Impact of Fiscal Strategy Reviews on the 0/10 tax regimes

You may have seen recent press reports regarding potential changes to the tax systems in Guernsey and Jersey. This has arisen because a number of EU countries have objected to the 'zero/ten' (0/10) tax regimes introduced in Guernsey in 2008 and Jersey in 2009 on the grounds that they are not within the spirit of the EU Code of Conduct on Taxation.

The reforms were originally introduced in response to the EU Code of Conduct working group's review of harmful tax practices in the EU and its dependent territories. Guernsey and Jersey committed to abolishing the International Business Company/ International Company and Exempt Company structures which allowed companies owned by non-residents to pay low or no tax on their profits - though Guernsey continues to permit collective investment schemes to claim exempt status. In order to protect the financial services industry, both islands took the decision to reduce the standard rate of corporate income tax to 0%, with a limited number of companies paying at 10% or 20%.

Firm details of the precise nature of the objections is not clear, but for now the tax regimes are unchanged. Early indications are that the standard rate of tax may have to rise from 0%, although there may be exemptions and relief. In particular, Guernsey has stated its intention that collective investment schemes will not be affected by any changes and it is expected that Jersey will take a similar approach. The islands have indicated that they intend to work together to introduce similar regimes in each territory. Although we understand that several years have been given to make the changes in, we expect that there will be clarification shortly from the governments of both islands on the intended timing of the changes. Early indications from Guernsey suggest that the new regime could be in place as early as January 2011.

The governments in both islands intend to consult with industry before making any changes. The 0/10 reforms were designed to respond to EU concerns but without harming the finance industry in the islands. It is to be hoped that any new changes will have a similar result.

Should you have any questions or concerns you wish to discuss, please use the contact details on this page to speak to one of our tax team leaders.

We will keep you updated with the progress of the reforms in the weeks and months to come.