Guernsey's benign tax climate can prove an attractive base for both individuals and businesses says St John Robilliard.
The second largest of the Channel Islands, Guernsey consists of some 24 square miles and has a population of just over 61,000. It is at a hub of a thriving set of financial services industries and unlike its somewhat larger sister, Jersey, provides more flexible opportunities both for individuals wishing to establish residence and for companies seeking to relocate there.
EU and certain other European citizens enjoy a right of establishment there and are able to purchase "Open Market" property without the need of seeking any formal permission. The Open Market consists of approximately 7% of the housing stock and includes such things as luxury apartments with prices of just over a million pounds running to country houses supported by their own estates running up to five or six million pounds. Residing in such a property also means that the individual may take up any occupation without the need of getting a consent (for those not so housed and who lack "Local Market qualifications," by a combination of birth and residence in the Island, a licence is required under the Housing (Control of Occupation) (Guernsey) Law, 1994).
When acquiring such properties the purchaser is not required, unlike the position in Jersey, to pay a minimum amount of Income Tax.
Income Tax is the only direct tax of note and has been at a flat rate of 20%, after allowances, for many years. There is a distinction of being simply "resident" and being "principally resident" or "solely resident". A person is resident where:
- He spends at least 91 days in Guernsey in that year of charge (in Guernsey the calendar year); or
- He has spent at least 35 days in Guernsey in that year of charge and during the proceeding 4 years has spent at least 365 days in Guernsey.
Those who are resident in Guernsey but not principally or solely residents simply pay Guernsey tax on:
- Guernsey source income; and
- income remitted to Guernsey.
A person is "solely resident" if he is:
- resident in Guernsey;
- has not spent 91 days or more in any other jurisdiction in that year.
Finally a person is "principally resident" if:
- he spends at least 182 days in Guernsey; or
- has spent 91 days in Guernsey in that relevant year and in the four preceding years spent 730 days or more in Guernsey.
Those solely or principally resident pay tax on their world-wide income.
The "midnight rule" is applied, so that a person is considered present in the Island if he is in Guernsey at midnight on the relevant day.
Individuals living in Guernsey may still take advantage of various Guernsey tax planning opportunities which include:
- If they are the settlors of settlements from which they, their spouses and minor children are excluded from the possibility of benefiting, the income of such a settlement would only be liable to Guernsey Income Tax if paid out to a Guernsey resident individual.
- As Guernsey has no capital gains tax, benefiting from a pure "capital" settlement is tax free.
- Guernsey residents may contribute to retirement annuity trusts where there is an annual contribution upper limit for tax relief of £20,000 a year. However, those relocating to Guernsey may transfer existing schemes in without any upper limit.
- In order to attract the seriously wealthy from tax-year 2008 onwards, there is likely to be an upper cap of tax on non-Guernsey source income.
Following pressure from the EU, Guernsey is introducing at the beginning of 2008 a new corporate tax rate of zero in place of the current rates of either 20% or the flat rate £600 which an "exempt" company pays. Only banks and licensed utilities will be liable to tax under this.
Guernsey does not have any legislation requiring governmental consent to set up a new business with the exceptions of licensed financial services businesses (such as a banks, insurance companies, and fiduciary companies) in which case a consent must be obtained from the Guernsey Financial Services Commission, and miscellaneous matters such as gaming. Outside that, and subject only to the points made above about housing and immigration, businesses are free to set up and enjoy the new zero per cent tax rate which, will include the facility to dividend profits gross to non resident shareholders without the payment of any tax.
Both the current and the "2008 changes" are generating considerable interest, both with regard to new residents and new businesses in the Island.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.