Guernsey is the second largest Channel Island after Jersey. It also enjoys a high degree of respectability in the world's financial circles. There are no political parties and the constitution dates back to 1205. It boasts one of the largest reinsurance markets in the world. The kommerciel law is constantly reveiwed and updated.

An International Company may qualify for tax exemption in Guernsey and yet be registered for VAT for European trading purposes and get the benefit of certain tax treaties. This may be very useful for companies trading within the EU. Bearer shares are not permitted and beneficial owners must be disclosed. The minimum capital duty is GBP 50 and the annual fees to the government are GBP 600. Registration can be accomplished within a week. Shelf companies are not available. Thecompanies' name must end with the word "Limited". Certain words, e.g. "Insurance", "Assurance", etc. require further approval.

Guernsey Abolish Corporation Tax Company Legislation

 

Corporation Tax Companies (CTCs) have existed in the Channel Islands of Guernsey, Jersey and Alderney since the 1930’s. Through September 1988 there were nearly 6,000 CTCs on Guernsey, 10.000 on Jersey, and another 195 on Alderney. CTCs could escape the Channel Island’s local 20% income tax in return for a fixed annual fee of £500. Such nonresident companies had to promise not to conduct business within the Island of registration and were required to be managed and controlled outside the jurisdiction.

 

During 1994 there were 3,370 new company formations – an increase of 10% over 1993. Approximately 60% of these new companies were formed for residents outside of Britain.

 

According to Richard Syvret, director of the FSD, Jersey is considering even more controls to screen out undesirables. One proposal is to regulate fiduciaries that form and administer companies and trusts, but this proposal is proving controversial in both Jersey, Guernsey and the other Channel Islands.

 

Guernsey’s 300 Captive Insurance Companies

 

In terms of statistics, Jersey can boast £22 billion pounds in collective investment funds, and £64 billion pounds are non-sterling bank accounts. While the figures for banking deposits alone don’t come close to the estimated $500 billion dollars in Cayman Islands banks, the numbers do represent a substantial amount when you include Guernsey’s bank deposits and investment funds.

 

Guernsey has 72 licensed banks with total deposits of £43 billion. More than ¾ of this total is in non-sterling currencies. Guernsey also celebrated the licensing of its 300^th captive insurance company in 1994.

 

The New Exempt Company

 

As from January 1, 1989 the old Corporation Tax Company Law has been repealed and a new vehicle – the exempt Company status the following conditions must be met.

Application for exempt status, together with payment of the exempt company tax of £500, must be made no later than March 31 in the year of assessment.
No resident of Jersey or Guernsey can have an interest in the company other than as a shareholder in, or debenture holder of, a body corporate, which:

(a)     has a beneficial interest in the company; and

(b)     is listed on a stock exchange.

disclosure of beneficial ownership must be made to the Commercial Relations Department to the satisfaction of that department.

 

Like the CTC, the exempt company provides a convenient tax-free vehicle for the private investment holding of stocks, bonds, real estate, private yachts, patent rights, etc.

 

Being classified as nonresident for tax purposes means that the following is true for exempt companies.

 

It pays no income tax on income arising outside the Island of registration.
It is not required to deduct Guernsey (or Jersey) income tax from payments of interest or dividends.
It does not have to make a return of income (except in the case of local bank deposit interest), and is not required to file accounts (except with respect to trade carried on through an established place of business).

 

Income Tax (Exempted Companies and Trusts)(Guernsey) Ordinance of 1984

 

Guernsey law provides that a company resident in Guernsey can be classified as exempt if it complies with certain other conditions, basically that it be a public investment company managed in Guernsey by nonresidents. Such companies pay an annual fee of £1,000 plus a separate annual fee of £300 (total £1,300) in lieu of income tax. Unit trusts and investment companies registered outside the C.I. and UK pay only a £1,000 annual fee. The Income Tax (Exempted Companies and Trusts)(Guernsey) Ordinance of 1984 sets out the conditions and procedural matters, which permit these resident companies and trusts to pay a fixed fee in place of local income tax at the 20% rate. As a restriction, these public Unit Trusts or investment companies may not have Guernsey participants.

 

Banking Intricacies and Oddities

 

If you incorporate in Jersey, bank interest earned on deposit in a Jersey bank will be taxable as “local income” at the 20% rate. Curiously, a Jersey company can avoid the 20% levy on its bank interest by keeping its bank deposits in a Guernsey bank. Guernsey bank interest is treated as “foreign source income” and is not held to be within the scope of the “local tax”. The situation works well in the reverse too, and a Guernsey company can receive bank interest from a Jersey bank without incurring a “local income tax liability.

 

Individual Tax Rates in the Channel Islands

 

Jersey (population 81,000), Guernsey (population 60,000) and Guernsey’s sister isle of Alderney impose a 20% income tax on resident individuals. Sark has no income taxes at either the corporate or individual level.

 

Allowances in Jersey permit a family with two children to pay no tax if their income is below £13,900 (about US$24,000). In Guernsey a married couple with two children and income of £12,000 a year will pay a net £512 in tax. This represents a 31.7% improvement on their 1988 tax situation.

 

In Guernsey gross revenue for the year is estimated at some £113 million, about 70% of which will come from income tax receipt. At these levels, each island’s government expects to produce annual surpluses to fund capital spending programs and to build large revenues.

 

Offshore Funds & Unit Trusts

 

There are about 450 funds holding assets of around £3.5 billion with Guernsey connections according to Nigel Taylor, Guernsey’s superintendent of investment business. Jersey has some 350 funds with assets of around £4 billion. Over 100 new offshore funds are expected to apply to the Guernsey Financial Services Commission and the SIB for authorization to market in the UK. This follows the granting of designated territory status by the UK to Jersey and the Isle of Man in 1986.

 

Business in the offshore tax haven of Guernsey is booming. The latest figures show that 123 funds authorized on the island of Guernsey at the end of 1989 were worth £2.56 billion and had 60,000 investors. Funds based in Guernsey and Jersey are free from attacks by the Inland Revenue. Profits accumulated and reinvested go untaxed to foreign investors, until remitted as a dividend or redemption – when they become taxable if the investor lives in a country that taxes foreign source income.

 

During the last three months of 1989, net new investment on Guernsey was £252,000,000, on sales of £512,000,000 and repurchases of £260,000,000.

 

Channel Island mutual funds and unit trust can trade the stocks of both UK, U.S. and Japanese issuers free from capital gains taxes.

 

Local Tax on Resident C.I. Companies

 

Companies that carry on business within their island of registration are required to pay a “local” income tax of 20% on their worldwide incomes.