What you need to know about Company annual tax returns in Guernsey right now
There have been significant changes to the Guernsey company tax rules over the past few years. These changes not only affect companies already subject to Guernsey tax but also bring many companies into the Guernsey tax regime.
Before 1 January 2019, companies were considered to be tax resident in Guernsey only if they were incorporated in Guernsey or if most of the company’s ‘beneficial members’ such as shareholders and loan creditors, resided in Guernsey. The exception to this was if a company held tax-exempt status and paid an annual fee.
Unlike residency rules in many other jurisdictions, companies incorporated outside of Guernsey but managed and controlled in Guernsey were not considered Guernsey tax resident.
If a company is managed and controlled in another jurisdiction with a company tax rate of at least 10%, it 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. This means a company incorporated in Guernsey may not necessarily now be tax resident there.
A company incorporated outside Guernsey is now tax resident in Guernsey if it is centrally managed and controlled there. For example, a British Virgin Islands (BVI) company with Guernsey directors but no Guernsey shareholders. This brings Guernsey in line with corporate tax residence rules elsewhere, such as the UK.
Company Directors should be aware of the requirement to register with the Guernsey Revenue Service and complete annual tax returns and associated tax computations, as necessary.
Guernsey has economic substance requirements that apply for accounting periods starting after 31 December 2018. All Guernsey resident companies have to establish whether they receive any income from ‘relevant activities’ listed in the new legislation (including banking, insurance and fund management).
Companies that receive income from these relevant activities must ensure they meet specific economic substance requirements, including:
being directed and managed in Guernsey;
conducting core income-generating activities in Guernsey (outsourcing is possible);
having adequate people, premises and expenditure in Guernsey.
The annual Guernsey company tax return contains a section relating to economic substance. The questions in this section are designed to identify which companies need to meet economic substance requirements and whether they are being met. Companies not complying with the requirements will be subject to sanctions including financial penalties and ultimately leading to strike-off.
Please note that this article intends to provide some insight into the Company annual tax returns. If you would like advice on this matter, please get in touch with us at Cannon.