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, inheritance, capital transfer, value added or general withholding 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%. 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. For high value residents in Guernsey there are also caps restricting an individual's liability to income tax. Currently, there is an annual cap of ￡110,000 for income tax payable on non- Guernsey source income, and also, in certain circumstances, a potential to also cap Guernsey source income such that the tax paid for all income does not exceed ￡220,000.
Guernsey's authorities are open to applications from new business entrants seeking, in particular, to avail themselves of the 10% 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, inheritance, capital transfer, value added or general withholding taxes under Guernsey law.
2 CONNECTION FACTORS
2.1 To what extent is domicile relevant in determining liability to taxation in Guernsey?
The relevant concept in respect of taxation in Guernsey is residency.
2.2 If domicile is relevant, how is it defined for taxation purposes?
This is not relevant to Guernsey.
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 section 3 of the 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. An individual is regarded as having spent a "day" in Guernsey or elsewhere if they are there at midnight of that day. A "year of charge" is a calendar year.
There are four categories of residence for Guernsey tax purposes, (i) "resident", (ii) "solely resident", (iii) "principally resident", or (iv) "non resident".
An individual is regarded as "resident" in Guernsey for tax purposes in any particular year of charge if:
- he spends 91 days or more in Guernsey in the year of charge; or
- 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
- "Solely resident"
An individual will be treated as "solely resident" in Guernsey in the year of charge if:
- he is treated as "resident" (as above); and
- he spends less than 91 days in one other place during the year
- "Principally resident"
An individual who is not "solely resident" in Guernsey will be treated as "principally resident" in a year of charge if:
- he spends at least 182 days in Guernsey during the year of charge; or
- 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
- 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
An individual who does not fall within the "resident", "solely resident" or "principally resident" categories will be "non-resident".
2.5 To what extent is nationality relevant in determining liability to taxation in Guernsey?
This is not relevant to Guernsey.
2.6 If nationality is relevant, how is it defined for taxation purposes?
This is not relevant in Guernsey.
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?
Individuals who are "solely" or "principally" resident in Guernsey are liable to income tax on their total worldwide income, wherever such income may arise or accrue.
Individuals who are merely "resident" are also liable to income tax on their total worldwide income, wherever such income may arise or accrue, unless:
- They elect (through submitting a declaration to the Director of Income Taxes within two years of the relevant year of charge) to pay ￡27,500 (the "standard charge"). The individual is then only liable to pay tax on his income arising or accruing in Guernsey (save for interest on money deposited with licensed institutions (such as banks)). There are, however, certain limitations as to which reliefs and allowances are then permitted.
- All the income of the individual (aside from interest on bank deposits) derives from income from offices and employments, and the sole or main purpose of their presence in Guernsey is in order that they may undertake the duties of an employment. In this case a return must be delivered based on the income arising in Guernsey and on any income remitted into Guernsey in that year of charge.
Non-resident individuals are generally liable to income tax on Guernsey source income (other than bank deposit interest) only, although there are specific rules in relation to which types of income may be disregarded in the calculation of the rate.
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 but there are certain customs and import duties which are discussed at question 4.2 below.
3.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in Guernsey?
To prevent abuse in respect of the caps outlined in question 1.2 above, and in respect of the differing taxation principles which apply to the various types of residents, there are various provisions to prevent non-Guernsey source income being disguised as Guernsey income and vice-versa.
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., sweet corn, crane lorries) imported from the USA.
As the Bailiwick is not part of the fiscal territory of the EU, VAT is not charged.
4.3 Are there any particular tax issues in relation to the purchase of residential properties?
Document duty is payable when purchasing property. The rate is calculated according to the value of the property. In most cases the rate is currently 3%. Discussions are underway to prevent buyers avoiding the duty through purchasing the shares in a property holding vehicle.
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's nationality.
Since 2 April 2012, when The Inheritance (Guernsey) Law 2011 came into force, testamentary freedom (with family provision) has been permitted. Wills executed prior to 2 April 2012 and not expressed to come into force after 2 April 2012, are subject to the forced heirship regime established by 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, these laws require 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.).
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.
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).
6 TRUSTS AND FOUNDATIONS
6.1 Are trusts recognised in Guernsey?
Yes, see the Trusts (Guernsey) Law, 2007.
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:
- Where the settlor and beneficiaries are non-Guernsey resident, Guernsey tax is payable on Guernsey source income.
- 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.
- 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.
6.4 Are foundations recognised in Guernsey?
The Foundations (Guernsey) Law, 2011 has been passed by the States of Guernsey and is awaiting consent from the Privy Council. It is due to come into effect at the beginning of 2013.
6.5 If foundations are recognised, how are they taxed in Guernsey?
The States of Guernsey have recommended that in respect of tax, foundations are, as far as possible, treated in the same way as trusts with Guernsey trustees. Specific legislation to confirm the position is being drafted at the time of writing this guide.
6.6 If foundations are recognised, how are foundations affected by succession and forced heirship rules in Guernsey?
Any question concerning the validity or interpretation of a foundation or the capacity of the founder shall under Section 37 of The Foundations (Guernsey) Law, 2011 be determined in accordance with the law of Guernsey as no rule of foreign law shall affect such a question. As with trusts, the foundation will not be void because it defeats heirship rights or other rights of persons arising by reason of their personal relationship to the founder or any beneficiary.
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, and 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 up any employment in Guernsey and such permits are usually only issued to, key workers in finance, health, education, hotel and catering. They are usually only issued for a minimum of four years' continuous employment not being renewed unless a minimum of one 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, Jersey, 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:
- he is a British citizen (Guernsey's nationals are full British citizens); or
- he is a Commonwealth citizen who:
- 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
- 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:
- 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
- ordinarily resident in the Bailiwick of Guernsey without having entered or remained in breach of the immigration laws; or
- 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 subject to income tax under Guernsey's "zero 10" regime.
A company is generally regarded as resident in Guernsey if it is controlled in Guernsey or is incorporated in Guernsey. Where a company incorporated in Guernsey is considered resident in another jurisdiction, there may also be relief under the double taxation agreements which are in place.
Under the "zero 10" regime (in place since 2008) the standard company rate is 0%. This is in respect of income from business, offices and employments and other sources. Income from the ownership of lands and buildings and from trading activities regulated by the Guernsey Competition and Regulatory Authority (such as utility companies) are taxed at 20%. Income from specific banking businesses is charged at an intermediate rate of 10%.
8.2 How are branches of foreign corporations taxed in Guernsey?
For Guernsey tax purposes, the parent of a Guernsey branch would be subject to tax as if the branch were a Guernsey company in accordance with the provisions set out in question 8.1 above. Additional taxes may be payable upon funds being re-patriated to the parent's "home" jurisdiction.
9 TAX TREATIES
9.1 Has Guernsey entered into income tax and capital gains tax treaties and, if so, what is their impact?
Guernsey has a long-standing commitment to being a reputable international finance centre and to that end has responded to demands of the OECD and its member governments for greater fiscal transparency, through signing 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.
As of September 2012 Guernsey has signed 37 TIEAs with various jurisdictions including Argentina, Australia, Bahamas, Canada, Cayman Islands, China, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Greece, Greenland, Iceland, Ireland, India, Indonesia, Italy, Japan, Latvia, the Netherlands, New Zealand, Norway, Mexico, Poland, Portugal, Romania, San Marino, Seychelles, Slovenia, South Africa, St Kitts and Nevis, Sweden, Turkey, the UK and the USA. Further, Guernsey is in the later stage of negotiations with a number of other countries including 2 further G20 members and 4 EU Member States.
In addition to the extensive DTAs with the UK and Jersey, Guernsey has entered into DTAs with Australia, Denmark, Faroe Islands, Greenland, Ireland, New Zealand, Finland, Iceland, Norway and Sweden. It has also signed DTAs with Japan and Malta which are not yet in force and is in negotiations with several other countries (many at an advance stage). As of September 2012 Guernsey has therefore negotiated, or has ongoing negotiations with, all OECD, G20 and EU economies except for Bulgaria, Israel, Russia and Saudi Arabia.
In respect of the EU Savings Directive, while Guernsey is not within the EU's fiscal territory, it has agreed to implement measures equivalent to those contained in the directive. Since July 2011 it has moved to automatic exchange of information with the competent authorities of the jurisdictions in which the beneficial owners of the interest and similar payments reside.
9.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?
All the TIEAs have been judged by the OECD as meeting the international standard and generally follow the OECD Model TIEA. In some instances, the Phase 1 review noted that there may be provisions which may potentially have the effect of applying the agreement more narrowly than the international standard but in December 2011 the Director of Taxes clarified that these provisions were not intended to be more restrictive. Phase 2 of the review process commenced in August 2012.
The TIEAs are designed to facilitate external tax authorities requesting specific information from the Guernsey authorities to combat tax evasion and fraud and provide a precise process by which this is achieved while aiming to avoid the potential for 'fishing expeditions' and ensuring that client confidentiality is maintained unless there is a sufficient body of evidence to point to tax evasion.
The Double Taxation Agreements with Jersey and the United Kingdom do not follow the OECD standard but discussions are underway with Jersey to revise the agreement.
In April 2009, Guernsey was 'white listed' by the OECD and in January 2011 the IMF released a report concluding that Guernsey had met or exceeded the internationally accepted regulatory standards as endorsed by the G20.
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?
This is not applicable to Guernsey.
Originally published by Global Legal Group Ltd, London
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.