There have recently been significant changes to the Guernsey company tax rules. These changes not only affect companies already subject to Guernsey tax but also bring many companies into the Guernsey tax regime for the first time.
Before 1 January 2019, companies were considered to be tax resident in Guernsey only if they were incorporated here or if most of the company’s ‘beneficial members’ such as shareholders and loan creditors, lived in Guernsey. The exception to this was if a company held tax exempt status and paid an annual fee.
Unlike residency rules in many other jurisdictions, companies incorporated elsewhere but managed and controlled in Guernsey were not considered Guernsey tax resident.
Some Guernsey resident companies with no Guernsey tax consequences could complete simplified ‘alternative certificate’ tax returns, often completed by Corporate Service Providers (CSPs).
From 1 January 2019 the changes are as follows:
Guernsey Corporate Residence
- If a company is managed and controlled in another jurisdiction with a company tax rate of at least 10%, is also tax resident there because of an international tax agreement and for reasons other than tax avoidance, it can apply to not be tax resident in Guernsey. This means a company incorporated in Guernsey may not necessarily now be tax resident there.
- A company incorporated outside Guernsey is now tax resident in Guernsey if it is centrally managed and controlled there. For example, a BVI company with Guernsey directors but no Guernsey shareholders. This brings Guernsey in line with corporate tax residence rules elsewhere, such as the UK.
These changes will likely lead to a large number of companies becoming Guernsey tax resident from 2019 for the first time. Company Directors will need to consider the tax implications of this, including:
- registering with the Guernsey Revenue Service (formerly known as the Income Tax Office);
- considering the impact of Guernsey taxation and economic substance requirements;
- completing annual tax returns and associated tax computations, if necessary.
Economic Substance
In order to address EU concerns, Guernsey introduced economic substance requirements which apply for accounting periods starting after 31 December 2018. All Guernsey resident companies have to establish whether they receive any income from ‘relevant activities’ listed in the new legislation (including banking, insurance and fund management). Companies that do receive income from these relevant activities must ensure they meet specific economic substance requirements, including:
- being directed and managed in Guernsey;
- conducting core income generating activities in Guernsey (outsourcing is possible);
- having adequate people, premises and expenditure in Guernsey.
From 2019, the annual Guernsey company tax return will contain questions relating to economic substance. These questions are designed to identify which companies need to meet economic substance requirements and whether they are being met. Companies not complying with the requirements will be subject to sanctions including financial penalties and ultimately leading to strike-off.
Companies that were previously permitted to complete the simplified ‘alternative certificate’ tax returns also need to address economic substance by answering these questions, hence the annual return will become more complex.
How we can help
We have a wealth of experience providing local tax services and can assist with all Guernsey tax issues faced by companies including these recent changes. We offer the following services:
- Guernsey corporate tax advice and compliance, including tax and distribution returns, ETI and social security matters;
- Guernsey personal tax advice and compliance, including personal tax returns, residency issues, social security matters;
- UK tax compliance for non-UK trusts, including tax returns and Capital Gains Tax (CGT) computations;
- UK tax compliance for non-UK companies, including non-resident company tax returns (non-resident landlord returns), Annual Tax on Enveloped Dwellings and non-resident CGT returns;
- UK tax compliance for offshore reporting funds, including initial registration as well as complying with annual reporting fund requirements.
