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Jersey Unveils 2016 Budget

by Jason Gorringe, Lowtax.net, London
22 October, 2015

Jersey has released its 2016 Budget, which is aimed at "keeping taxes low, broad, simple, and fair."

Key measures in the Budget include that non residents relief will be removed from 2016, resulting in non-resident individuals paying tax at 20 percent on any income they generate from Jersey properties. Meanwhile, the GBP1,000 (USD1,550) tax exemption that is currently given for benefits in kind will be reduced to GPB250, while a full review of benefits in kind taxation is undertaken by the Taxes Office and the Social Security Department.

Jersey is to comprehensively review its personal income tax rules, while maintaining its 20 percent rate, including to provide rules for same-sex married persons from 2017.

Mortgage interest tax relief will be phased out slowly, over ten years starting in 2017.

For companies, Jersey is to legislate to prevent the payment of tax credits to companies taxable at the zero percent rate. Under the current rules, an investment holding company is entitled to claim management expenses. Where an investment holding company is in receipt of a dividend from another Jersey company which carries a tax credit (i.e. a dividend which has been paid out of profits subject to the 10 percent or 20 percent tax rates), the investment holding company can set off the management expenses against the dividend and receive a repayment of the tax credit. This rule has been utilized by, amongst others, external investors to create acquisition structures which can result in significant amounts of corporate income tax being repaid. To address this type of structuring, Jersey has said no tax credits will be repaid in respect of any dividend received by a company taxable at zero percent, with immediate effect.

Also under the current rules, a financial services company receiving a dividend from which tax has been deducted by another Jersey company is entitled to a tax credit. The Budget proposes that the calculation of the tax credit available to a financial services company in these circumstances is amended so as to limit the credit to the lower of the tax deducted from the dividend or the gross dividend at the rate of 10 percent.

Next, a small number of changes are proposed to be made to the distribution rules to improve their operation, while the Taxes Office will continue to work with the tax advisory community to determine whether the rules can be simplified in next year's Budget.

Jersey is also to amend its corporate residence tie-breaker rule, owing to the UK's decision to install a corporate income tax rate of 19 percent from April 1, 2017, and an 18 percent rate from 2020. This is to ensure that Jersey incorporated companies that are subject to tax in the UK are not caught by this rule, which triggers Jersey taxation when a company is subject to a rate below 20 percent in another tax jurisdiction.

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