14 January 2019

Guernsey substance requirements update – foundations

Amendments to Guernsey's new substance regulations, which came into effect on 1 January 2019, have provided much needed clarity regarding the treatment of Guernsey foundations under the new legislation and have confirmed that they are outside the scope of the new substance requirements.

When the new substance requirements legislation was first introduced, trusts and partnerships were outside the scope of the new requirements and companies were in scope. However, the position of foundations was not clear, owing to the fact that Guernsey's Revenue Service take the view that a foundation falls within the definition of a company for tax purposes. On this basis, foundations were also potentially within scope of the new substance requirements.

As a result of this being brought to the attention of the Revenue Service, further amendments have been made to the regulations introducing the new substance requirements.  This was achieved by The Income Tax (Substance Requirements) (Implementation) (Amendment) Regulations, 2018, which now expressly excludes Guernsey foundations from the new substance requirements with effect from 1 January 2019. The exemption also extends to equivalent bodies created under the law of any other jurisdiction (however named).

Carey Olsen counsel Laila Arstall said: "The clarification is to be welcomed. The amendment makes it absolutely clear that foundations are now rightly considered as an entity that will not be subject to the substance requirements."

For further information on Guernsey's new substance requirements and related changes to corporate tax residence rules, please refer to the following Carey Olsen briefings: