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					c o l l a s d ay   commercial



Zero Tax
in Guernsey
March 2009
commercial                      zero Tax in guernsey




introduction                                   Taxation of distributions                          There are certain exceptions to when tax
                                                                                                  is payable in respect of events that would
A new corporate tax regime was introduced      While companies are taxed at a rate of
                                                                                                  otherwise constitute deemed distributions.
in Guernsey on 1 January 2008, known as        0%, it is the responsibility of companies
                                                                                                  These include where the shareholder’s
the “Zero-Ten regime”. It also signalled the   to deduct tax from distributions of profits
                                                                                                  interest in the company is 1% or less, where
abolition of two further regimes, those for    (as opposed to capital) made to their
                                                                                                  the company has been charged tax overseas
exempt companies (which currently pay a        shareholders. How these are taxed is
                                                                                                  or in Guernsey at a rate of 20% or more and
£600 annual exempt fee) and international      dependent upon a shareholder’s place of
                                                                                                  where the company is a Guernsey exempt
business companies – other than in respect     residence. If the shareholder is an individual
                                                                                                  collective investment scheme. In addition,
of collective investment schemes, which        resident in Guernsey, a 20% rate is charged.
                                                                                                  profits which have been taxed but not
still have the option to apply for exempt      If the shareholder is a company, the
                                                                                                  distributed by 31 December 2007 are not
company status.                                company standard rate of 0% applies. If the
                                                                                                  subject to further taxation.
                                               shareholder is non-Guernsey resident, no
Tax rates on company profits                   Guernsey income tax is payable or withheld.
                                                                                                  collective investment schemes
All companies now pay a standard rate of 0%
                                               It is the responsibility of the company to         As noted above, collective investment
income tax on profits. Certain companies pay
                                               either collect and pay the tax charged or,         schemes still have the option to apply for
higher rates as follows:
                                               where a shareholder is non-Guernsey                exempt company status. One advantage of
                                               resident, the burden is on the company to          maintaining exempt status is that Guernsey
   a rate of 10% is charged on the profits
                                               obtain evidence that a shareholder is not          resident shareholders are liable to Guernsey
   from specified banking activities;
                                               Guernsey resident before it makes a payment        tax on a distribution only basis. In other
   a rate of 20% is charged on the profits     without deducting tax.                             words, the deemed distribution regime
   from activities regulated by certain                                                           set out above will not apply. Further, a tax
   utilities; and                              Taxation of distributions                          exempt company will not be deemed to be
                                                                                                  Guernsey resident for tax purposes which
   a rate of 20% is charged on rental income   Certain events will trigger a deemed
                                                                                                  may be relevant in certain structures, for
   and profits from property development       distribution (in respect of which a liability to
                                                                                                  example, UK REITs.
   and the exploitation of land.               tax will arise for a shareholder), namely:

Transitional arrangements                         a shareholder’s death;
                                                                                                  loans to ‘participators’
                                                                                                  in a company
All companies charged a 20% rate prior to         a disposal, repurchase or redemption            Finally, it has been recognised that one way
1 January 2008 are deemed to have ceased          of shares;                                      to avoid taxation under the new regime is for
trading from a taxation perspective on 31
                                                  a shareholder changing residency;               companies to make loans to or for the benefit
December 2007. For companies whose year-
                                                                                                  of shareholders, directors or other connected
end is not 31 December, the relevant income       the migration of the company out                persons. It has thus been decided that such
will be apportioned.                              of Guernsey;                                    loans will in certain circumstances create a
                                                  the liquidation of a company;                   tax charge on the borrower, subject to relief
                                                                                                  where the loans are repaid within six years of
                                                  the amalgamation of a company with              being made.
                                                  another company; and

                                                  investment income will be deemed to be
                                                  distributed at the end of each quarter.
      commercial                                     zero Tax in guernsey




      comparison with Jersey regime                                            (b) Tax on financial services businesses                                 Please do not hesitate to contact us if you
                                                                               In addition to the categories of profits for                             would like to know more:
      Jersey has also introduced a new corporate
      tax regime. Broadly speaking, the Jersey                                 which tax will be payable above the 0%
                                                                               standard rate (see page one) Jersey now                                  Sean Cheong
      and Guernsey approaches are very similar.                                                                                                         t: +44 (0)1481 734202
      However, there are two areas of difference                               applies a 10% rate to specified financial
                                                                                                                                                        e: sean.cheong@collasday.com
      worth noting:                                                            services businesses that are licensed by the
                                                                               Jersey Financial Services Commission. This
                                                                                                                                                        Jason Romer
      (a) Goods and services tax                                               includes trust company services and some
                                                                                                                                                        t: +44 (0)1481 734296
                                                                               fund functionary activities (such as registrar,
      Jersey has introduced a 3% goods and                                                                                                              e: jason.romer@collasday.com
                                                                               custodial and administration services - but
      services tax (GST) which will be required
                                                                               not those of fund managers).                                             Ian Kirk
      to be charged by service providers when
      they invoice customers based in Jersey. GST                                                                                                       t: +44 (0)1481 734247
                                                                               This means that trust companies, registrars,                             e: ian.kirk@collasday.com
      will not be charged on services provided to
                                                                               custodians, administrators and other fund
      ‘international services status vehicles’ - an
                                                                               functionaries pay 10% tax in Jersey, whereas                             Paul Wilkes
      annual fee of £100 will be payable to secure
                                                                               a rate of 0% applies in Guernsey.                                        t: +44 (0)1481 734268
      this status.
                                                                                                                                                        e: paul.wilkes@collasday.com
                                                                               Again, it remains to be seen to what extent
      Whilst the £100 fee is a relatively minor cost
                                                                               the Jersey service providers who are
      to business, it remains to be seen the extent
                                                                               subject to this tax will pass on the cost to
      to which the Jersey finance industry will pass
                                                                               their customers.
      on the costs of GST that it will bear on its
      own costs (such as commercial rent, office
      equipment, utilities etc), as there will be a
      limit on the amount of these costs that the
      industry will be able to recover.

      Guernsey currently does not intend to
      introduce GST.




                                                                                                                                                                collas day PO Box 140, Manor Place,
                                                                                                                                                                         St Peter Port, Guernsey GY1 4EW
                                                                                                                                                t: +44 (0)1481 723191     f: +44 (0)1481 711880
                                                                                                                                                    e: inbox@collasday.com      w: collasday.com

      This note is a summary of the subject and is provided for information only. It does not purport to give specific legal advice, and before acting, further advice should always be sought. Whilst every care has been
      taken in producing this note neither the author nor Collas Day shall be liable for any errors, misprint or misinterpretation of any of the matters set out in it. All copyright in this material belongs to Collas Day.


C-ZERO-09-V2
collas day PO Box 140, Manor Place, St Peter Port, Guernsey GY1 4EW
t: +44 (0)1481 723191  f: +44 (0)1481 711880       e: inbox@collasday.com   w: collasday.com