Taxation of international executives
All information contained in this document is summarized by 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, based on the Income Tax (Guernsey) Law, 1975 and subsequent amendments; the Benefit Payment & Contributions Rates for 2019 no.50 leaflet; the Income Tax – States of Guernsey website; The States of Guernsey Income Tax Benefits in Kind, an explanatory guide.
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.
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?
What are the compliance requirements for tax returns in Guernsey?
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 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.
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.
For the purposes of taxation, how is an individual defined as a resident of Guernsey?
There are three classes of residence status in Guernsey:
An individual will be considered resident if they:
An individual considered to be resident will further be considered to be solely resident in Guernsey if they 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 they:
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/territory 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/territory before their assignment begins?
All midnights spent in Guernsey in the year count as days of residence regardless of the reason.
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 days 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 4 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.
Do the immigration authorities in your country/territory provide information to the local taxation authorities regarding when a person enters or leaves your country/territory?
Will an assignee have a filing requirement in the host country/territory after they leave the country/territory 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 they should notify the Director of Income Tax of their 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.
Do the taxation authorities in your country/territory adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in your country/territory 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.
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 they 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.
What categories are subject to income tax in general situations?
As a general rule, taxable compensation will include the following:
Intra-group statutory directors
Will a non-resident of Guernsey who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Guernsey) trigger a personal tax liability in Guernsey, even though no separate director's fee/remuneration is paid for their duties as a board member?
No, fees paid by Guernsey companies to non-resident directors are not subject to Guernsey tax.
a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Guernsey?
No, fees paid by Guernsey companies to non-resident directors are not subject to Guernsey tax.
b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Guernsey (i.e. as a general management fee where the duties rendered as a board member is included)?
No, fees paid by Guernsey companies to non-resident directors are not liable to Guernsey tax.
c) In the case that a tax liability is triggered, how will the taxable income be determined?
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:
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 their removal and re-establishment including expenditure incurred in respect of:
This also applies to similar expenditure incurred on leaving Guernsey.
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 benefit.
The first GBP13,750 (2018: GBP13,453) of a disturbance allowance is not taxable and does not need to be substantiated by actual expenditure in respect of the relocation.
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.
Are there any concessions made for expatriates in Guernsey?
No concessions apply in Guernsey.
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.
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 GBP130,000 as of 1 January 2019 (2018: GBP110,000), plus tax on Guernsey-source income at 20 percent, or alternatively a tax charge on worldwide income of GBP260,000 as of 1 January 2019 (2018: GBP220,000).
Capital gains tax does not apply in Guernsey.
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 GBP50 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 accrued.
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.
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.
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:|
|Solely or Principally resident||Y||N||N|
Such gains are capital in nature and are therefore generally not taxable in Guernsey.
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 are not tax relievable in Guernsey.
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 are not taxable in Guernsey.
Are there additional capital gains tax (CGT) issues in Guernsey? If so, please discuss?
There is no capital gains tax in Guernsey.
What are the general deductions from income allowed in Guernsey?
It is possible to deduct the following from the taxable income of Guernsey residents:
|Single person (aged 64+)||11,450||11,450|
|Married person (one spouse aged 64+)||22,450||21,950|
|Married person (both spouses aged 64+)||22,900||22,900|
As of the calendar year 2019, allowances and withdrawable deductions will be withdrawn for at a rate of GBP1 for every GBP5 that an individual’s income exceeds GBP100,000.
However, where the individual has made pension contributions during the year, they will still be eligible for a taxable deduction of the contribution made to a Retirement Annuity Allowances or Superannuation up to a limit of GBP1,000.
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.
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 Instalment 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 percent 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.
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.
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 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.
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.
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.
This calculation assumes a married taxpayer resident in Guernsey with two children whose 3-year assignment begins 1 January 2017 and ends 31 December 2019. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.2
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = GBP0.76.
|Days in Guernsey during year||365||365||365|
|Earned income subject to income tax|
|Net housing allowance||9,120||9,120||9,120|
|Moving expense reimbursement||0||0||0|
|Total earned income||124,165||127,965||124,165|
|Total taxable income||128,725||132,525||128,725|
|Deductions (personal allowances*)||20,000||21,000||0|
|Taxable income less allowances||108,725||111,525||128,725|
*Taxable income exceeded the GBP100,000 threshold for the Year of Charge 2019, resulting in the personal allowance for the year being tapered to GBPnil. Income in previous years did not exceed their respective thresholds and are therefore deductible in full.
Calculation of tax liability
|Taxable income less allowances as above||108,725||111,525||128,725|
|Guernsey tax thereon||21,745||22,305||25,745|
|Domestic tax rebates (dependent spouse rebate)||0||0||0|
|Foreign tax credits||0||0||0|
|Total Guernsey tax||21,745||22,305||25,745|
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.
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