Jersey: Double Tax Treaties
The UK and Guernsey treaties do not conform to the OECD standard model treaty. Their main features are as follows:
- the profits derived from an industrial or commercial enterprise in one country will not be taxed in the other country except to the extent that they are attributable to a permanent establishment;
- profits of shipping or air transport attributable to a resident of either country are not taxed in the other country, regardless of 1.
- an individual resident in only one of the two countries is exempt from tax in the other country on personal, including professional services performed in the other country on behalf of a resident of his own country (but they must be taxed in his own country)
- if despite the above, tax is payable in both countries, the tax paid in one country is allowed as a credit against tax due in the other. However as far as Jersey is concerned allowance for tax paid is only up to 20% of the taxable income in the other country, i.e the Jersey rate of tax is applied to, say, UK taxable income rather than the amount actually levied by the UK Inland Revenue. This means that there is effectively only a partial double taxation agreement between Jersey and the UK.
The agreement with the United Kingdom specifically excludes dividends and debenture interest from its provisions.
International Business Companies (which are in any case being phased out) are not entitled to the benefits of the UK double tax treaty.
In December 2009, the Jersey authorities released guidance for Jersey residents with UK pensions following the entry into force on November 27, 2009, of a bilateral Tax Information Exchange Agreement (TIEA) signed by the two governments in March 2009.
Alongside the signing of the TIEA, the two authorities agreed to amend the 1952 Arrangement between Jersey and the United Kingdom for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.
This incorporates a major change to the tax treatment of pensions, which means that Jersey residents will no longer be taxed by the UK tax authorities on certain pensions that they receive from the United Kingdom.
The Island's Comptroller of Income Tax, Malcolm Campbell, commented that:
“Following the enactment in the UK of the Double Taxation Relief on International Tax Enforcement (Jersey) Order 2009, Jersey residents in receipt of a UK pension may apply to the UK Tax Authority, HM Revenue and Customs (HMRC), to have, with effect from the April 6, 2010, their UK pension paid to them without the deduction of UK tax”.
“This arrangement could mean significant savings in terms of tax paid for some Jersey residents, who could have been paying 40% tax to HMRC on their pension and who may in future be subject to tax at 50%. The arrangement means that, subject to a claim being made and accepted by HMRC, Jersey residents will only be paying tax in Jersey, at a maximum rate of 20%, on their UK pension.”
The arrangement also affects residents of the United Kingdom who have been paying Jersey tax on their Jersey pensions.
Under the new regime, UK residents are able to apply to the Comptroller to stop Jersey tax being deducted from their Jersey pensions, meaning that they will only pay tax in the United Kingdom.