The term 'offshore' is not used in Guernsey
legislation or in describing company forms. Corporate
non-residence and/or the avoidance of ownership by
residents are the key factors which will ensure low-tax
treatment in Guernsey. The main forms useful for offshore
operations in Guernsey are the various types of Exempt
and International Body, the Limited Partnership, and
the Trust (NB the Exempt Company and International
Company regimes were abolished with the introduction
of corporate tax reforms in January
2008. See below). Normally, non-resident tax treatment
is given to foreign income, while income arising in
Guernsey is taxed more highly.
2002, the Guernsey States agreed that an overhaul
of the taxation system was necessary to ensure that
the island remains competitive. The centrepiece of
Guernsey's Future Taxation Strategy is a 'zero/ten'
rate of corporate tax, under which Guernsey's businesses
and corporate entities have been subject to income
tax at 0% from the 2008 tax year. However, businesses
regulated by the Guernsey FSC are charged tax at 10%.
The changes to the tax system were intended to bring
Guernsey into line with the European Union's code
of business conduct over taxation, although it seems
that the EU has performed an about turn, casting the
future of Guernsey corporate tax system in some doubt.
introduction of the 'zero/ten' regime in 2008 saw
the end of the 'exempt' company regime in Guernsey.
making the announcement, Advisory and Finance Committee
president, Deputy Laurie Morgan observed that: "Ireland
is going to 12.5% - that doesn't make 20% look very
attractive any more. 20% is still a relatively low
rate but it is now higher than the emerging rates
from elsewhere - and we are in competition,'"
June, 2003, Guernsey confirmed it would introduce
a retention (ie withholding) tax, initially at a rate
of 15%, under the EU's Savings Tax Directive in respect
of EU resident individuals' savings interest. This
Directive entered into force on July 1, 2005. The
retention tax rate increased to 20% from July 1, 2008
for three years, after which it will rise to 35%.
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 the Netherlands Antilles and Aruba.
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 currently available to customers having
accounts with Isle of Man banks as part of a transitional
arrangement will be withdrawn.
Guernsey government has underlined that it has always
considered the withholding tax arrangement to be transitional,
and has begun a consultation with industry about a
review of the position in the island.
Brown, Chief Executive of the States of Guernsey commented
at the time that
international climate is changing with regards to
exchange of information. We are fully aware of those
developments and have had the position under review
for some time.
commitment to the highest international standards
in transparency is constant."
report from Guernsey’s Policy Council, supported
in a vote by States members in October 2009, has said
that in all probability the island, under pressure
from the EU, will have to accept an increase in the
general corporate tax to 10%.
no clear direction at this stage has been provided
by HM Treasury [in the UK], it is believed that that
a movement from a limited to general corporate tax
rate of at least 10% is the likeliest route to achieve
such support and success, as 10% is the lowest general
rate of corporate tax within the EU," explained
report added that during a recent series of meetings
between representatives of the States of Guernsey
and HM Treasury it was communicated that that the
EU Code of Conduct Group now considers the 'Zero-10'
corporate tax regime of the Crown Dependencies to
be non-compliant with the "spirit" of the
European Union (EU) Code of Conduct for business taxation.
Treasury went on to advise that the Crown Dependencies
would need to review general corporate tax rates to
comply with the Code not just technically, but with
the "spirit" of the Code.
report makes it clear that the UK Treasury had confirmed
that the general approach was compliant with international
standards and the EU Code of Conduct. Previous indications
from the Code of Conduct Group were that Zero-10 would
be deemed compliant.
Policy Council blamed the unprecedented global economic
turbulence of the previous 12-18 months and the significant
deterioration of the fiscal position of many European
countries for the ruling that the Zero-10 regime is
no longer compliant with the spirit of the Code.
reviewing corporate tax rates - which will be carried
out in close consultation with Jersey and the Isle
of Man - the Policy Council says that Guernsey must
look to provide certainty for investors, and seek
to maintain the respect of the international community.
is also of fundamental importance that Guernsey ensures
the outcome of the next stage of the corporate tax
strategy be fully sustainable in the long term, and
mitigate any negative economic effects on our economy,”
added the report.
Chief Minister, Lyndon Trott announced to the States
in April 2010 that proposals for a new corporate tax
regime, to replace its 'zero-ten' system, will be
tabled when the budget is debated in December.
to Trott, a public consultation is to be launched
in the summer, with the results of this to be published
in the autumn of 2010.
said that any new corporate tax regime must be "simple,
competitive, internationally acceptable, based on
a solid rationale, promote a sustainable economy,
and must give rise to other benefits such as double
May 2009, Guernsey’s Commerce and Employment
Department published a consultation paper on a proposal
for an industry levy, which will fund GuernseyFinance,
the promotional agency for Guernsey’s International
publication of the consultation paper followed the
Department's commitment at the March 2009 States Debate
to consult with all interested parties. The Department
is proposing a flat charge of GBP75 per full-time
equivalent staff member on those businesses regulated
and licensed by the Guernsey Financial Services Commission
with a maximum charge per company of GBP7,500 in the
first year. This was estimated to generate GBP380,000
towards GuernseyFinance's costs in 2009.
Minster of Commerce and Employment, Carla McNulty
Bauer, said at the time that: “Today we issue
consultation on this future proposal for business
funding to support the promotion of GuernseyFinance.
As part of the process we welcome feedback from all
members of the community as the achievements of GuernseyFinance
affect us all. As part of the consultation we are
asking for responses on several key questions which
will help to frame the future funding methodology
for the organisation.”
The Situation From 2008
effect from 1 January 2008, Guernsey’s Corporate
Tax Regime changed radically. The standard rate
of income tax for companies moved from 20% to
0%. From that date the exempt company and international
business company regimes were abolished (other
than for Exempt Collective Investment Schemes
– CISs), as a consequence of which most Guernsey
registered companies are treated as resident
for tax purposes. In addition, the GBP600 annual
exempt fee ceases to be payable (again, other
than for exempt CISs).
in the tax regime affects only companies and
so unit trusts – which previously applied for
exemption under Category A of the 1989 Ordinance
– are not affected and they are able to continue
to apply for exemption in the normal way.
which were previously 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.
which were previously exempt under Category
D are, as indicated above, resident for Guernsey
tax purposes from 1 January 2008 and their income
is chargeable at 0% unless it consists of income
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
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%.
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
given below relates to the tax regime in force
Forms of Offshore Operation
operations may take place within the following forms:
Tax Treatment of Offshore Operations
Corporate Taxes for
the general principles of Guernsey corporate taxation,
which also apply to offshore entities except as indicated
Guernsey entities are taxed as follows:
Foreign Companies (ie those not managed and controlled
from Guernsey) will be charged with income tax
at 20% only on income from Guernsey sources (other
than bank interest, by concession); a Guernsey
registered company cannot be non-resident - it
is either resident or it is exempt or it is an
Private Limited Companies (Category D Bodies)
pay a fee of GBP600 along with their annual application
for exemption and also a fee of GBP100 payable
when dealing with an Application for Exempt Status
and filing the Annual Return (in duplicate). Generally
they do not trade locally, but will pay income
tax at 20% on local income if there is any (except
bank interest, by concession).
Investment Schemes (Category A, B or C Bodies)
pay a fee of £600 along with their annual
application for exemption. Income tax at 20% is
deducted from dividends paid to Guernsey investors,
but there is no deduction from dividends paid
Insurers (Category E Bodies) pay a fee of GBP3,380
along with their annual application for exemption.
Generally they do not trade locally, but will
pay income tax at 20% on local income if there
is any (except bank interest, by concession).
Cells of Protected Cell Companies pay GBP1,100.
Insurance managers pay according to the number
of companies managed, from GBP3,000 for 1 - 10
companies, up to GBP10,000 for over 100 companies.
Bodies (Companies or Partnerships) negotiate a
rate of tax between nil and 30% (typically 2%)
to be paid on their international income. An application
is made to the Income Tax Authority, which considers
eligibility, the nature of trading activities
conducted, and the economic interests of Guernsey
before issuing a certificate of International
Tax Status, which is usually valid for 5 years
at the specified rate. The intention is to help
companies, particularly investment companies,
conform to minimum tax requirements imposed by
are subject to tax (income tax at 20%) only on
income from Guernsey sources (other than bank
interest, by concession).
with non-resident beneficiaries are taxed only
on Guernsey-sourced income (other than bank interest,
by concession), and the assessment is made on
Trust management (Fiduciary) companies pay an
application fee of GBP1,071 plus GBP107 for each
entity managed; Personal Fiduciary Licences cost
GBP536. Annual fees depend on the volume of trust
business managed: GBP2,678 for up to GBP250,000;
GBP5,356 for up to GBP1m; GBP13,000 for up to
GBP2m; GBP15,080 thereafter.
management (Fiduciary) companies pay an application
fee of GBP1,125 plus GBP112.50 for each entity
managed; Personal Fiduciary Licences cost GBP565.
Annual fees depend on the volume of trust business
managed: GBP2,810 for up to GBP250,000; GBP5,615
for up to GBP1m; GBP13,625 for up to GBP2m; GBP15,805
partners in a Guernsey partnership or Limited
Partnership are liable for tax only on Guernsey-derived
income (with the usual concessions regarding bank
interest), and then as individuals.
Taxation of Foreign Employees of Offshore Operations
refers to the taxation of foreign employees of non-resident
operations and International Business Companies; the
general principles of individual taxation in Guernsey
also apply to the resident employees of non-resident
entities. There is in fact no distinction between
the employees of resident or non-resident operations.
It is a question of individual status. Most types
of compensation and benefit paid to employees are
taxable; there are no special privileges or exemptions
for expatriate workers.
is resident in Guernsey if
he is on the island for a total of 182 days in the
year of charge (the calendar year), or if he is on
the island for a total of 182 days in the year to
31st July in the year of charge; and the use or possession
of a dwelling-place usually leads to residence (the
rules are complex). Resident means solely or principally
resident. It is possible to be 'resident but not solely
or principally resident' (essentially by not having
a dwelling-place, but it's complicated); such an individual
will pay Guernsey income tax on income sourced from
or received in Guernsey (with exemptions for some
sorts of local dividend, interest or royalty income).
are liable to pay Guernsey income tax only in respect
of income arising in Guernsey or from Guernsey sources
(again, with exemptions for some sorts of local dividend,
interest or royalty income).
August 2004, proposals were offered in a States report
seeking to amend the current legislation which determines
residence for tax purposes. The reason for seeking
the change is that the present rules are complex and
not easily understood. Although for the majority of
the population the changes will have no effect on
their tax bills, the rentier sector may be affected.
For this reason the accountancy profession was consulted.
The simplification should lead to a reduction in the
need for correspondence with the Tax Office on residence
Guernsey Exchange Control