Seismic shifts in the tax landscape. Guernsey residence by investment • Minimum investment £200,000 • Contact our specialists to get expert advice on requirements, eligibility and benefits. Guernsey does not levy capital gains tax, inheritance or wealth tax, VAT or goods and services tax. This update therefore cements the position that Guernsey companies that are UK tax resident will not be treated as Guernsey tax resident and removes the need for what can be a lengthy claim process under the new DTA. This briefing summarises certain key aspects of Guernsey taxation law for the calendar year 2020. Payment of tax. definition of corporate residence Previous definition Prior to 1 January 2019, a company would be regarded as Guernsey tax resident if it was incorporated in Guernsey or if it was controlled in Guernsey. In each case CMC is a question of fact, although it is clear from the case law, and in particular from the case of Wood and another v Holden3, that emphasis is placed on meetings or other decisions of the board of directors in determining who exercises CMC (provided that the directors are genuinely making decisions and not “rubber-stamping” the decisions of another), as typically, it will be the company’s board of directors that, at meetings of the board, take strategic decisions on the conduct of the company’s business. For accounting periods after 1 January 2019 companies who are tax resident in Guernsey, undertaking specific activities, need to demonstrate that they have sufficient substance in Guernsey, by being directed and managed here, having adequate people, premises and expenditure, and conducting its core income generating activities (CIGA) in the island. 9) Ltd and other v HMRC2, and also provides some practical guidance on how Guernsey companies can minimise UK CMC risks when there is no intention to make the company UK tax resident. In the case of Unit Construction Co. Ltd v Bullock4 it was found on the facts that the CMC of a non-UK subsidiary was in fact exercised in the UK by the board of the UK parent, even though this was in breach of the subsidiary’s articles which contained a provision that CMC was to be exercised by the directors otherwise than in the UK. Guernsey companies are therefore commonly used in both listed and unlisted holding company and fund structures and Guernsey is the second most popular jurisdiction of incorporation, after the UK, for companies listed on the London Stock Exchange. We are also involved in the preparation of UK tax returns for individuals who have recently moved between Guernsey and the UK and involve UK split year issues. © Carey Olsen (Guernsey) LLP 2021, Sign-up here to receive our news and briefings. (Guernsey) Law, 1975, section 3 as follows: “(1) An individual shall be treated as being “resident” in Guernsey in any particular year of. Citizenship, as you may know, has all kinds of implications not just for your personal life but also for your finances, and it’s a decision that you must weigh up carefully. About Grant Thornton Grant Thornton Limited is a leading Channel Island practice with offices in Guernsey and Jersey with combined staffing strength of over 120 people. Furthermore, in the case of Laerstate BV v The Commissioners for Her Majesty’s Revenue & Customs5 it was found on the facts that the CMC of the company in question was exercised by a shareholder (Mr Bock) in the company’s parent (Mr Bock was also a director of the company for some, but not all, of the periods in question), either because he was a director who made strategic decisions, or (when he was not a director), because he directed the decisions of the actual director, who implemented those directions without consideration. A company is resident in Guernsey if it is incorporated or controlled from there. This briefing provides an overview of the legislation, which is expected to come into force on 1 January 2019. However, in Development Securities (No. A company will be Jersey tax resident for the purposes of the Income Tax Law if it is incorporated in Jersey or, if incorporated elsewhere, its business is managed and controlled in Jersey. Loose terminology and inaccuracies in correspondence, minutes and other related documents must be avoided as these could infer that the directors or committee members were just administering the decision of another (e.g. This law change is also welcome as it reduces instances of “dual-residence”, where a company is tax resident in two different jurisdictions, which could be problematic where both jurisdictions of residence have adopted substance legislation (Guernsey’s substance legislation). It should be noted that Development Securities (No. In reaching its decision in Development Securities (No. A company incorporated outside of Guernsey that becomes tax resident in Guernsey must notify the Revenue Service of it becoming resident in Guernsey. Directors and committee members should genuinely take these decisions after serious and proper consideration, including an assessment of merits and benefits of the decision for the Guernsey company and the wider group (especially if there is a risk that the decision could be seen as uncommercial or as a disadvantage the company); Detailed board and committee minutes should be kept, especially if there is any question as to whether a decision is commercial and/or in the interests of the company. If you wish to unsubscribe from our database, click here. Such strategic decisions include whether the company should continue to carry on an existing business or diversify into other activities, whether the company should carry on business at all, and how the business of the company should be financed. Tax residency – A company is tax resident in Guernsey if it is incorporated in Guernsey or its place of central management and control is in Guernsey.. its business is centrally managed and controlled in Territory A; the highest rate of corporate income tax or corporation tax in Territory A is at least 10%; or, Territory A and Guernsey are both parties to an international tax measure, such as a double tax agreement (. It is not intended as legal advice and should not be relied on as such. Read more about the advantage of Guernsey companies. This information will be processed in line with the Data Summary of Guernsey Taxation. Where no Guernsey Company Registration Number is held (i.e. There are a number of practical points that directors, advisors and service providers of Guernsey companies should consider in minimising risks that CMC could be located in the UK. It should be noted that it is possible for a Guernsey company to have CMC located in both the UK and Guernsey at the same time, and so the best way to minimise the risks is to ensure that, factually, no strategic decision-making can be said to take place in the UK. In finding that the CMC of the Jersey companies was in fact located in the UK, the tribunal took into account that the Jersey companies were established to implement one transaction and that the transaction effected by the Jersey companies (acquiring assets from their UK parent at a price in excess of market value) was so uncommercial that it required shareholder consent. Non - Resident. If you have Guernsey permanent residence, you will need to continue being a tax resident on the island to retain this status, but you don’t have to apply for citizenship if you don’t want to. 9) Ltd the tribunal examined in detail the various documents and correspondence related to the transactions, including the board minutes of the Jersey companies and the handwritten notes of an employee present at the board meetings. 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. 1 De Beers Consolidated Mines v Howe [1906] AC 445. The tribunal also found that where CMC abides is determined on a “scrutiny of the course of the business… informed by what had taken place immediately prior to incorporation” i.e. The three tax rates for companies in Guernsey are as follows: Company Standard Rate – 0%, income from businesses, offices and employments and other sources. A Guernsey tax resident company can be treated as non-resident for a particular year of charge if it is proved to the satisfaction of the Director of the Revenue Service that, in the year of charge: it is tax resident in another territory (“Territory A”) under … Criteria for Guernsey tax residence A company will be treated as tax resident in Guernsey in a year of charge (and as such, in-scope of the Substance Regulations), if: (a) it is controlled, or is centrally managed and controlled (generally where the directors meet and exert (a) he spends 91 days or more in Guernsey in that year of charge, or. Resident corporations are liable to tax on their worldwide income. Subject to the terms of the relevant DTT, a non-resident company will have a PE in the United Kingdom if: It is not intended as legal advice and should not be relied on as such. A company is resident in Guernsey in accordance with section 4 of the Law , when it is either controlled in Guernsey or incorporated in Guernsey and has not been granted an exemption from income tax for that For many Guernsey tax resident companies, the onset of the COVID-19 pandemic created difficulties in complying with economic substance requirements. Guernsey tax resident companies carrying out certain relevant activities have to comply with the substance requirements set out within the Income Tax (Substance Requirements) Implementation Regulations 2018 (as amended) (the … Guernsey, Channel Islands Corporate - Withholding taxes Last reviewed - 20 August 2020 Companies paying dividends to Guernsey resident individuals are required to deduct or account for the difference between the tax incurred by the company and the shareholder’s individual tax … New residents of Guernsey may be exempt from tax on dividends received from nonresident companies for the first two years of their residence in Guernsey, if certain conditions are met. Basis – Resident companies are taxed on a worldwide basis, while non-resident entities are subject to tax on their income derived from Guernsey.. Most recently, in the case of Development Securities (No. CMC is generally regarded as being the superior and directing authority of a company, rather than the day-to-day execution of the company’s business, although the two may often be vested in the same person or body of persons. Prior to 1 January 2019, a company would be regarded as Guernsey tax resident if it was incorporated in Guernsey or if it was controlled in Guernsey. Where the company’s articles vest the power to manage and control the company’s business in a particular body (typically the board of directors) it will normally be presumed that the company is centrally managed and controlled by that body unless the facts demonstrate the contrary. takes into account the tax planning arrangements of the UK plc. its tax residence in Territory A is not motivated by the avoidance of Guernsey tax. Rates– Guernsey residents are liable to tax at 20%. Guernsey company, as any other non-UK company, will be treated as being UK tax resident for a particular financial year if the “central management and control” (CMC) of that company is exercised within the UK during that financial year1. Please note that this briefing is intended to provide a very general overview of the matters to which it relates. The tribunal also considered that the Jersey directors had no evidence that they had considered the merits of acquiring the assets at an overvalue, and that as the overall arrangements had been decided by the UK parent in advance of establishing the Jersey subsidiaries, the strategic decisions of the Jersey companies to acquire the assets were really taken by the UK parent, and that in reality the Jersey directors were “simply administering a decision they had been instructed to undertake”. Corporations are subject to Guernsey tax on their Guernsey-source income, inheritance or tax. 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