Whilst the Minister has increased tax allowances and aimed to bridge a gap between certain demographics, he has also proposed a number of revenue raising measures requiring businesses and future High Value Residents to contribute a little more in light of the failed attempt to introduce the Health Charge.

A brief review of the main proposals in relation to tax is detailed below:

Business Tax Proposals

Taxation of larger corporate retailers

One of the main tax proposals is the introduction of legislation to tax the profits of “larger corporate retailers” at the rate of 20%, from the 2018 year of assessment. Key aspects of this proposal are as follows:

• A “large corporate retailer” will be a company that meets the following conditions:
  • 60% of its trading turnover is from retail sales to customers in Jersey; and
  • retail sales to customers in Jersey are equal to or greater than £2m per annum
• Where the taxable profits of a “large corporate retailer” are less than £500k per annum the company will be subject to tax at 0% on all of its profits.
• Where the taxable profits of a “large corporate retailer” are £750k or more, the company will be subject to tax at 20% on all of its profits.
• Where the taxable profits of a “large corporate retailer” are more than £500k but less than £750k per annum a tapering provision will apply.

KPMG comment: It is understood that this proposal will affect 20 companies (predominantly non-Jersey owned) and raise approximately £5.7 million per annum. One of the main reasons for not introducing this type of legislation previously was the concern that by doing so, it would undermine the zero/ten tax regime and fall foul of the EU Code of Conduct. This matter is especially relevant now given the EU Commission’s proposal to draw up a list of “uncooperative third countries” (the so called “EU blacklist”) which seeks to identify non-EU jurisdictions that do not abide by the concept of “Tax Good Governance” standards on tax transparency, fair taxation and anti BEPS measures.

However over the past few years, the Taxes Office has gathered sufficient financial information from Jersey companies, especially those that are subject to tax at 0%, to be confident that the introduction of this proposal would not undermine the zero-ten regime.
Thought now needs to be given in seeking possible ways of bringing some equity within the tax system by ensuring that large on-line retailers contribute to their fair share of tax in similar ways to bricks and mortar retailers.

Widening of definition of “financial services company”

Companies that fall within the definition of “financial services company” and operate in Jersey through a permanent establishment are subject to the 10% company income tax rate. A number of companies that undertake financial services activities fall outside that definition and hence are subject to the standard 0% company income tax rate. It is proposed that the definition of “financial services company” is widened from the 2018 year of assessment to include:

• Companies registered under the Financial Services (Jersey) Law 1998 to carry out general insurance mediation business (“GIMB”).
• Companies registered with the Jersey Financial Services Commission as a registrar.
• Companies holding permits under the Insurance Business (Jersey) Law 1996.
• “Finance companies” – companies trading in the provision of credit/finance to customers.

KPMG comment: The taxation of finance companies places Jersey in line with Guernsey in taxing such companies. It is important to note that it is only companies that operate through a permanent establishment in Jersey that will be caught. This ensures that debt funds and alike will continue to be subject to 0% tax. Furthermore, it is not expected that any company providing group funding will be caught, but we recommend that such companies should review their tax position in light of these changes.

Increase in ISE fees

The last change to the level of ISE fees was over six years ago and so the Minister is now proposing the following changes to the ISE regime from 2018:

• It is proposed that all ISE fees (with the exception of the fees charged for “vehicles administered” and certain fund vehicles) are increased by the June 2017 RPI figure so, for example, banks will now pay £58,000 and trust company business pay £9,350 for ISE status.
• Entities that are not entitled to claim ISE status by reference to their regulatory status can claim ISE status provided they meet a series of conditions; such entities are termed ‘other entities’. The fee payable by these ISEs will increase from £200 to £500.
• An entity that is solely regulated as an AIFSB (Alternative Investment Fund Services Business) will be charged a fee of £3,120.
• It is proposed that ISE Regulations are updated so that Alternative Investment Funds (“AIFs”) pay a specified ISE fee of £200, equivalent to the fee currently payable by Collective Investment Funds (“CIFs”).
• The ISE fee charged to “managed entities” which are registered exclusively as fund managers is increased so that it aligns with the fee payable by non-managed entities which are registered as fund managers of £3,120.

Personal Tax Proposals

Taxation of high value residents (“HVR”)

Following a review by KPMG of a number of competitive regimes in various jurisdictions, the Tax Policy Unit published last year a post-implementation review of the HVR regime. In the 2018 Budget the Minister proposes to bring forward the legislation in order to give effect to those recommendations, creating a new regime for those granted HVR status on or after 1 January 2018. The key aspects of the new regime are outlined below:

• An increase in the expected annual minimum income tax contribution to £145,000. This increased contribution will only apply to individuals applying for Jersey residency after 1 January 2018.
• An “income top-up” mechanism will be introduced to ensure that where a HVR has insufficient income to generate their expected income tax contribution, they will be deemed to receive income so that their tax liability is £145,000.
• The facility to access the income top up mechanism will also be available to existing HVRs on an election basis.
• The level of the expected annual minimum income tax contribution will be reviewed on a regular basis so as to ensure the tax contribution made by HVRs retains its value over time. It is proposed that the first review will be completed for 2023 and will take place every 5 years thereafter.

KPMG comment: Jersey has been very successful in the last few years in attracting HVRs to the Island. It is not believed that the increase in the minimum annual tax contribution will make Jersey any less attractive to the right applicant.

We also support the income top up mechanism and believe that this will ensure that all new HVRs pay their fair amount of tax.

Second earner’s allowance

In the 2017 Budget the Minister increased second earner’s allowance by £500 in order to narrow the tax benefit enjoyed by co-habiting couples and in the 2018 Budget the Minister proposes that the second earner’s allowance is increased by a further £850 so that the proposed married couple’s income tax exemption threshold plus the second earner’s allowance is equal to two single person’s income tax exemption thresholds.

Modernising Jersey’s system of personal taxation

The Taxes Office is continuing its review of the personal tax system with a view to modernising the current model.

There are two main aspects to the review. The first being the modelling tool that the Taxes Office use to analyse the impact of potential changes to the tax system both in terms of any ‘winners and losers’ taxpayers and the overall impact on States tax revenues. The second aspect being to engage with Islanders to obtain views on the equality of the current tax system and to find out the broad direction that people may prefer for taxing households, married or otherwise, in the future.

Findings will be published in the Budget 2019, with recommendations to be included in the Budget 2020.

KPMG comment: The Jersey income tax law provides a mechanism for married couples to be assessed separately. From latest available data, it is understood that only 400 couples take advantage of this option. We therefore believe that a household partnership system might be more appropriate for the Island but we would be interested to see the outcome of the consultation on this matter.

Deduction of rates by landlords renting property in Jersey

Following a Deputy Mezec’s amendment to last year’s Budget, legislation will be introduced to disallow property rates (i.e. foncier rate, occupier rate and Island-wide rate) when calculating the amount of rental income on which they pay tax.

Tax rules applying to pensions and pension schemes

The Minister proposes a number of minor changes to the tax rules applying to pensions and pension schemes including:

• greater flexibility in the transfer of funds between schemes;
• targeted anti-avoidance provisions in respect of individuals transferring funds to an overseas scheme; and
• increased flexibility to withdraw a higher proportion of funds from small pension pots.
  

Other Tax Proposals

Stamp Duty anti-avoidance

Unlike other revenue raising laws there is currently no anti-avoidance rule within the Stamp Duty Law. The Minister proposes to introduce such a general anti-avoidance rule into the Stamp Duty Law.

Benefits in Kind (BIK) consultation

A public consultation on potential changes to the future taxation of benefits in kind will be launched before the 2018 Budget is debated.

Review of interest tax relief

The Tax Policy Unit will issue a technical issues paper on the future tax deductibility of interest in the context of business activity before the end of 2017.

Revenue Administration Law

In March 2017 the Taxes Office released a consultation document on proposed changes to the Island tax compliance framework13. The consultation document covered a number of issues, including the introduction of a range of civil penalties to be levied by the Comptroller of Taxes. A summary of responses to that consultation document will be published shortly, which will outline the direction of travel on the key issues.

If you have any queries in relation to any of the points outlined above, please do not hesitate to get in touch with your usual KPMG contact.