1. PRE-ENTRY TAX PLANNING
1.1. In Guernsey, what pre-entry estate and gift tax planning can be undertaken?
Guernsey has its own independent system and law of taxation. The governing law is, inter alia, the Income Tax (Guernsey) Law 1975, as amended. There are no capital gains taxes, sales taxes, inheritance taxes or wealth taxes under Guernsey law.
1.2. In Guernsey, what pre-entry income tax planning can be undertaken?
Tax on income is charged at a flat rate of 20 per cent. It is payable by resident individuals on their worldwide income, including certain benefits in kind. Non-resident individuals are taxed only on income arising in Guernsey other than, by concession, interest arising on bank deposits. However, for those persons who are perceived to be 'highvalue' individuals seeking to take up residence in Guernsey, there are tax concession caps restricting an individual's liability to Guernsey income tax to ￡100,000 on non-Guernsey source income (and Guernsey deposit income) and also ￡100,000 on Guernsey source income. Furthermore, local residents who transfer their UK pension funds into a Guernsey Qualifying Recognised Overseas Pension Scheme (QROPS) are able to take advantage of a concession published by the States of Guernsey Income Tax Department; meaning such transferred pension will not be classed as Guernsey source income for the purposes of the tax caps.
Guernsey's authorities are open to applications from new business entrants seeking, in particular, to avail themselves of the 10 per cent tax rate applicable to regulated financial services businesses and to take advantage of the tax neutral status in Guernsey of certain investment fund vehicles.
1.3. In Guernsey, can pre-entry planning be undertaken for any other taxes?
There are no capital gains taxes, sale taxes, inheritance taxes or wealth taxes payable in Guernsey.
2. CONNECTION FACTORS
2.1. To what extent is domicile relevant in determining liability to taxation in Guernsey?
Guernsey has concepts of both domicile and resident. However, the concept of domicile is principally only relevant to the rules governing the succession to movable property under Guernsey law.
2.2. If domicile is relevant, how is it defined for taxation purposes?
2.3. To what extent is residence relevant in determining liability to taxation in Guernsey?
Liability for payment of tax is mainly based upon residence.
2.4. If residence is relevant, how is it defined for taxation purposes?
What constitutes residence for the purposes of attributing liability to Guernsey tax is found in the Income Tax (Residence) (Guernsey) (Amendment) Law, 2005 which amends Income Tax (Guernsey) Law 1975, as amended. Guernsey tax residence is established purely on the basis of the number of days an individual spends in Guernsey in a particular year of charge. There are four categories of residence for Guernsey tax purposes, (i) "non-resident", (ii) "resident", (iii) "solely resident", or (iv) "principally resident".
An individual who does not fall within the "resident", "solely resident" or "principally resident" categories will be "nonresident". An individual who is "non-resident" is generally only
liable to Guernsey income tax on Guernsey profits arising or accruing from businesses carried on in Guernsey, income from offices or employments held or exercised in Guernsey and on
Guernsey property development and rental income.
An individual is regarded as "resident" in Guernsey for tax purposes in any particular year of charge if:
(a) he spends 91 days or more in Guernsey in the year of charge; or
(b) he spends 35 days or more in Guernsey in the year of charge and, during the four preceding years, he spent 365 days or more in Guernsey.
A "resident" individual may elect to pay a charge to tax (the "standard" charge), currently set at ￡25,000, in respect of his income in that year of charge.
(iii) "Solely resident"
An individual will be treated as "solely resident" in Guernsey in the year of charge if:
(a) he is treated as "resident"(as above), and
(b) he spends less than 91 days in one other place during the year of charge. In other words, if an individual cannot be treated as resident (under Guernsey tax rules) in any other country during a year, he will be treated as "solely resident" in Guernsey. An individual who is "solely resident" in Guernsey is liable to Guernsey income tax on their total worldwide income wherever it arises.
(iv) "Principally resident"
An individual who is not "solely resident" in Guernsey will be treated as "principally resident" in a year of charge if:
(a) he spends at least 182 days in Guernsey during the year of charge;
(b) he spends at least 91 days in Guernsey during the year of charge and, during the four preceding years, he has spent at least 730 days in Guernsey; or
(c) he takes up permanent residence in Guernsey. For this purpose, an individual will be treated as taking up permanent residence in a year of charge if he is treated as "resident" in the year of charge, as described above, and is "solely resident" or "principally resident" in the following year of charge.
An individual who is "principally resident" in Guernsey is liable to Guernsey income tax on their total worldwide income wherever such income arises or accrues.
2.5. To what extent is nationality relevant in determining liability to taxation in Guernsey?
2.6. If nationality is relevant, how is defined for taxation purposes?
3. GENERAL TAXATION REGIME
3.1. What gift or estate taxes apply that are relevant to persons becoming established in Guernsey?
There are no gift or estate taxes under Guernsey law.
3.2. How and to what extent are persons who become established in Guernsey liable to income tax?
See the answer to question 2.4 above.
3.3. What other direct taxes (if any) apply to persons who become established in Guernsey?
Income tax is the only form of direct taxation under Guernsey law.
3.4. What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in Guernsey?
There are no sales taxes or VAT under Guernsey law. [There are certain customs and import duties which are discussed below.]
4. TAXATION ISSUES ON INWARD INVESTMENT
4.1. What liabilities are there to direct taxes on the remittance of assets or funds into Guernsey?
By longstanding concession, an assessment to income tax is not made on a person who is not resident in Guernsey in relation to Guernsey bank interest and/or a Guernsey social security pension. However, if a non-resident relief claim is made in respect of other Guernsey income, any Guernsey bank interest and social security pension is included in the calculation as income tax subject to Guernsey tax. If the calculation results in a liability greater than tax suffered by deduction and/or charged at the standard rate on other Guernsey income, no action is taken to collect the excess. The concession in respect of Guernsey bank interest is also applied to a non-resident person entitled to interest from designated accounts, trustees of trusts with no Guernsey resident beneficiaries, the attorney executor of the estate of a deceased non-resident and the executor of the estate of a deceased Guernsey resident, to the extent that the income is payable to beneficiaries who are not resident in Guernsey.
4.2. What taxes are there on the importation of assets into Guernsey, including excise taxes?
The Bailiwick of Guernsey, while not being part of the European Union (EU), is part of the Customs Territory of the European Community (EC).
All goods imported into Guernsey from outside the EC are subject to the same rate of customs duty as would be charged if being imported into an EC country. An 'Importers Entry (C88A)' must be made by the importer or his agent within three days of the goods arriving in Guernsey. From this entry, duty assessment is made and after payment the goods are released.
Goods 'in free circulation' in the EC/UK can be imported without any customs charges, but excise duty is charged on all alcohol, tobacco and some fuel (rates received annually by the States of Guernsey) (rates set by the EC and vary according to the commodity). There is currently an additional 15% duty charged on certain items (e.g. sweetcorn, crane lorries) imported from the USA.
As the Bailiwick is not part of the fiscal territory of the EU, VAT is not charged.
5. SUCCESSION PLANNING
5.1. What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in Guernsey?
Succession to movable property situated in Guernsey is governed, as a matter of Guernsey law, by the law where the person is domiciled. However, a will dealing with movable property in Guernsey need not be governed by the laws of Guernsey. A will of personal estate is treated by the Guernsey courts as properly executed if, at the time of its execution or at the time of death, its execution conforms to the laws of Guernsey or the internal law in force either in the territory (i) where it was executed, (ii) where the deceased was domiciled, (iii) where the deceased habitually resided, or (iv) of the deceased nationality.
Guernsey law currently has a forced heirship regime set out in The Law of Inheritance, 1954, The Law of Inheritance (Guernsey) Law 1979, and The Law Reform (Inheritance and Miscellaneous Provisions) (Guernsey) Law, 2006. In essence it requires an individual with a spouse and/or children to leave part of their property to them, with different rules applying in respect of real property (land and buildings in Guernsey) and personal property (anything else e.g. money, investments, etc.).
There is a new law (Inheritance (Guernsey) Law 2011) which is due to come into force in 2012 which will permit testamentary freedom (with family provision).
5.2. Are there particular rules that apply to real estate held in Guernsey or elsewhere?
Succession to immovable property is governed by the law where the immovable property is situated. Therefore, the formal and essential validity of wills in respect of any Guernsey realty are governed by the laws of Guernsey and the formal and essential validity of wills in respect of French realty are governed by the laws of France and so on.
The above refers to the current and future legal position in Guernsey relating to forced heirship. Where there is a will of realty, immediately upon one's death, Guernsey law provides for their realty to vest in either their heirs at law or their named beneficiary. A will of realty evidences the heirs receiving the realty.
For many years, Guernsey law required wills of reality and personalty to be separate. Now one can have a will of both, although many may still prefer to have separate wills for confidentiality (the will of realty being public). There are a number of formalities associated with making a will (including joint will) of realty in Guernsey.
6. TRUSTS AND FOUNDATIONS
6.1. Are trusts recognised in Guernsey?
Yes, see the Trusts (Guernsey) Law 1984 (as amended).
6.2. If trusts are recognised in Guernsey, how are they taxed in Guernsey?
Guernsey income tax is the only local tax that may be applicable to trust structures. Trustees may be Guernsey income tax payers and may be obliged to file tax returns when resident in Guernsey.
To establish if Guernsey income tax is payable, one must first distinguish between income from a trust and income of a trust: Income of a trust:
The settlor will be liable to pay tax on the entire income arising to the trust only where the settlor is liable for Guernsey income tax and they and/or their spouse can or may benefit under the trust or in any circumstances control the trust property.
Income for the trust: The position depends on the tax position of the beneficiaries:
(i) Where the settlor and beneficiaries are non-Guernsey resident, Guernsey tax is payable on Guernsey source income (other than bank interest, although this may be subject to a retention tax under the EU Savings Tax Directive).
(ii) Where the settlor is Guernsey resident but excluded, Guernsey tax is payable in the hands of Guernsey resident trustees – unless income is paid from a non-Guernsey company. No tax is payable where the trustees are not Guernsey resident.
(iii) Where the beneficiaries are Guernsey resident, Guernsey tax is payable by them on what they received, and the trustees may be taxed on that amount on the beneficiary's behalf.
6.3. If trusts are recognised, how are trusts affected by succession and forced heirship rules in Guernsey?
Any question concerning the validity or interpretation of a trust, the validity of any transfer or other disposition of property to a trust or the capacity of a settlor shall, under Section 14 of the Trusts (Guernsey) Law 2007, be determined in accordance with the law of Guernsey and no rule of foreign law shall affect such a question. Section 14 goes on to state that any such question shall be determined without consideration of whether or not the trust or disposition avoids or defeats rights, claims, or interest conferred by any foreign law upon any person by reason of forced heirship rights. Further, in relation to Guernsey trusts of personal property, the law of Guernsey relating to the rights of surviving children or a surviving spouse shall not apply to the determination of such questions unless the settlor is domiciled in Guernsey. Guernsey realty must devolve directly and not be placed into trust upon death where the deceased dies leaving a widow(er) and/or children (Re. Davis (1962)).
6.4. Are foundations recognised in Guernsey?
Not as yet, The Foundations (Guernsey) Law, 2011 is due to come
into force in 2012.
6.5. If foundations are recognised, how are they taxed in Guernsey?
6.6. If foundations are recognised, how are foundations affected by succession and forced heirship rules in Guernsey?
7. IMMIGRATION ISSUES
7.1. What restrictions or qualifications does Guernsey impose for entry into the country?
All persons working in Guernsey must have a valid 'Right to Work' document (issued by the States of Guernsey, Housing Department) prior to taking up employment in Guernsey. Housing licences issued by the Housing Department are also 'Right to Work' documents. The Right to Work (Limitation and Proof) (Guernsey) Law 1990, as amended, provides that if a person wishes to take up employment or become self-employed in Guernsey, or wishes to change employment, he/she must have a valid Right to Work document confirming that he/she is lawfully housed. It is an offence for a person to work without a valid Right to Work document and employers have a legal requirement to ensure that all new employees have valid Right to Work documentation.
The laws administered by the Housing Department apply to everyone, irrespective of nationality, whilst the extended UK Immigration Acts apply additionally to those persons who are subject to immigration control.
The Immigration (Guernsey) Order 1993 extends the provisions of Parts I, III, IV of the UK's Immigration Act 1971 to the Bailiwick of Guernsey. Matters concerning the entry and stay of persons subject to control under the extended UK Immigration Act lie with the Lieutenant Governor of Guernsey as representative of the Crown of England.
The Immigration (Bailiwick of Guernsey) Rules, 2008 deal with the practice to be followed with regard to entry and stay of persons subject to control in Guernsey and across the Bailiwick.
Non-EEA nationals also require an immigration Work Permit to take any employment in Guernsey and such permits are usually only issued for key workers in finance, health, education, hotel and catering. They are usually only issued for a minimum of 4 years' continuous employment not being renewed unless a minimum of 1 year is spent outside the UK and crown dependencies. Special restrictions also apply to such nationals who are the subject of a deportation order, or who will become a charge on public funds or who fall to be excluded on grounds of public policy, public security or public health.
Employment authorised in the UK does not apply in Guernsey and separate permission is required for non-EEA nationals from the States of Guernsey, Home Department. The Immigration Rules set out the requirements to be met by non-EEA nationals seeking to enter Guernsey. Permission is required for a wide range of categories, including employment, settlement, visits, adoption, etc. British citizens or nationals of other EEA countries (including Switzerland, although not part of the EEA) do not require an entry clearance (visa) to enter the Bailiwick of Guernsey to reside nor do they need the permission of the Home Department to take employment, although they will require a valid Right to Work.
Guernsey forms part of the Common Travel Area (CTA), which includes the UK, Guernsey, Isle of Man and the Republic of Ireland. The CTA is based on the notion of a travel area which is free from frontier passport controls. This is achieved through the integration of immigration laws.
7.2. Does Guernsey have any investor and other special categories for entry?
Guernsey has several special categories which provide grounds to obtain an entry clearance such as, inter alia, investors, businessmen, artists, writers, composers, spouses, dependents, family member's rights of access, visitors, students, and religious ministers.
7.3. What are the requirements in Guernsey in order to qualify for nationality?
By extension of the Immigration Act 1971 to Guernsey, a person has the right of abode in Guernsey if:
(a) he is a British citizen (Guernsey's nationals are full British citizens); or
(b) he is a Commonwealth citizen who:
(i) immediately before the commencement of the British Nationality Act 1981 was a Commonwealth citizen having the right of abode in the UK by virtue of section 2(1)(d) or section 2(2) of the Immigration Act 1971 as then in force; and
(ii) has not ceased to be a Commonwealth citizen in the meanwhile. Under the Immigration Rules, a person is deemed to be "settled in the Bailiwick of Guernsey" if he is:
(a) free from any restriction on the period for which he may remain in the Bailiwick of Guernsey (save that a person entitled to an exemption under Section 8 of the Immigration Act 1971 (otherwise than as a member of the home forces) is not to be regarded as settled in the Bailiwick of Guernsey except in so far as Section 8 (5A) so provides); and
(i) ordinarily resident in the Bailiwick of Guernsey without having entered or remained in breach of the immigration laws; or
(ii) despite having entered or remained in breach of the immigration laws, has subsequently entered lawfully or has been granted leave to remain and is ordinarily resident.
There are many different means by which a person may qualify as a permanent resident with indefinite leave to remain in Guernsey for housing purposes and the rules by which it will be determined are complex.
Holders of permanent fifteen-year housing licences tied to employment, and their spouses and children, may apply for local residential qualifications, if the fifteen-year period is completed.
7.4. Are there any taxation implications in obtaining nationality in Guernsey?
As stated above, a person's nationality is not relevant for the purposes of their tax status.
8. TAXATION OF CORPORATE VEHICLES
8.1. What is the test for a corporation to be taxable in Guernsey?
A Guernsey resident corporate body is now subject to income tax under Guernsey's "zero/ten" regime.
A company incorporated in Guernsey is generally regarded as being resident in Guernsey, unless both its business is centrally managed and controlled in a country/territory where the highest rate at which any company can be charged to tax on any part of its income is 20% or higher and the company is resident for tax purposes in the country/territory. A company incorporated outside Guernsey is regarded as not being resident in Guernsey unless its business is managed and controlled in Guernsey.
A 'zero/ten' tax system for companies has applied from 2008. This was achieved by introducing a standard rate of corporate income tax of 0% and a special rate of 10% for specified financial services companies. Utility companies (i.e. income from trading activities regulated by the Office of the Director General of Utility Regulation) and income from the ownership of lands and buildings (e.g., rental income and property development profits) continue to be charged at the standard rate of income tax of 20%.
8.2. How are branches of foreign corporations taxed in Guernsey?
A branch of a foreign corporation will be taxed in Guernsey if it has a permanent establishment. The fact that the directors of a company regularly meet in Guernsey will not, of itself, make their meeting place a permanent establishment. Clerical functions, such as invoicing operations, management and administration services and the entering into of contracts in respect of a company's international business (e.g. swap financing and loan funding agreements) at the address of the company's registered office will not ordinarily amount to the carrying on of a trade through a permanent establishment in Guernsey. All the profits of such entities are taxed. Taxable profits are determined under normal and existing tax law and principles.
9. TAX TREATIES
9.1. Has Guernsey entered into income tax and capital gains tax treaties and, if so, what is their impact?
In response to the growing demands of the OECD and its member governments for greater fiscal transparency, Guernsey has been keen to foster an image as a reputable international finance centre and has signed a number of tax treaties with other jurisdictions.
The three main sets of agreements are:
- tax information exchange agreements ("TIEA");
- double taxation agreements ("DTA"); and
- the EU Savings Tax Directive.
Guernsey has signed 29 TIEAs with various jurisdictions which include Argentina, Australia, Bahamas, Canada, Cayman Islands, China, Czech Republic, Denmark, Faroes, Finland, France, Germany, Greece, Greenland, Iceland, Ireland, Indonesia, the Netherlands, New Zealand, Norway, Mexico, Portugal, Romania, San Marino, Slovenia, South Africa, Sweden, the UK and the USA.
In addition to the extensive DTAs with the UK and Guernsey, Guernsey has entered into 10 specific DTAs with Australia, Denmark, Faroes, Greenland, Ireland, New Zealand, Finland, Iceland, Norway and Sweden (the last four of which are in effect).
9.2. Do the income tax and capital gains tax treaties generally follow the OECD or another model?
The TIEAs are designed to facilitate external tax authorities requesting specific information from the Guernsey authorities to combat tax evasion and fraud. The TIEAs provide a precise process by which this is achieved to avoid the potential for 'fishing expeditions' and to ensure that client confidentiality is maintained unless there is a sufficient body of evidence to point to tax evasion.
The Guernsey treaties do not conform to the OECD standard model treaty (except for that with Ireland which is based on the OECD model).
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;
- 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); and
- 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 (this is subject to certain provisions in some circumstances where the tax rates are not equal in each country).
In April 2009, Guernsey was 'white listed' by the OECD as a result of the G20 summit in London.
9.3. Has Guernsey entered into estate and gift tax treaties and, if so, what is their impact?
Guernsey does not have any estate or gift tax.
9.4. Do the estate or gift tax treaties generally follow the OECD or another model?
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.