Tax Guide for US Expats Living and Working in Guernsey, Channel Islands
Who Is Liable For Income Taxes In Guernsey, Channel Islands
An individual who is solely resident or principally resident in Guernsey is subject to Guernsey income tax on worldwide income. An individual who is resident but not principally or solely resident in Guernsey is subject to tax on Guernsey-source income and on remittances of income to Guernsey.
An individual is considered resident in Guernsey in any fiscal year, which is the calendar year, if he or she satisfies either of the following conditions:
- He or she spends more than 91 days in Guernsey in that year.
- He or she spends more than 35 days in Guernsey in that year and has spent 365 days or more in Guernsey in the preceding four years.
An individual is treated as solely resident if in a fiscal year he or she is resident in Guernsey and not resident elsewhere. A person is considered resident elsewhere if he or she spends 91 or more days in that place.
An individual is considered principally resident in Guernsey if any of the following conditions are satisfied:
- In a fiscal year, he or she spends 182 days or more in Guernsey.
- In a fiscal year, he or she spends 91 days in Guernsey, and during the four preceding years he or she spent more than 730 days in Guernsey.
- Guernsey is considered his or her permanent home.
Income subject to tax
Employment income. Taxable employment income includes salaries, wages, bonuses, gratuities, benefits in kind, directors’ fees and pensions.
Wages and salaries paid by Guernsey resident companies to non-resident employees whose duties are carried on outside Guernsey are exempt from Guernsey income tax.
Benefits in kind are taxed as part of payroll and are subject to social security contributions and Employees Tax Installment (ETI) payroll tax deductions (unless insufficient cash from which to deduct the tax is available). An annual exemption of £450 applying to taxable benefits provided to an employee (excluding motor vehicles and accommodation) is taken into account by the employer on a prorated monthly basis.
The tax-exempt limit for redundancy payments is £30,000. A payment in lieu of notice is not considered to be a termination payment and is taxable in full. The excess over the £30,000 exemption is subject to ETI Scheme deductions (see Section D).
Self-employment and business income. All self-employed persons carrying on a trade, business or profession in Guernsey or partly in Guernsey are subject to income tax.
Taxable income consists of accounting profits subject to certain adjustments.
Investment income. Dividends, interest, royalties and income from the rental of real property are included in taxable income and taxed at a rate of 20%.
The income from investment companies that are owned by Guernsey resident individuals is generally subject to tax and social security in the hands of the individual.
Interest payable by Guernsey banks to nonresidents is exempt from Guernsey income tax.
Deemed distributions. Changes to the Guernsey company tax regime, which also affect the taxation of individuals, took effect on 1 January 2008. These changes include a reduction in the general rate of income tax paid by all Guernsey companies (except for specified types of regulated banking business and property) to 0%. As a result of the 0% tax rate, Guernsey resident shareholders are taxable on distributions received from Guernsey companies. Nonresident shareholders are not taxable. This includes investment income, which is deemed as taxable to the shareholder in the year in which it arises, rather than in the year in which it is distributed.
Deminimis levels of income apply and are different for trading and investment companies. The company must pay the tax on behalf of the shareholders.
Loans to shareholders are also taxable, with the company paying tax on the grossed-up amount of the loan when the loan is made.
The company taxation system is again under review and may be subject to change.
Taxation of employer-provided stock options. Any discount on the market value at the grant of a stock option is taxable in full in the year of the grant, regardless of whether the stock option is ever exercised. If it is demonstrated that the option will never be exercised (for example, if the employee waives the option or the option lapses), the tax paid in the year of grant is refunded.
Capital gains. Guernsey does not impose a capital gains tax.
Deductions
Personal deductions and allowances. Guernsey operates a system of personal allowances and deductions similar to that in force in the United Kingdom. (For further details, see the United Kingdom
In addition, interest paid on a mortgage on a Guernsey principal residence is deductible only to the extent that the interest relates to the value of the mortgage up to £400,000.
Deductible expenses. To be deductible, expenses must be incurred wholly and exclusively for the purposes of the business. Depreciation is not deductible, but capital allowances may be claimed on the cost of plant and machinery. The rate of capital allowances is generally 20% of the declining balance. Allowances are also granted for buildings.
Rates. Income is taxable at a flat rate of 20%.
Tax cap. The tax payable on a Guernsey resident individual’s non-Guernsey-source income was restricted to an upper limit, or “cap,” effective from 2008. Individuals may elect either of the following options for the payment of tax:
- They may pay tax on non-Guernsey-source income restricted to £100,000, plus tax on Guernsey-source income.
- They may pay a £200,000 tax on worldwide income including Guernsey-source income.
Non-Guernsey source income is any income derived from non-Guernsey sources, including income from the following:
- A business not resident in Guernsey
- An office (for example, director or trustee) or employment with entities not resident in Guernsey
- Ownership of land and buildings outside Guernsey
- Other sources not located in Guernsey
For purposes of the above rule, any interest arising in Guernsey on money deposited with a licensed institution is considered to be non-Guernsey-source income.
Standard charge. The standard charge of £25,000 is effective from 2009. It applies to individuals who are resident but not solely or principally resident in Guernsey. Previously, these individuals were subject to Guernsey tax on Guernsey-source income and income remitted to the island.
Transitional rules applied for 2009.
Effective from 2010, the individuals described in the preceding sentence must declare and pay tax on their worldwide income, unless they elect to pay the standard charge. They are then entitled to continue to use the remittance basis, but may not claim any personal allowances or reliefs. If an individual elects and pays the standard charge he or she can offset the standard charge against the tax payable on Guernsey-source income.
The election must be made within two years after the end of the tax year to which it relates.
Relief for losses. Business losses may be carried back one year and carried forward indefinitely if the business continues to operate.
B. Other taxes
No significant taxes other than income tax are levied on individuals in Guernsey.
C. Social security
Contributions. Guernsey has a compulsory social security scheme. All persons over school-leaving age must pay contributions in Guernsey based on their total income as declared in their individual tax returns. No exemption is provided for individuals over retirement age.
Employed. Employers and employees under 65 years old must make contributions based on salaries at the rates of 6.5% and 6%, respectively, with an annual earnings limit of £91,884. The maximum annual contribution is £7,858 for employers and £5,513 for employees.
Not employed. All insured persons who are not employed or self-employed are in the not-employed class, as well as all persons over 65, even if they are employed or self-employed. The rate for contributions is 9.9% of income declared on their tax return, subject to the lower earnings limit of £6,451 for 2011. Individuals over age 65 pay the health insurance contribution rate of 2.6%.
Self-employed. Self-employed individuals under 65 years old must pay contributions based on their income levels, subject to an annual upper earnings limit of £91,884 and a lower earnings limit of £6,084.
Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, Guernsey has entered into totalization agreements, which usually apply for a maximum of 12 months, with the following jurisdictions.
Austria
Italy
New Zealand
Barbados
Jamaica
Portugal
Bermuda
Japan
Spain
Canada
Jersey
Sweden
Cyprus
Korea (South)
Switzerland
France
Malta
United Kingdom
Ireland
Netherlands
United States
Isle of Man
To learn more about the history, culture, economy and other information about the Guernsey, Channel Islands
We have been preparing US income tax returns for US Citizens and permanent residents living in Guernsey, Channel Islands for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Guernsey, Channel Islands and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Guernsey, Channel Islands.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email