IN163 - The System of Taxation in Guernsey

The jurisdiction of Guernsey has been a leading international financial centre for many years. This status has been aided by legislative and fiscal independence and a high degree of political and economic stability.

Timing and Objectives

A number of changes to the Guernsey taxation system came into effect in January 2008. These further increase the attractiveness of the island from both a corporate and individual perspective.

The amendments are designed to enhance Guernsey’s position as an international financial centre, while simultaneously being fully compliant with international standards.

Corporate Taxation

The general rate of tax payable by Guernsey companies has been reduced to ZERO.

The only exceptions to the zero rate are:

• Banking activities (taxed at 10%)
• Rental income from properties located in Guernsey (taxed at 20%)
• The profits of Guernsey regulated utility companies (taxed at 20%)

Funds continue to operate under an exempt fee system, thereby not being liable to pay corporation tax.

Taxation of Individuals

Individuals have a tax free allowance of £8,250. Income tax is levied on income in excess of this amount at a rate of 20%.

A tax cap on non-Guernsey source income of £250,000 has been introduced, which will be beneficial to a number of individuals. Non-Guernsey source income is taxed at a rate of 20% and this therefore means that there is no tax on non-Guernsey source income greater than £1,250,000.

The following taxes continue NOT to be levied in Guernsey:

• Capital gains tax
• Inheritance tax, estate duty, gift tax or capital transfer tax
• Wealth tax

Value Added Tax

Value added tax (VAT) continues not to be levied on transactions in Guernsey.

Additional Features of the Revised Taxation Regime

• There is a withholding tax of 20% on dividends paid to Guernsey residents. If an investment company has net untaxed income and Guernsey resident shareholders, income will be deemed to be distributed pro-rata in accordance with each individual’s percentage shareholding. There is no withholding tax for Guernsey non-resident shareholders.
  
  
• The taxation of trusts remains unchanged. There is no Guernsey taxation on trusts formed by individuals not resident in Guernsey for the benefit of non-resident Guernsey individuals.
  
  
• New provisions will enable a more extensive and rigorous tracing of income through to its ultimate beneficial owner. In addition more stringent reporting requirements have been introduced.

Summary

The revised tax regime in Guernsey, in particular the movement to a general rate of zero corporation tax, significantly increases the attractiveness of this jurisdiction. The tax strategy, combined with the island’s wide range of internationally respected business sectors and highly qualified workforce, further enhance Guernsey’s status as an international financial centre.

Additional Information

For further information on Guernsey and the advantages it offers please speak to John Nelson at the Dixcart office in Guernsey or Contact Us.