Taxation of Funds

Guernsey

Taxation in Guernsey is the responsibility of the States of Guernsey Income Tax Authority and the principal legislation is contained in the Income Tax (Guernsey) Law, 1975 as extensively amended since 1975. Guernsey does not levy any form of capital gains tax, inheritance tax or value added tax either in respect of fund vehicles or investors in fund vehicles. The income tax position for fund vehicles is detailed below.

Unit Trusts

The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 as amended (Exempt Bodies Ordinance) provides that a body is exempt from income tax for any year of charge on its income (other than Guernsey source income excluding bank deposit interest) if it is a body of a description set out in Schedule 1 of the Ordinance, has applied for and been granted exemption and meets the conditions of eligibility set out in Schedule 2 of the Ordinance. Exemption has to be applied for annually and is subject to payment of a fee currently fixed at £1,200. Generally, unit trusts and any companies in their beneficial ownership fall within category A of Schedule 1 and the condition of eligibility are as follows:

  •  There must be an agreement in place with an appropriately licenced person resident in Guernsey for the provision of managerial and secretarial services (and where appropriate, custodian services) for remuneration calculated on an arm’s length basis.
  • There must be no investment in any property situate in Guernsey other than bank deposits or an interest in another exempt bodies or shares in a Guernsey company.
  • Guernsey residents are not precluded from investing in an exempt trust but in any such case the manager must notify the Tax Authority in the event that any Guernsey resident subscribes for units.

Companies

A company incorporated in Guernsey is treated as resident in Guernsey in any year of charge unless it has been granted exemption under the Exempt Bodies Ordinance. Generally, an investment company can seek exemption on similar conditions as set out above for a unit trust. It should be mentioned that the basic rate of income tax on company profits will be 0%. However, certain regulated businesses will be subject to income tax at 10%.

Limited Partnerships

A limited partnership, whether or not it has elected to have separate legal personality, is transparent for the purposes of Guernsey tax. There is no requirement for the partnership as such to make any returns or pay any fees to the States of Guernsey Income Tax Authority and it is the responsibility of each partner to determine whether he has any liability in Guernsey to tax. A limited partner who is resident in Guernsey, for Guernsey tax purposes is liable to income tax on his share of the profits of a limited partnership whether those profits are generated in Guernsey or elsewhere. A limited partner which is an individual who is not solely or principally resident in Guernsey or a company which is not resident in Guernsey is not liable to pay tax in Guernsey on any income derived from a limited partnership’s international operations, defined as business operations conducted on behalf of a limited partnership with, and investments made on behalf of a limited partnership in, persons who are not resident in Guernsey for the purposes of the Income Tax (Guernsey) Law, 1975.

Investor Transactions

Although no stamp duty or similar tax is payable on the issue, transfer or redemption of shares in a company, units of a unit trust or limited partnership interests, a Guernsey grant of probate or administration (each of which may incur ad valorem fees) may be required to deal with the shares, units or partnership interests of a deceased holder. Guernsey is free from all exchange control restrictions.

Double Taxation Agreements and Tax Information Exchange Agreements

Guernsey has also entered into a number of double taxation agreements and tax information exchange agreements and these are listed below but the list may be subject to change so please check the relevant websites for the latest list as well as additional information and related documents.

Double Taxation Agreements (The latest information can be found here)

Country Signed In force with effect from
Cyprus 15 + 29 July 2014
Hong Kong 28 March + 22 April 2013 5 December 2013
Isle of Man 24 January 2013 5 July 2013
Jersey 1955 1 January 1956
Jersey 2013 24 January 2013 9 July 2013
Liechtenstein 5 + 11 June 2014
Luxembourg 10 May 2013 8 August 2014
Malta 12 March 2012 10 March 2013
Mauritius 17 December 2013 30 June 2014
Monaco 7 April 2014
Qatar 22 February 2013 11 July 2013
Seychelles 27 January 2014
Singapore 6 February 2013 26 November 2013
United Kingdom (consolidated text) 1 January 1951

Partial DTAs

Country Signed In force with effect from
Australia 7 October 2009 24 August 2012
Denmark 28 October 2008 4 November 2009
Faroes 28 October 2008 15 January 2010
Finland 28 October 2008 11 November 2009
Greenland 28 October 2008 19 November 2010
Iceland 28 October 2008 26 November 2009
Ireland 26 March 2009 10 June 2010
Japan 6 December 2011 23 August 2013
New Zealand 21 July 2009 8 November 2010
Norway 28 October 2008 5 November 2009
Poland Individuals 8 October 2013 1 October 2014
Poland Shipping & Aircraft 8 October 2013
Sweden 28 October 2008 23 December 2009

Tax Information Exchange Agreements (http://www.gov.gg/tiea)

Country Signed In force with effect from
Argentina 22 & 28 July 2011 4 January 2012
Australia 7 October 2009 27 July 2010
Austria 14 May 2014 23 November 2014
Bahamas 29 July & 8 August 2011 28 March 2012
Belgium 25 April & 7 May 2014
Bermuda 19 September & 23 August 2013 5 April 2014
Botswana 10 May 2013
Brazil 6 February 2013
British Virgin Islands British
Virgin Islands Protocol
12 & 17 April 2013
25 November & 11 December 2014
11 November 2014
Canada 19 January 2011 18 January 2012
Cayman Islands 29 July 2011 5 April 2012
Chile 4 April & 24 September 2012
China 27 October 2010 17 August 2011
Costa Rica 5 March 2014
Czech Republic 15 September 2011 9 July 2012
Denmark 28 October 2008 6 June 2009
Faroes 28 October 2008 21 August 2009
Finland 28 October 2008 5 April 2009
France 24 March 2009 4 October 2010
Germany 26 March 2009 22 December 2010
Gibraltar 22 October 2013 12 March 2014
Greece 29 September & 8 October 2010 7 March 2014
Greenland 28 October 2008 25 April 2009
Hungary 11 September 2013 7 March 2014
Iceland 28 October 2008 26 November 2009
India 20 December 2011 11 June 2012
Indonesia 27 April 2011
Ireland 26 March 2009 10 June 2010
Italy 5 September 2012
Japan
Japan – extension of taxes covered by TIEA
6 December 2011 23 August 2013
Latvia 5 September 2012 4 October 2013
Lesotho 3 July 2013
Lithuania 20 June 2013 8 March 2014
Macao 3 September 2014
Mauritius 6 February 2013 5 July 2013
Mexico
Mexico – Economic Benefits
10 & 27 June 2011 24 March 2012
Montserrat 7 April & 19 May 2014
Netherlands 25 April 2008 11 April 2009
New Zealand 21 July 2009 8 November 2010
Norway 28 October 2008 8 October 2009
Poland 6 December 2011 1 November 2012
Portugal 9 July 2010
Romania 12 & 17 January 2011 22 January 2012
San Marino 29 September 2010 16 March 2011
Seychelles 20 December 2011 22 July 2012
Slovakia 22 October 2013 26 January 2015
Slovenia 26 September 2011 9 August 2012
South Africa
South Africa – extension of taxes covered by TIEA
21 February 2011 26 February 2012
St Kitts & Nevis 18 January & 7 February 2012 14 April 2013
Sweden 28 October 2008 23 December 2009
Swaziland 3 July & 30 August 2013
Switzerland 11 September 2013 14 October 2014
Turkey 13 March 2012
Turks & Caicos 24 April & 24 July 2014
United Kingdom
UK Exchange of Letters
20 January 2009
22 October 2013
27 November 2009
29 July 2014
United States of America
Protocol USA
19 September 2002
13 December 13
30 March 2006
Uruguay 2 July 2014

European Union Directive on the Taxation of Savings Income

Guernsey is not subject to the EU Savings Tax Directive (the “EUSTD”). However, the States of Guernsey has entered into bilateral agreements with the EU member states to give effect to certain objectives of the EUSTD.

Under a system of automatic exchange of information the details of payments of interest, or other similar income, made to an individual beneficial owner resident in an EU member state by a paying agent situated in Guernsey are communicated to the tax authorities of the EU member state in which the beneficial owner is resident (the terms ‘beneficial owner’ and ‘paying agent’ are defined in the EUSTD).

Under the terms of the bilateral agreements, interest payments may include distributions from, and the proceeds of, shares or units in a UCITS authorised in accordance with Directive 85/611/EEC (as amended) (the “UCITS Directive”) or an equivalent undertaking for collective investment established in Guernsey.

However, the guidance notes on the implementation of the bilateral agreements (issued by the States of Guernsey on 30 June 2005 and 1 July 2005) indicate that the EUSTD applies only to Class A schemes. Where any funds are outside this scope, any payments made will not be subject to the automatic exchange of information.

FATCA (More information can be found here)

The object of the US Foreign Tax Compliance Act (“FATCA”) regime is to require “foreign financial institutions” (“FFIs”) to report to the IRS US persons’ direct and indirect ownership of non-US financial accounts and non-US entities. An offshore investment fund will constitute a FFI for this purpose.

On 13 December 2013, the United States of America and the States of Guernsey entered into an intergovernmental agreement (“IGA”) relating to the automatic exchange of information with the US. An IGA has also been entered into between the United Kingdom and Guernsey on 22 October 2013, which has similar reporting requirements to the ones contemplated by the US IGA.

Guernsey (together with Jersey and the Isle of Man) have jointly released revised draft guidance notes dated 31 March 2014 (the “Guidance Notes”) relating to the automatic exchange of information with the UK and the US under the IGAs entered into in 2013 by each Crown Dependency, in order to improve international tax compliance and the implementation of US FATCA.

The revised Guidance Notes (on which the local finance industry has had the opportunity to comment) are intended to provide practical assistance to both business and the Crown Dependency staff who deal with entities affected by the UK and US IGAs and seek to clarify any areas of uncertainty as to the operation of the registration and reporting provisions set out in the UK and US IGAs.