Tax_and_substance_in_Guernsey

Guernsey Economic Substance Requirements

To establish if the Guernsey economic substance requirements (the "Economic Substance Requirements") may apply to any specific entity for an accounting period commencing on or after 1 January 2019 ("relevant period"), please answer the questions in the panel below.

This tool has been developed in response to The Income Tax (Substance Requirements) (Implementation) Regulations, 2018, as amended, which came into force on 1 January 2019 (the "Regulations"), as well as the related key aspects guidance published on 21 December 2018 and the more detailed guidance published on 26 April 2019. This tool incorporates amendments to the Regulations that were made with effect from 1 August 2019. This tool is subject to any changes, further guidance, the form of tax return and any supporting legislation being published.

It is intended only to be used as a quick reference guide and not as a substitute for professional advice. For advice on any specific circumstances, please contact a member of our Guernsey taxation and economic substance team.

Is the entity a company?

Is that company tax resident in Guernsey?

A company is tax resident in Guernsey where it is either:

  1. incorporated in Guernsey, unless:
    • it satisfies the Director of the Revenue Service that it is (i) tax resident in another territory (Territory A) under Territory A's laws, (ii) has its business centrally managed and controlled in Territory A, (iii) either Territory A's highest rate of corporate income tax or corporation tax is at least 10% or Territory A and Guernsey are parties to a double tax agreement that treats the company as being tax resident in Territory A and not Guernsey, and (iv) the company's tax residence in Territory A is not motivated by the avoidance of Guernsey tax; or
    • it has exempt status - exempt status is, broadly, available to collective investment schemes and certain entities connected with collective investment schemes and must be applied for annually; or
  2. incorporated outside of Guernsey but its business is centrally managed and controlled in Guernsey (control here is broadly, director control) or it is ultimately directly or indirectly controlled by one or more Guernsey resident individuals (control here is, broadly, shareholder control).

Companies that fall outside the above, such as those incorporated in Guernsey but tax resident in the UK, should therefore be outside the scope of the Economic Substance Requirements (note that Guernsey incorporated companies must obtain a declaration of non-residence to be treated as non-Guernsey resident).

A company falling within the above will be a "resident company" for the purposes of the Regulations. Note that exempt companies that fall outside the above may still be subject to Economic Substance Requirements. For exempt companies, please select 'no' from the answers below.

Does that company have exempt status?

A company has exempt status where it has applied for and obtained exempt status in respect of the relevant tax year under any of the following paragraphs:

1. a collective investment vehicle established in Guernsey;

2. a collective investment vehicle established in any place outside Guernsey;

3. an entity established in Guernsey or elsewhere solely for the purposes of:

  • the management of a specific collective investment vehicle described in paragraph 1 or 2;
  • enabling investment into a specific collective investment vehicle described in paragraph 1 or 2;
  • the acquisition or the management of the assets of a specific collective investment vehicle described in paragraph 1 or 2; or
  • facilitating the funding of, or borrowing by, a specific collective investment vehicle described in paragraph 1 or 2 for the acquisition of its assets;

4. an entity not covered by paragraphs 1, 2 or 3, established for the purposes of undertaking collective investment in which the units are listed on an exchange or market approved by the Director of the Revenue for the purpose of the exemption legislation; or

5. a company which is in the beneficial ownership or which is a wholly owned subsidiary of such an entity, but only to the extent that the subsidiary company does not have income taxable in Guernsey are the 10% or 20% tax rates.

Does that company have exempt status under either paragraph 3 or paragraph 5 set out in the preceding question?

A company falling within paragraph 3 or paragraph 5 above will be treated as if it was a "resident company" for the purposes of the Regulations.

In the relevant accounting period, has that Guernsey resident company conducted any "relevant activity" or been an IP company?

Note that if the Guernsey resident company is a partner in a partnership or a member of an LLP the partnership/LLP activities may be attributed to it for these purposes.

Click the boxes below for a summary definition of each "relevant activity" and a summary definition of an IP company.

  • BANKING

    "Banking" means a deposit-taking business within the meaning of the Banking Supervision (Bailiwick of Guernsey) Law, 1994, as amended, carried on by a licensed institution under that law.

  • DISTRIBUTION AND SERVICE CENTRE

    "Distribution and service centre" means a business whose sole or main activity is (1) purchasing raw materials and finished products from non-Guernsey resident group members and re-selling them for a percentage of profits, or (2) the provision of services to non-Guernsey resident group members (any activities falling within the other definitions of relevant activities are excluded).

  • FINANCING AND LEASING

    "Financing and leasing" means the provision of credit facilities of any kind by an originator or assignee for consideration, including interest, to a customer, which can include credit by instalments, hire purchase, finance leasing (excluding land and interests in land) and conditional sale or credit sale (any activities falling within the definitions of banking, insurance or fund management are excluded). Please note that this definition will cover Guernsey resident companies making intra-group loans if such loans are interest-bearing.

  • FUND MANAGEMENT

    "Fund management" is a technical definition and specific advice should be sought. In summary though, it means "management" within the meaning of the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, when carried on by a licensee under that law in connection with a collective investment scheme within the meaning of that law.

  • HEADQUARTERING

    "Headquartering" means the provision of certain intra-group services to a non-Guernsey resident group member, being the provision of senior management, the assumption or control of material risk for activities carried out by, or assets owned by, any of those intra group persons, and the provision of substantive advice in relation to the assumption or control of risk for such activities or assets (any activities falling within the other definitions of relevant activities and IP holding activities are excluded).

  • INSURANCE

    "Insurance" means insurance business within the meaning of the Insurance Business (Bailiwick of Guernsey) Law, 2002 carried on by a licensee under that law.

  • SHIPPING BUSINESS

    "Shipping business" means the operation of ships in international traffic for income from the transport of passengers or cargo, and includes chartering, ticket sales, the use, maintenance or rental of containers (including trailers and related transport equipment) and crew management. There are exclusions for fishing vessels, sport or recreational craft, harbour craft and certain small ships.

  • IP COMPANY

    "IP company" means a Guernsey resident company that derives income from intellectual property assets,including an intellectual property right, design right, trademark, brand, patent and similar asset.

Has that "relevant activity" or IP activity generated gross income in the relevant period?

Is the company a pure equity holding company?

A "pure equity holding company" means a holding company for Guernsey company law purposes that has as its primary function the acquisition and holding of shares or equitable interests in other companies and which carries on no commercial activity. It should therefore apply to Guernsey resident companies that hold controlling interests in one or more other companies and do not actively carry on any other business.

Has the holding company activity generated gross income in the relevant period?

Is the company a "high risk" IP company?

A "high risk IP company" means an IP company that holds intellectual property which it did not create, licences that intellectual property to one or more non-Guernsey resident intra group persons or otherwise generates income from the intellectual property in consequence of activities (such as facilitating sale agreements) performed by non-Guernsey resident intra group persons, and it acquired the intellectual property either intra-group or in consideration of funding research and development by another person situated in a territory outside Guernsey.