Income Tax in Jersey
Personal Income Tax
Individuals who are resident and ordinarily resident in Jersey are liable to Jersey income tax on their worldwide income; however, individuals who are resident but not ordinarily resident in Jersey are taxed on Jersey-source income, and overseas income is subject to tax to the extent that it is remitted to Jersey.
A person who is not resident in Jersey is liable to Jersey income tax on Jersey-source income, except for some specific exemptions, including Jersey bank interest, interest received from a Jersey resident company, profits and earnings of the office of the director of a company, and dividends received from Jersey companies to the extent they are paid out of profits taxed at 0% on the company.
Personal income tax rates
Tax is payable at the rate of 20% on net income after allowances.
Alternative tax calculation
In Jersey, an alternative means of computing tax liability by reference to a marginal rate is undertaken automatically by the tax authorities. For the marginal rate calculation, the exemption limit is deducted from the taxpayer's income along with any relevant additions to the exemption limit, as listed in the Deductions section. Tax is then computed at the marginal rate of 26%. The taxpayer’s liability is based on the lower of the tax payable at the 20% rate and tax calculated using the marginal rate.
Taxation of wealthy immigrants
There has historically been a very attractive base for taxing the income of wealthy immigrants granted a housing licence under 1(1)(k) or 2(1)(e) of the relevant housing legislation. Even more attractive rates were introduced in July 2011. The later rules only apply to people receiving 1(1)(k)/2(1)(e) status after the new law came into force, although those who received consent under the former rules can elect into the 2011 regime, providing they meet certain criteria.
People who became 1(1)(k) residents before July 2011 are taxed on Jersey-source income at 20%, while non-Jersey-source income is taxed as follows: at 20% on the first 1 million pounds sterling (GBP), reducing to 10% on the next GBP 500,000, and 1% on the balance.
Under the rules introduced in 2011, there is no longer a distinction between the rates of tax charged on Jersey-source income and non-Jersey-source income. All Jersey property income will be subject to tax at 20%. For other income, the first GBP 625,000 is subject to tax at 20% and the balance at 1%.
With some simple pre-residence and fully disclosed planning, it is possible to restrict income tax liabilities to GBP 125,000 per annum.
In general terms, any of the following constitute residence status for tax purposes:
· Spending a period, or periods, equal in the whole to six months on the island in any one tax year.
· Maintaining a place of abode on the island, available for use, if the individual then stays there during the tax year.
· Visiting the island year on year for a substantial period or periods of time. The Jersey tax authorities would normally regard average annual visits of three months as 'substantial'.
The concept of ordinarily resident is related, inter alia, to the place where the person is habitually resident.
A resident and ordinarily resident individual is subject to Jersey income tax on the full amount of the emoluments received from one’s employment, including benefits in kind, and regardless of where the duties are performed. Special rules apply in the years of arrival and departure. Where a Jersey non-resident performs duties in Jersey, the emoluments attaching to these duties may be assessable in Jersey. However, non-resident directors are exempt from Jersey income tax on directors' fees.
There are rules relating to intermediary services vehicles (ISVs). These apply where a Jersey resident individual provides services to a client via a company and, were it not for the company, the individual would be considered an employee of the underlying client. In this situation, the company will be an ISV. The measures ‘look through’ the ISV and tax the individual as if they were receiving income directly from the client. The income is referred to as 'attributable earnings'.
The individual is able to deduct one’s remuneration, employer social security contributions, and any tax deductions one would normally be entitled to as an employee from one’s attributable earnings.
The proposals do not apply if the total income from clients in the ISV is less than GBP 45,000.
Capital gains are not subject to tax in Jersey.
Jersey residents are liable to Jersey income tax at a rate of 20% on their worldwide investment income, regardless of where that income arises. Non-residents are liable to Jersey income tax at a rate of 20% on their investment income arising in Jersey, subject to the concession that applies to bank interest.
Jersey distribution provisions
The definition of ‘distribution’ for Jersey tax purposes is very wide, encompassing almost any situation where a shareholder receives value from the company. It includes dividends, liquidations, share buybacks, repayments of loans made by shareholders to companies, transfers of assets from companies to shareholders, transfers of liabilities to companies etc.
However, repayment of loans made on a commercial basis to a trading company or a company within a trading group will not be regarded as a distribution.
Where a Jersey individual shareholder owns over 2% of the ordinary share capital of a Jersey company, the distribution is taxable. To the extent a distribution can be matched to the Jersey shareholder’s share of ‘specified profits’, this amount will be taxed on the individual with no tax credit (other than 10% company tax paid on profits). ‘Specified profits’ are, broadly, accumulated tax-adjusted profits from 2009 onwards not already taxed as dividends, deemed dividends, or attributed profits. This will include future profits as they arise.
Any amount of the distribution that cannot be matched with ‘specified profits’ will be treated as a ‘normal’ dividend and the treatment will follow the nature of the profits/reserves being distributed.
Note that there is an option to elect for a simplified alternative to treat all distributions as taxable.
Corporate Income Tax
Corporate income tax. Resident companies are subject to tax on their worldwide profits excluding capital gains.
In general, all companies incorporated in Jersey are considered resident. However, a company incorporated in Jersey is considered nonresident if the company’s business is centrally managed and controlled outside Jersey in a country or territory where the highest rate at which any company may be subject to tax on any part of its income is 10% or higher and if the company is tax resident in that country or territory. A company incorporated outside Jersey is regarded as Jersey resident if its business is managed and controlled in Jersey.
Rates of corporate income tax. Jersey has a general corporate income tax rate of 0% and a rate for certain regulated entities of 10%. Utility companies, companies in the business of importation and supply of oil to Jersey, and rental income, development profits and certain profits derived from Jersey land are subject to income tax at a rate of 20%.
Regulated entities subject to the 10% tax rate are certain financial services companies that are registered or hold a permit in accordance with various laws administered by the Jersey Financial Services Commission and operate through a permanent establishment in Jersey. These companies include the following:
· Entities carrying out banking business, trust business or investment business
· Fund administrators or custodians
The 10% rate applies to such financial services business conducted through a Jersey company or a branch.
Unless certain conditions are met, an agent or tenant must deduct tax at a rate of 20% before paying rent on a Jersey property to a nonresident landlord. International Business Companies. The International Business Company status was abolished, effective from 1 January 2012.
Exempt companies. Jersey’s former exempt company status was abolished, effective from the 2009 year of assessment. An alternative exemption regime for eligible investment schemes was introduced from 2010. However, because of the existence of the 0% tax rate, this regime is rarely used.
Capital gains. Jersey does not impose a tax on capital gains.
Administration. Corporate income tax returns must be filed by 6:00 p.m. on 31 December in the year following the year of assessment. A GBP250 penalty is imposed for a failure to file or the late filing of tax returns. Assessments are normally issued to taxpayers in the year following the income year (the Jersey fiscal year coincides with the calendar year), and tax is payable on the day following the date of the issuance of the assessment. A 10% surcharge is imposed if tax remains unpaid as of the deadline, which is 6:00 p.m. on the Friday following the first Monday in December in the year following the year of assessment.
The basis of assessment for trading is profits arising in the current accounting period. Although no statutory clearance mechanism exists, on specific request, the tax authorities provide advance rulings on the Jersey tax treatment of transactions.
Dividends. Dividends paid by Jersey resident companies may be deemed to be paid net of tax. The rate depends on the tax rate applicable to the profits from which the dividend was paid.
Effective from 1 January 2013, Jersey resident individuals who own more than 2% of a Jersey resident company whose profits are taxed at less than 20% are subject to tax on any value taken by them out of the company that is less than or equal to their share of specified profits. This applies to any distributions made on or after 1 January 2013. The definition of a distribution is quite broad. Before 2012, a deemed distribution regime applied.
European Union Savings Directive. From 1 January 2016, most European Union (EU) countries stopped exchanging information under the EU Savings Directive (EUSD). Jersey has notified the countries with which EUSD agreements were in place that the agreements have been suspended in preparation for the agreements to be terminated from 1 January 2017. The only exception is Austria.
Automatic exchange of information. Jersey has entered into intergovernmental agreements (IGAs) with the United Kingdom and the United States, and has also adopted the Common Reporting Standard (CRS). The UK IGA has been replaced by the CRS, but transitional rules apply. These transitional rules ensure that certain requirements set out under the UK IGA remain applicable.
Foreign tax relief. Jersey has entered into full double tax treaties with Cyprus (not yet in force), Estonia, Guernsey, the Hong Kong Special Administrative Region (SAR), Isle of Man, Luxembourg, Malta, Qatar, Rwanda, Seychelles, Singapore, the United Arab Emirates (not yet in force) and the United Kingdom. It has entered into limited treaties with Australia, Denmark, the Faroe Islands, Finland, France, Germany, Greenland, Iceland, New Zealand, Norway, Poland and Sweden. The arrangements with Guernsey and the United Kingdom give credit for tax on all sources of income, except that the treaty with the United Kingdom specifically excludes dividends and debenture interest.
Unilateral relief is granted for income not covered by a treaty, to the extent that foreign tax paid is allowed as a deduction in the computation of the amount assessable. Unilateral relief in the form of a tax credit may also be granted by concession if the following conditions are satisfied:
· The income in question is substantial.\
· The income would not otherwise come to Jersey.
· The income will be used to generate taxable profits, or it will help to overcome an obstacle to the restructuring or expansion of a commercial enterprise and accordingly result in the more efficient use of resources to the benefit of Jersey’s economy.
It is proposed that the above unilateral relief will be included in legislation, effective from 1 January 2017. Consequently, it will no longer be granted only by concession.
Jersey has entered into various tax information exchange agreements (TIEAs) and some limited double tax agreements (see above). The TIEAs provide for the exchange of information between tax authorities, on request, with respect to the tax position of resident persons. The limited double agreements provide for the allocation of taxing rights with respect to certain income derived by individuals and enterprises operating ships and aircraft in international traffic.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.