Guernsey: Domestic Corporate Taxion
This page was last updated on 10 January 2020.
The main tax in Guernsey is income tax, which is levied on resident individuals and companies in Guernsey and Alderney. There is no separate corporation tax, and no general capital gains tax, capital transfer tax, sales tax or VAT. Formerly there was a dwellings profit tax, which amounted to a capital gains tax on property sales. In January 2009, after it had been revealed that the costs of collection were exceeding tax collected at least fourfold, this tax was suspended indefinitely. There is also a stamp duty, known locally as ‘document duty’. See Property Taxes for more details.
From 1 January 2008, the standard rate of income tax for companies fell from 20% to 0% and exempt company and international business company regimes were abolished, other than for exempt collective investment schemes (CISs). As a result, most Guernsey-registered companies are treated as resident for tax purposes. In addition, the GB£600 annual exempt fee ceased to be payable from 1 January 2008 (again, other than for exempt CISs).
The change in the tax regime only affects companies, so unit trusts – which apply for exemption under Category A of the 1989 Ordinance – can continue to apply for exemption in the normal way. Companies which were 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 exempt under Category D became 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.
Under the provisions of the Income Tax Law, companies resident for Guernsey tax purposes will be required to submit income tax returns and calculations even if they are chargeable at 0%. This is because, in certain circumstances, the companies’ profits may be chargeable on the beneficial shareholder. However, a company is not required to submit accounts and tax calculations with its annual tax return if it can confirm all of the following on the income tax return:
- has no Guernsey employees (other than local directors);
- has no Guernsey resident beneficial members;
- is not carrying out any activities which are regulated by the Office of Utility Regulation;
- has not made any qualifying loans (Chapter XII of the Income Tax Law);
- has no Guernsey rental or property development income;
- does not carry out any banking activities.
Companies exempt under Categories B and C that choose not to apply for exemption for 2008 and beyond are also able to submit a tax return without supporting accounts and computations if they can satisfy the above conditions.
According to the Guernsey Income Tax Department, there may be a number of reasons why a Category B or C company may wish to be exempt from Guernsey tax (and therefore treated as non-resident) rather than being resident but taxed at 0%. These include:
- A Guernsey resident investor in a Category A, B and C entity will be taxed only on actual distributions made to him. Such investors will not be taxed on the underlying investment income nor on any deemed distributions where the company is exempt, whereas they may be taxed in this way if they invest in a company which is resident but pays tax at 0%.
- A CIS may consider that it is an advantage to be able to put in the scheme documentation/prospectus the fact that it is exempt from income tax in Guernsey. Whilst, in financial terms, there would be no difference for the CIS, whether it is exempt from Guernsey tax or whether it pays tax but at 0%, there may be a perception amongst potential investors that what is currently a 0% rate of tax may, in the future, increase.
If, in exceptional circumstances, a company which was previously exempt is not able to make the declaration referred to above, it may have additional, quarterly, reporting requirements and should notify the Administrator as soon as possible to ensure that it is provided with the necessary documentation to enable it to comply with those obligations.
In July 2005, Guernsey adopted a 15% retention (i.e. withholding) tax under the EU's Savings Tax Directive (STD) in respect of EU resident individuals' savings interest (although depositors retain the option to exchange information on savings income with the tax authority of their home member state). The retention tax increased to 20% as of 1 July 2008, for three years, after which it rose to 35%.
As originally drafted, the STD aimed at a uniform 'information exchange' regime to apply across the Union, with all countries agreeing to report interest on savings paid to the citizens of other member states to those states' tax authorities. Because of resistance from EU member states with strong traditions of banking secrecy, the European Commission had to allow Austria, Luxembourg and Belgium to apply a withholding tax. 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 Aruba, Curaçao and St Maarten.
Guernsey’s move to automatic exchange of information was passed by the States of Deliberation on 24 November 2010, and paying agents had to implement the change between 1 January 2011, and 30 June 2011.
In April 2012, the zero/10 taxation policy that was in place in Guernsey was deemed ‘harmful’. The main sticking point was deemed distribution of business profits. This meant that Guernsey residents who were shareholders of local companies way pay income tax on any unallocated company profits while those living off the island would not. A new tax system, with deemed distribution removed, was approved by the EU’s Code of Conduct Group on Business Tax in September 2012 and was implemented in December 2012.