Guernsey - Income Tax

Income Tax

Taxation of international executives

Related content

All income tax information is based on the Income Tax (Guernsey) Law, 1975 and is summarized by KPMG Channel Islands Limited, the Channel Islands member of KPMG International.

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

The filing deadline for returns is 30 November following the end of the tax year. The tax office has the power to impose late filing penalties on returns outstanding after this date. An individual chargeable to income tax who has not received a return should notify the local tax authority by 14 July in the year following the taxable year.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Guernsey?

Residents

Guernsey resident employers and permanent establishments of non-residents employers are required to make withholdings on taxable income paid to their employees. For Guernsey resident employees, the amount of withholding tax is determined by reference to the deductions and personal allowances to which the individual is entitled. Taxable remuneration in-kind is normally subject to withholding. For a non-Guernsey resident, withholding is made at 20 percent, although if duties of the employment are performed wholly outside Guernsey, the tax authorities will usually agree to no withholding being applied (the income in these circumstances is not then regarded as Guernsey-sourced).

Deductions from earnings are made according to a coding notice, which should be obtained for each employee from the Director of Income Tax. If the employer does not hold a coding notice, 20 percent tax should be deducted. Generally any tax deducted must be paid to the tax office together with associated returns by the 15th of the month following the end of the quarter, i.e. 15 April, 15 July, 15 October, and 15 January.

Penalties apply in respect of non-compliance.

Non-residents

Non-residents usually are not required to file tax returns. In general, sufficient tax will have been withheld from Guernsey-sourced income and no further compliance is required.

However, in the case of employment income of a non-resident, where the majority of the duties have been performed outside Guernsey, it will be necessary to file a return in the same way as a principally resident individual, in order to ensure that only the proportion of income earned in respect of duties performed in Guernsey, is subjected to Guernsey income tax.

Tax rates

What are the current income tax rates for residents and non-residents in Guernsey?

Residents and non-residents

There is only one rate of tax for individuals in Guernsey, which is 20 percent.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Guernsey?

There are three classes of residence status in Guernsey:

  • resident, but not solely or principally resident
  • solely resident
  • principally resident.

An individual will be considered resident if he/she:

  • spends 91 days or more in Guernsey in the year or
  • spends 35 days or more in Guernsey in the year having spent 365 days or more in Guernsey over the 4 preceding years.

An individual considered to be resident will further be considered to be solely resident in Guernsey if he/she does not spend 91 days or more in any other jurisdiction.

An individual considered to be resident will further be considered to be principally resident in Guernsey if he/she:

  • spent 182 days or more in Guernsey in that year
  • spent 730 days or more in Guernsey over the four preceding years or
  • is considered to be resident as defined earlier and in the following year is also considered to be either solely or principally resident as defined above.

A day should be counted only if the individual is in Guernsey at midnight at the end of the day in question.

Is there a de minimis number of days rule when it comes to residence start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate

All midnights spent in Guernsey in the year count as days of residence regardless of the reason.

What if the assignee enters the country before their assignment begins?

All midnights spent in Guernsey in the year count as  days of residence regardless of the reason.

Termination of residence

Are there any tax compliance requirements when leaving Guernsey?

There is a checklist on leaving Guernsey form which is requested but not mandatory.

What if the assignee comes back for a trip after residency has terminated?

All midnights spent in Guernsey in the year count as a day of residence regardless of the reason and irrespective of any period spent outside Guernsey after a secondment ends. As set out in the residence rules, it is possible to become resident after spending only 35 midnights in Guernsey in a year if, in the previous four years, total midnights in Guernsey amounted to 365 or more. A return to Guernsey may negate a potential claim made on the basis that the individual permanently left Guernsey

Communication between immigration and taxation authorities

Do the immigration authorities in your country provide information to the local taxation authorities regarding when a person enters or leaves your country?

No.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

Yes. An individual who is liable to pay Guernsey tax will generally be issued with a return shortly after the end of the year, which should be completed and filed as previously described. Furthermore, if an individual is liable to pay Guernsey tax, but does not receive either a return or a notice to complete a return by 30 June following the end of the year in which the income was earned, then he/she should notify the Director of Income Tax of his/her liability to Guernsey income tax within 14 days thereafter. In some instances where a departing individual has completed a Leaving Guernsey form the Director of Income Tax will issue a Final Assessment for the year in question without requiring a tax return to be submitted, but only in very simple cases.

Note, also, that some non-resident individuals will not necessarily be required to complete a tax return, if the Guernsey tax withheld at source from their income, is sufficient to cover the tax liability arising in the year.

Economic employer approach

Do the taxation authorities in your country adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in your country considering the adoption of this interpretation of economic employer in the future?1

No, Guernsey do not adopt the economic employer approach. Typically an employee is liable to Guernsey income tax based on income earned in respect of duties performed in Guernsey.

De minimis number of days

Are there a de minimis number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimis number of days?1

By concession and in the absence of a double tax treaty, if an individual is seconded to Guernsey for 90 days or less in the year of charge and continues to be remunerated by the overseas employer, then he/she will not be liable to Guernsey income tax on that income. However, if a recharge is made by the Guernsey employer, then those costs are not allowable as a tax deductible expense in the hands of the Guernsey employer.

Types of taxable compensation

What categories are subject to income tax in general situations?

As a general rule, taxable compensation will include the following:

  • income from wages and salaries
  • cost-of-living allowances
  • accommodation allowance
  • car allowance
  • unsubstantiated moving expenses
  • home leave
  • employer provided domestic assistance
  • grant of share options (the taxable value normally being the market value of the shares at the date the option is granted less amounts contributed by the employee).

Tax-exempt income

Are there any areas of income that are exempt from taxation in Guernsey? If so, please provide a general definition of these areas.

The following items are exempt from Guernsey income tax:

  • substantiated moving expenses
  • contributions to group medical insurance schemes
  • up to GBP13,453 of a disturbance allowance
  • the first chargeable GBP450 of benefits in kind (other than motor vehicles/accommodation/cash equivalents/shares)
  • employer’s contributions to an approved occupational pension scheme or to an approved retirement annuity trust.

Substantiated moving expenses

Payment by an employer of actual reasonable expenditure incurred in relation to an employee newly recruited or transferred to Guernsey, from a place outside Guernsey, in his/her removal and re-establishment including expenditure incurred in respect of:

  • removal to Guernsey of household furniture and effects including motor vehicles
  • storage of household furniture and effects including motor vehicles for up to 12 months
  • estate agents fees, legal fees, taxes, and duties incurred in respect of the purchase of a dwelling in Guernsey and the disposal of a dwelling outside Guernsey which the employee owned and occupied immediately prior to his/her move to Guernsey.

This also applies to similar expenditure incurred on leaving Guernsey.

Contributions to medical insurance and life assurance schemes

Payment by an employer of premiums in respect of group medical insurance cover does not constitute a benefit-in-kind; individual arrangements are not exempted, and critical illness cover is also not an exempt benefit.

Payment by an employer of premiums for group or individual medical or life assurance premiums specifically in respect of business travel is also an exempt benefits.

Disturbance allowance

The first GBP13,453 of a disturbance allowance is not taxable and does not need to be substantiated by actual expenditure in respect of the relocation.

Benefits in kind

The first GBP450 of total chargeable benefits in kind is exempt from tax, benefits in respect of accommodation and motor vehicles do not form part of the GBP450 exemption.

Expatriate concessions

Are there any concessions made for expatriates in Guernsey?

No concessions apply in Guernsey.

Salary earned from working abroad

Is salary earned from working abroad taxed in Guernsey? If so, how?

Individuals resident and principally resident in Guernsey are taxed on worldwide income and hence any foreign earnings are taxable in Guernsey. Individuals who are resident but not solely or principally resident in Guernsey are subject to tax on their worldwide income unless they elect to pay tax at 20 percent on their Guernsey-source income, subject to a GBP30,000 (minimum) charge.

Non Guernsey resident individuals and individuals who are resident but not solely or principally resident who come to Guernsey for the purposes of employment will not be subject to tax on non  Guernsey sourced income as long as it is not remitted to Guernsey.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Guernsey?

If so, how?Individuals resident and either solely or principally resident in Guernsey are taxable on their worldwide investment income, subject to an overall cap on non-Guernsey source income of GBP110,000, plus tax on Guernsey-source income at 20 percent, or alternatively a tax charge on worldwide income of GBP220,000.Capital gains tax does not apply in Guernsey.

Dividends, interest, and rental income

Individuals resident and principally resident in Guernsey are taxable on dividends and interest in the year in which the income is paid though the first £50 of bank interest received in a year (regardless of where the account is held) is exempt from tax.

Rental income is taxable in the year in which it is paid.

Guernsey property rental income is taxable net of certain statutory percentage deductions for repairs and actual deduction of some other expenses, dependent on the use and lease terms of the property.

Rental income from non-Guernsey property is generally taxable net of all related expenditure.

Gains from stock option exercises

Where shares are acquired on behalf of, or are allocated to participating employees, or an option is granted enabling employees to acquire shares at a discount, the taxation position is as follows.

A taxable event occurs when the shares are acquired or the option is granted

The amount taxable is the market value on the date of the allocation or grant, less any amounts contributed by the employee.

Any further gains are not taxable unless the employee is considered to be trading in shares.

In the event that the option is never exercised, the assessment is reduced accordingly.

In certain cases it is possible by concession for the point at which tax is payable to be deferred to the date of vesting, subject to certain terms being met; in such cases the vesting period must not exceed 3 years and the prior approval of the Director of Income Tax must be sought.

Residency Status   Taxable at:  
  Grant Vest Exercise
Resident Y N N
Non-Resident Y N N
Solely or Principally resident Y N N

Foreign exchange gains and losses

Such gains are capital in nature and are therefore generally not taxable in Guernsey.

Principal residence gains and losses

Capital gains are not taxable.

Losses on sale of property are not tax relievable in any way, unless the loss is made as part of a property development trade.

Capital losses

Capital losses are not tax relievable in Guernsey.

Personal use items

Personal use of employer’s assets is treated as a benefit in kind, unless special rates apply to the asset, the assessable value is 20 percent of the market value of the asset at the start of the year, the benefit is prorated in the case of partial availability in the year.

Gifts

Gifts are not taxable in Guernsey.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Guernsey? If so, please discuss?

There is no capital gains tax in Guernsey.

General deductions from income

What are the general deductions from income allowed in Guernsey?

It is possible to deduct the following from the taxable income of Guernsey residents:

  • business-related expenses
  • certain interest payments
  • approved pension contributions
  • certain charitable contributions
Additionally, resident taxpayers are entitled to a personal allowance to reflect their individual circumstances, as follows.
GBP 

 Single person   9,675
 Single person (aged 64+)   11,450 
 Married couple  19,350
 Married person (one spouse aged 64+)  21,125
 Married person (both spouses aged 64+)   22,900

Tax reimbursements methods

What are the tax reimbursement methods generally used by employers in Guernsey?

Generally, employers increase the employee’s pay if they effectively intend to pay the tax liability for an employee. Excluding the tax reducing effects of any personal allowances to which the employee may be entitled, any salary payment made by the employer should be grossed-up 100/80 before being paid to the employee.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Guernsey? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Guernsey income tax and Guernsey social security are administered by entirely separate departments and operated under separate legislation.

In respect of income tax withholding, Guernsey-based employers must operate the Employees Tax Installments Scheme (ETI). A coding notice is issued by the income tax department for each registered individual working in Guernsey. A copy of the coding notice is sent automatically to the employer and employee before the start of the tax year, based on the most recent information available to the income tax department.

The coding notice details a tax-free monthly and weekly numerical allowance comprised of personal and other allowances. Tax is deducted at 20% of gross pay less this allowance.

In respect of social security contributions, employers with Guernsey-based staff must make the appropriate deductions from gross pay in accordance with the social security classification of the individual.

Pay-as-you-go (PAYG) withholding

Withholding of income tax and social security is made from an employee’s salary on a weekly or monthly basis dependent on the method of pay.

PAYG instalments

Accumulated monthly payments and summary reports are remitted to the income tax and social security departments by 15th of the month following the end of the calendar quarter. Employers with 80 or more  of Guernsey-based staff are required to pay in monthly instalments.

When are estimates/prepayments/withholding of tax due in Guernsey? For example, monthly, annually, both, and so on.

In respect of payments made to non-residents (excluding payments under the ETI scheme), withholding tax should be deducted at the time the payment is made. Remittance of the tax withheld should be made shortly after, although there is no specific remittance deadline.

In respect of assessments estimated in advance, the tax due for the year is payable in two equal instalments on 30 June and 31 December in the year. Balancing payments on final assessments are due 30 days after the date of the assessment.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Guernsey? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Guernsey has double tax agreements with a number of jurisdictions. The UK and Jersey agreements provide for double tax credits, whereas other more recent arrangements focus on taxing rights in a single jurisdiction. Where no double tax arrangements exist with a jurisdiction, a credit is available at the lower of three quarters of the effective rate of Guernsey income tax and the foreign tax suffered.

General tax credits

What are the general tax credits that may be claimed in Guernsey? Please list below.

While Guernsey has no tax credits system in name, the following can be claimed against the taxpayer’s assessable income.

  • Dependant relative allowance - where the claimant’s child receives higher education and is not in receipt of income exceeding GBP6,550 – an allowance of GBP3,125.
  • Charge of children allowance - where claimant is single and is not cohabiting and is in receipt of family allowance (a tax-free payment from the Guernsey social security department) - an allowance of GBP6,550.
  • Retirement annuity allowance - where the claimant makes a contribution to an approved retirement annuity scheme, contributions paid within certain limits.

Sample tax calculation

This calculation assumes a married taxpayer resident in Guernsey with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is US dollar (USD)100,000 and the calculation covers three years.2

  2014USD 2015USD 2016USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 18,375 18,375 18,375
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = GBP0.61.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Guernsey.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.
Calculation of taxable income
Year-ended

2014

GBP

2015

GBP

2016

GBP

Days in Guernsey during year  365  365  365
Earned income subject to income tax       
Salary  61,000  61,000  61,000
Bonus  12,200  12,200  12,200
Cost-of-living allowance  6,100  6,100  6,100
Net housing allowance  7,320  7,320  7,320
Company car  11,210  11,210  11,210
Moving expense reimbursement  0  0  0
Home leave   0  3,050  0
Education allowance  1,830  1,830  1,830
Total earned income  99,660  102,710  99,660
Other income  3,660  3,660  3,660
Total taxable income  103,320  106,370  103,320
Deductions (personal allowances)  19,350 19,350  19,350
Taxable income less allowances  83,970  87,020  83,970

Calculation of tax liability

 

2014

GBP

2015

GBP

2016

GBP

Taxable income less allowances as above  83,970 87,020 83,970
Guernsey tax thereon 16,794 17,404 16,794
Less:      
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Guernsey tax 16,794 17,404 16,794

 

1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2Sample calculation based on the Income Tax (Guernsey) Law, 1975 and generated by KPMG Channel Islands Limited, the Channel Islands member of KPMG International.

© 2016 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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