Corporate tax in Guernsey

Summary

Corporate Income Tax Rate (%) 0 (a)
Capital Gains Tax Rate (%) 0
Branch Tax Rate (%) 0 (a)
Withholding Tax (%)
Dividends 0 (b)
Interest 0
Royalties 0
Branch Remittance Tax 0
Net Operating Losses (years)
Carryback 0 (c)
Carryforward Unlimited

a) This is the standard corporate income tax rate. For details regarding other rates, see Section B.

b) Dividend withholding tax is not imposed on dividends paid to foreign share­holders. See Section B. Guernsey resident individual shareholders may be subject to withholding tax on dividends received.

c) A carryback for up to two years is available for terminal losses if trade is per­manently discontinued.

Taxes on corporate income and gains

Corporate income tax. A Guernsey resident company is subject to income tax on its worldwide income. A company not resident in Guernsey is subject to Guernsey income tax on its Guernsey‑source income (other than disregarded company income, such as bank interest), unless a double tax treaty applies. A company is resident in Guernsey if its shareholder control is in Guernsey or if it is incorporated in Guernsey. Control for Guernsey tax pur­poses is determined by reference to ownership rather central management and control.

Rates of corporate income tax. The standard rate of corporate in­come tax is 0%. A 10% rate applies to profits derived from bank­ing business, insurance management, insurance intermediaries, domestic insurance business, regulated fiduciary business and, effective from 1 January 2015, fund administration business. Re­gulated utility companies and companies receiving Guernsey property income are subject to tax at a rate of 20%.

Following the release of the 2016 Budget Report, it is expected that the 10% intermediate rate will be extended to include custody business, effective from 1 January 2016. In addition, the higher rate of 20% is expected to be extended to include the importation and/or supply of hydrocarbon oil or gas and retail businesses hav­ing a taxable profit of more than GBP500,000 in a year.

Exempt companies. The exempt company regime is only available for collective-investment schemes. An exempt company is treated as nonresident for tax purposes and is taxable in Guernsey only on Guernsey-source income, excluding bank interest. Collective-investment schemes (typically unit trusts, investment trusts or bodies involving other forms of public participation) form a substantial sector of the finance industry in Guernsey. Peripheral companies associated with such schemes may also qualify for exemption.

Exempt companies pay a fixed annual fee of GBP1,200, regard­less of their income.

Protected cell companies. Protected cell companies (PCCs) con­sist of several cells and core capital. Each cell is liable only to its own creditors. A creditor of a particular cell has recourse to the assets of that cell and the core capital only. PCCs may be used for captive insurance companies, collective investment schemes or other approved enterprises.

Incorporated cell companies. Incorporated cell companies (ICCs) are similar to PCCs in terms of their cellular nature. However, each cell is regarded as an incorporated entity in its own right and, consequently, is subject to tax as a separate entity.

Capital gains. Capital gains are not taxable in Guernsey.

Administration. The Guernsey tax year corresponds to the calen­dar year. Tax payments on account are normally due in two equal installments on 30 June and 31 December of the tax year, with a balancing payment or repayment due after filing and assessment.

An annual tax return is required for all Guernsey resident compa­nies and some foreign companies with Guernsey-source income. The annual tax return must be filed electronically by 30 November of the following year. Automatic late filing penalties may be im­posed.

If taxable distributions or loans to Guernsey resident individuals are made during the year, a final Distribution Reporter tax return is required to be filed by 15 January following the tax year. Taxes on such events must be withheld at source and paid quarterly by the 15th of the month following the relevant quarter.

Companies must file annual validation forms with the Guernsey Registry, and pay the relevant filing fee. Fees are based on the type and activity of the company and range from GBP100 to GBP1,000.

Dividends. No tax is withheld from dividends paid to foreign shareholders of Guernsey companies.

If dividends are paid to Guernsey resident individual sharehold­ers, the company may be required to withhold tax of up to 20% of the distribution. The amount of tax withheld may be reduced if the company has already suffered tax on the profits distributed. Companies maintain tax pools to track undistributed income (income that has not suffered tax at 20% or more) and tax already suffered. Distributions are required to be matched against undis­tributed income first.

Companies may also be required to withhold tax at a rate of 20% if a loan is advanced to a Guernsey resident beneficial member, but some exemptions apply.

Foreign tax relief. Guernsey grants specific double taxation relief for income from its treaty countries and grants unilateral relief for income from non-treaty countries up to an effective maximum rate of 15%.

Determination of trading income

General. The assessment is based on accounting profits, sub ject to certain adjustments. To be deductible, expenses must be incurred wholly and exclusively for the purposes of the trade.

Nonresident companies are exempt from tax on disregarded com­pany income, including Guernsey-source bank interest.

Tax depreciation. Depreciation is not an allowable deduction, but annual allowances are available on the cost of plant and machin­ery. Annual allowances are generally calculated at a rate of 20% on a reducing-balance or straight-line basis (subject to specific variations).

Groups of companies. Under Guernsey law, a trading loss incurred by a member of a 90%-owned group of companies may be offset against profits earned in the same tax year by another member of the group. All members of the group must be incorporated and resident in Guernsey or have a fixed place of business in Guernsey. Restrictions apply if members of the group are taxed at different rates.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate
Social security contributions; payable on the salaries and wages of employees resident in Guernsey; paid by (2015 rates)
Employer (maximum contribution of GBP732.62
per month)
6.5
Employee (maximum contribution of GBP676.26
per month)
6
(Small increases in the maximum contributions
are likely to apply for 2016.)
Tax on real property; based on the unit value
of the property located in Guernsey; rates
vary according to the type of property
Various
Document duty on sales of Guernsey property;
based on the value of the transaction
Residential property
Value of transaction up to GBP250,000 2
Value of transaction between GBP250,001
and GBP400,000
2.5
Value of transaction over GBP400,000 3
Nonresidential property 3
(Legislation extending the duty to include the
sale of shares in corporate vehicles holding
Guernsey real property is expected to be introduced.)

Miscellaneous matters

Anti-avoidance legislation. Guernsey’s tax law includes a general anti-avoidance rule. The Director of Income Tax has broad pow­ers to adjust a taxpayer’s tax liability and assess income tax that, in the Director’s opinion, has been deliberately avoided by a transaction entered into by the taxpayer.

Exchange controls. Guernsey does not impose any foreign-exchange controls.

Debt-to-equity ratios. Guernsey does not prescribe any debt-to-equity ratios, but the general anti-avoidance rule can be applied in some situations.

Types of companies. The Guernsey company law allows the incor­poration of companies limited by shares, guarantee or shares and guarantee. A company limited by shares and guarantee may have both shareholders and guarantee members. See Section B for in­formation on PCCs and ICCs.

Migration of companies. Guernsey law allows an overseas com­pany to migrate into Guernsey and be registered as a Guernsey company. In addition, a Guernsey company may be removed from the Companies Register with the intention of becoming incorpo­rated in another jurisdiction. In both cases, the law of the other jurisdiction must provide for the migration, the company must be solvent and certain other conditions must be met.

Tax treaties

Guernsey has entered into comprehensive tax treaties with the following jurisdictions.

Cyprus                           Luxembourg                Qatar

Hong Kong SAR           Malta                            Seychelles

Isle of Man                    Mauritius                     Singapore

Jersey                            Monaco                          United Kingdom
Liechtenstein

Guernsey has completed negotiations for a comprehensive double tax treaty with Bahrain and is engaged in tax treaty negotiations with Bermuda, Gibraltar and the United Arab Emirates. In addi­tion, discussions are ongoing regarding the possibility of double tax treaties with Estonia, Latvia, Saudi Arabia and Thailand. Ne­gotiations on a revised double tax treaty with the United Kingdom are likely to begin in 2016.

It also has partial (limited) treaties with the following countries.

Australia                             Greenland                      New Zealand

Denmark                             Iceland                           Norway

Faroe Islands                      Ireland                           Poland

Finland                               Japan                             Sweden

In addition, Guernsey has signed tax information exchange agree­ments with 59 jurisdictions.

Potential changes to the Guernsey tax regime

The Budget Report for 2016 contained several proposals for amending the tax law. Among these proposals, it is expected that the company intermediate tax rate of 10% will be extended to include custody business and the higher rate of 20% will be extended to include importation and/or supply of hydrocarbon oil or gas and retail businesses having a taxable profit of more than GBP500,000 in a year.

Also, increases in the rates of some excise duties and the rate of the domestic tax on real property are expected.