status and its international reputation as an important financial centre make it an attractive prospect to foreign investors and workers. To protect the island's limited resources the government tends to discourage labour-intensive inward investment that is controlled by non residents. There are no investment grants or incentives, but electronics and other knowledge-based industries have been encouraged.

Guernsey's Lowtax Specialisations

Guernsey has Europe's largest captive insurance sector, and also has strong banking, investment fund and trusts sectors, with very well-developed advisory and financial infrastructure. The Channel Islands Stock Exchange is based in Guernsey. The general rate of corporate tax is 0%, except for 'finance' companies which pay tax at 10%.

Guernsey v. the EU and the OECD?

Guernsey's unusual situation with regard to the EU, shared with Jersey, is both a strength and a weakness. The island will remain a favoured base for holding and trading companies working into the EU, and for e-commerce activity; but it has the EU's 'unfair tax competition' initiative, and the OECD to contend with. The UK's Edwards Report gave Guernsey high marks for its regulatory structure, but after several years of 'hands-off' policy in regard to Guernsey taxation, the UK government in 2002 came close to threatening Guernsey with sanctions if it didn't fall in line with EU information-sharing rules.

Guernsey signed a 'commitment' letter to the OECD in February 2002, but it contained an 'Isle of Man' level playing field clause making changes dependent on comparable changes in Switzerland and the USA.

Guernsey seems to have emerged from the financial crisis with its reputation intact, and, following the April 2009 G20 summit in London, was named on the OECD 'white list' of territories which have substantially implemented the internationally agreed tax transparency standard.

In November, 2002, Guernsey announced that it planned to introduce a 'zero/ten' rate of corporation tax for companies under which Guernsey's businesses and corporate entities will be subject to income tax at 0% from the 2008 tax year. However, businesses regulated by the Guernsey FSC would be charged tax at 10%. Advisory and Finance Committee chief, Deputy Laurie Morgan said that it was absolutely necessary for Guernsey to follow the lead of other jurisdictions, both in terms of increasing competitiveness, and in order to comply with the European Union's code of business conduct over taxation. The new system went into force on January 1, 2008.

In July 2005, Guernsey introduced a retention (ie withholding) tax under the EU's Savings Tax Directive in respect of EU resident individuals' savings interest 'at the same time as the EU Members States of Austria, Belgium and Luxembourg and the named Third Countries of Andorra, Liechtenstein, Monaco, San Marino and Switzerland'.

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 available to customers having accounts with Isle of Man banks as part of a transitional arrangement was to be withdrawn.

The Guernsey government underlined that it had always considered the withholding tax arrangement to be transitional, and began a consultation with industry about a review of the position in the island.

The move to automatic exchange of information was passed by the States of Deliberation on November 24, 2010, and paying agents had to implement the change between January 1, 2011, and June 30, 2011.

 

 

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