Jersey and Guernsey Taxation
Jersey and Guernsey are well regulated tax neutral jurisdictions. They provide an ideal location for international corporate structures to use for holding, investment or trading company purposes.
Jersey and Guernsey introduced their own versions of the ‘Zero/ten’ tax regime in 2009 and 2008 respectively. The core principle of Zero/Ten is that subject to certain exceptions, the general rate of tax is 0%.
The main exceptions to the 0% rate include property income, utility companies, large retailers, hydrocarbon oils importers, cannabis businesses (20%) and financial services businesses (10%). Jersey operates a flat 10% rate for regulated financial services business with a permanent establishment on the island whilst Guernsey operates a 10% tax rate for income generated in respect of specifically regulated activities only resulting in the potential for both the 0% and 10% rates to apply to certain profits generated.
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Economic substance requirements in Jersey and Guernsey
Jersey and Guernsey passed new legislation introducing substance requirements for Jersey and Guernsey entities, which came into force on 1 January 2019 for companies and 1 January 2022 for partnerships, including Limited Liability Companies (LLCs). This follows a period of consultation and close engagement with other jurisdictions and organisations.
They have been designed to address concerns raised by the EU Code of Conduct Group that companies could be used to artificially attract profits that are not commensurate with economic activities and a substantial economic presence in the respective islands.
Many of the practical elements of the legislation will already be applied as a matter of course by companies in Jersey and Guernsey. These new rules have therefore been welcomed by practitioners and industry as representing the opportunity to further cement Jersey and Guernsey’s respective reputations as well-regulated, compliant and transparent jurisdictions.
Who is affected by the rules?
- Jersey / Guernsey resident companies and partnerships,
- carrying on ‘relevant activities’; and
- that are in receipt of gross income from the relevant activities.
What are the relevant activities?
- Banking business
- Insurance business
- Fund Management business (this does not include companies that are Collective Investment Vehicles excluding certain self-managed funds)
- Finance & leasing business
- Headquarters business
- Shipping business
- Holding company business (a pure equity holding company)
- Intellectual property holding business
- Distribution and service centre business
What do entities need to do to satisfy the rules?
Companies and partnerships captured by the rules must demonstrate they have substance by:
- Being directed and managed in the Island;
- Conducting all Core Income Generating Activities (“CIGA”) in the Island; and
- There being adequate people, premises and expenditure in the Island.
If the requirements are not met this will result in sanctions, including exchange of information with other jurisdictions, financial penalties and ultimately, striking off for persistent non-compliance.
Areas in which we can assist from a Jersey or Guernsey tax perspective include:
- Tax structuring for set up, rationalisation or exit considerations
- Tax advisory to ensure global tax efficiency and returns to shareholders/investors
- Assistance in respect of the economic substance legislation:
- Classification of relevant activity under the law;
- Review of companies ability to meet to the economic substance test;
- Advisory to remediate failure to meet the economic substance test;
- Completion and submission of company tax returns (including all economic substance disclosures);
- Completion and submission of combined partnership notifications
- Advice and ongoing compliance in respect of shareholder taxation rules in Jersey
- GST registration and ongoing compliance
