FOREWORD. Jersey. Services provided by member firms include:

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1 2016/17

2 FOREWORD A country's tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. As you will appreciate, the production of the WWTG is a huge team effort and we would like to thank all tax experts within PKF member firms who gave up their time to contribute the vital information on their country's taxes that forms the heart of this publication. The PKF Worldwide Tax Guide 2016/17 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of the world's most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current on 30 April 2016, while also noting imminent changes where necessary. On a country-by-country basis, each summary such as this one, addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country's personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. Services provided by member firms include: Assurance & Advisory; Financial Planning / Wealth Management; Corporate Finance; Management Consultancy; IT Consultancy; Insolvency - Corporate and Personal; Taxation; Forensic Accounting; and, Hotel Consultancy. In addition to the printed version of the WWTG, individual country taxation guides such as this are available in PDF format which can be downloaded from the PKF website at PKF Worldwide Tax Guide 2016/17 1

3 IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International Limited (PKFI) administers a family of legally independent firms. Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. PKF INTERNATIONAL LIMITED JUNE 2016 PKF INTERNATIONAL LIMITED All RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION PKF Worldwide Tax Guide 2016/17 2

4 STRUCTURE OF COUNTRY DESCRIPTIONS A. TAXES PAYABLE COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX SALES TAX / GOODS AND SERVICES TAX (GST) LOCAL TAXES OTHER TAXES FRINGE BENEFITS TAX (KNOWN AS BENEFITS IN KIND IN JERSEY) LAND TRANSACTIONS TAX B. DETERMINATION OF TAXABLE INCOME CAPITAL ALLOWANCES AND DEPRECIATION STOCK / INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS SHAREHOLDER LOANS INTEREST DEDUCTIONS LOSSES C. FOREIGN TAX RELIEF D. CONSOLIDATED CORPORATE GROUPS E. RELATED PARTY TRANSACTIONS F. WITHHOLDING TAXES G. EXCHANGE CONTROL H. PERSONAL TAX HIGH NET WORTH INDIVIDUALS I. TREATY AND NON-TREATY WITHHOLDING TAX RATES PKF Worldwide Tax Guide 2016/17 3

5 MEMBER FIRM City Name Contact Information St Clement Robert Behan BASIC FACTS Full name: Bailiwick of Jersey Capital: Saint Helier Main language: English Population: 101,000 (estimate at end of 2015) Major religion: Christianity Monetary unit: Pound Sterling (GBP) Internet domain:.je Int. dialling code: KEY TAX POINTS There are no capital taxes i.e. capital gains tax or inheritance tax. Residents are subject to Jersey income tax on their worldwide income as it arises. The standard rate of Income Tax is 20%. Non-residents are normally only subject to income tax on income arising in Jersey. Goods and Services tax (GST) is charged on the supply of goods and services in Jersey by a Jersey business at a rate 5%. Double taxation relief is available in accordance with various treaties. A company tax resident in Jersey is chargeable to tax at 0%, 10% or 20% depending upon the nature of its income. Generally trading companies and investment holding companies are taxed at 0%. Financial service entities are liable to tax at the 10% corporate rate. Utility companies and companies with Jersey rental income and Jersey property development companies are taxed at 20%. Non-resident companies are not liable to Jersey tax unless managed and controlled in Jersey and therefore Jersey tax resident. A. TAXES PAYABLE COMPANY TAX All companies incorporated in Jersey or managed and controlled in Jersey are treated as tax resident and, therefore chargeable to Jersey income tax. A Jersey resident company is liable to tax at 0%, 10% or 20%. Financial services entities are subject to a 10% rate and are defined as: All entities carrying out banking business through a permanent establishment in Jersey, whether through a Jersey company, a branch or some other structure. All entities carrying on the business of a trust business through a permanent establishment. All entities carrying on investment business, independent financial advice and similar activities through a permanent establishment. All entities carrying on the business of funds administration or funds custody services through a permanent establishment. It should be noted that clerical functions such as invoicing operations, management and administration services and entering into contracts in respect of a company s international business do not amount to the carrying on of a business through a permanent establishment in the Island. Public utility companies such as those providing electricity, water, gas, telecommunications and postal services are taxed at 20%. Jersey rental income and profits from property development in Jersey are taxed at the rate of 20%. Most other companies are liable at the standard rate of 0%. PKF Worldwide Tax Guide 2016/17 4

6 The tax year runs from 1 January to 31 December, although companies may adopt a year end of their choice. Income is assessable on a current year basis. Assessments are notified to the company in the year following the year of assessment. CAPITAL GAINS TAX There is no capital gains tax in Jersey. Capital gains are not included in ordinary taxable income. BRANCH PROFITS TAX There is currently no branch profits tax in Jersey. SALES TAX / GOODS AND SERVICES TAX (GST) A Goods and Services Tax (GST) which is a form of sales tax on the domestic consumption of imported and locally produced goods and services is in place. There is a standard rate of 5% which will be collected from customers by registered businesses when they make supplies of those goods and services which are specified by Law as taxable at the standard rate. There are three categories of supplies: Standard-rated supplies - e.g. the sale of new and used goods including those under a hire purchase agreement, renting and hiring out of goods, business stock used for private purposes, the provision of services (e.g. hairdressing or hotel accommodation), charging admission for access onto premises, and imported goods. Exempt supplies e.g. financial services, insurance, postal services, medical and pharmaceutical supplies made by registered professionals or institutions, and supplies to charities. Zero-rated supplies e.g. exports, the supply of a dwelling, supplies made on medical prescription and international services. GST registration is compulsory for businesses established in Jersey making annual taxable supplies exceeding 300,000, although voluntary registration is available for business trading below this level. Certain businesses do not have to register for GST in Jersey, and these can apply to be an International Service Entity (ISE). These are businesses, often financial service businesses, which mainly serve non-residents of Jersey and are exempted from GST, but are subject to other charges. LOCAL TAXES Taxes are levied at a state level only. OTHER TAXES Social Security contributions are charged on employees at a rate of 6% on gross earnings of up to 4,094 per month. The employer then pays 6.5% of gross earnings up to 4,094 per month and 2% over that amount on up to 13,542 per month. The maximum rate for self-employed individuals is per month (there is a reduced rate in certain circumstances). Earnings must be over 864 per month to pay a class of social security contributions on gross earnings. On moving to the Island an individual must register with the Social Security department. FRINGE BENEFITS TAX (KNOWN AS BENEFITS IN KIND IN JERSEY) Taxable benefits include, amongst other things, the private use of a company motor vehicle, rent-free accommodation and free board and lodging. Employees are responsible for payment of tax on benefits. PKF Worldwide Tax Guide 2016/17 5

7 LAND TRANSACTIONS TAX There is a Land Transactions Tax to collect which is a form of stamp duty on share transfer transactions involving immovable property in Jersey. As there is no requirement to register the transfer of shares, the charge takes the form of a Tax rather than Stamp Duty. A legal obligation is placed on the purchaser of a property by share transfer to pay a tax exactly equal to the amount of Stamp Duty which would have been paid on the purchase if it had been freehold property. There are lower rates for first time buyers, charities, the transfer of matrimonial property from joint to sole ownership (or vice versa), and transfers from a deceased person s estate. Non-resident purchasers of shares are not exempt from the tax. The standard charge is 80 plus an amount calculated per the standard land transaction tax rate bands: Bands ( ) Rate 0 to 50, % (subject to a minimum of 10) 50,001 to 300, % 300,001 to 500,000 2% 500,001 to 700, % 700,001 to 1,000,000 3% 1,000,001 to 1,500,000 4% 1,500,001 to 2,000,000 5% 2,000,001 to 3,000,000 6% over 3,000,000 7% B. DETERMINATION OF TAXABLE INCOME For a company or business, taxable trading profits are calculated by ascertaining assessable income and subtracting allowable deductions. Generally, to be deductible, expenditure must be wholly and exclusively incurred for the purposes of the trade and be revenue in nature rather than capital. CAPITAL ALLOWANCES AND DEPRECIATION No deduction is permitted in respect of depreciation on capital items. However, annual allowances, calculated using the reducing-balance method, are allowed as follows: Plant and machinery 25%; glasshouses 10%. Motor vehicles 25% (cost reduced to 22,000 for expensive cars) If, in any year, there are insufficient profits to cover balancing allowances, which are treated as a deduction from profits, any unrelieved amount is carried forward and treated as an allowance for the following year. This surplus capital allowance and balancing allowances may be carried forward indefinitely, if necessary. STOCK / INVENTORY UK principles are followed such that the value of the stock is normally the lower of cost and market value. Acceptable methods of valuing inventory include FIFO and average cost but not LIFO. CAPITAL GAINS AND LOSSES There is no capital gains tax in Jersey. Capital losses are not allowable. PKF Worldwide Tax Guide 2016/17 6

8 DIVIDENDS Dividends paid are not deductible in calculating the profits of a company but are paid out of after tax profits. Dividends paid out of a Jersey company s profits carry a tax credit in relation to the tax paid by the company at either the 0%, 10% or 20% rates. Dividends received from a UK resident company do not qualify for double tax relief and individuals are taxed on the net amount received. No unilateral relief is available to resident companies on receipt of foreign dividends and, thus, the net dividend is taxable (in other words, relief is given for foreign tax suffered by way of deduction). However, relief may be granted by concession on foreign dividend income if the absence of it would prevent bona fide commercial transactions (e.g. because dividends paid to a holding company by an overseas subsidiary would be subject to double taxation). This income is liable to Jersey tax at the standard corporate tax rate of 0% when received by a Jersey company. All distributions to a Jersey resident shareholder who owns more than 2% of the company are subject to tax at their personal tax rates. SHAREHOLDER LOANS A loan made to a Jersey resident shareholder or a member of the shareholder s family or a related party is liable to income tax unless it is made at a commercial rate of interest. The shareholder is entitled to a credit when the loan is repaid, equal to the amount of tax paid on the loan. INTEREST DEDUCTIONS Interest is deductible to the extent that it relates to monies borrowed for the purpose of the business. LOSSES Losses can be carried forward indefinitely provided there is a continuity of trade. There is a limited right to carry back losses. Losses can also be group relieved in the same year if the same basis periods exist. There are limitations on loss claims. C. FOREIGN TAX RELIEF Double taxation relief is available on all income taxed at source excluding UK dividends received and UK debenture interest. Associated with its negotiations in relation to Tax Information Exchange Agreements, Jersey has entered into limited double taxation arrangements relating to income and mutual agreement procedures with: Australia Finland Iceland Norway Denmark Germany Faroe Islands Greenland New Zealand Sweden France Poland (not ratified) Tax Information Exchange Agreements (TIEAs) have been signed with: Argentina Australia Austria Canada China Czech Republic Denmark Faroe Islands Finland France Germany Greenland Hungary Iceland India Indonesia Ireland Italy Japan Latvia Mexico Netherlands New Zealand Norway Poland Portugal Slovenia South Africa Sweden Switzerland Turkey UK USA Belgium, Brazil, Korea and Romania not yet in force. PKF Worldwide Tax Guide 2016/17 7

9 D. CONSOLIDATED CORPORATE GROUPS The tax provisions relating to groups of qualifying companies allow losses of a group company to be offset against the profits or gains of another company in the same group. A claim for relief must be made within one year following the year of assessment in which the loss period ended. Companies will be treated as being in the same group where one holds directly or indirectly more than 50% of the ordinary share capital of the other company, or where one company (company A) owns directly or indirectly more than 50% of the ordinary share capital of the two other companies (company B and company C). E. RELATED PARTY TRANSACTIONS There is no transfer pricing or related party legislation in Jersey. F. WITHHOLDING TAXES 0 There are no withholding taxes in Jersey. G. EXCHANGE CONTROL There are no exchange control rules in Jersey. H. PERSONAL TAX Income tax is charged on Jersey resident individuals on their worldwide income and profits regardless of whether such profits or income are remitted to Jersey. There is, however, a statutory relief for individuals who are resident, but not ordinarily resident in Jersey, so that foreign income not remitted escapes taxation. The tax year is the calendar year i.e. to 31 December. There is no statutory definition of residence or ordinary residence in Jersey. Generally, individuals are treated as resident in a year if they are present in Jersey for more than six months or if they are present for three months or more, on average, over a period of four consecutive years. If an individual maintains a place of abode in Jersey or has available accommodation, he is regarded as resident in any year that he stays in that abode or accommodation, even if for only one night. He is also regarded as ordinarily resident if his visits are habitual (after four years) unless his centre of life is abroad, e.g. has a home, business or professional activities abroad and is spending less than three months a year in Jersey. Income from offices and employment is assessable on an arising basis. Income tax is levied on the assessable income of the individual less personal allowances and deductions at a rate of 20%. Earned income arising outside the island is assessed on the net amount arising after the deduction of any foreign tax charged and any necessary expenses. The maximum amount of tax paid on total income is 20%, but there are two methods of calculating tax, the standard rate calculation, i.e. 20% of total income and the marginal relief calculation where allowances and reliefs are deducted. Income is exempt if it does not exceed 14,350 for a single person ( 15,900 for those aged 65 and over) or 23,000 for a married person ( 26,100 for those aged 65 and over). Marginal relief is available where income exceeds the exemption limit on small incomes, and the tax charged is not to exceed 26% of the excess. Where income is chargeable to tax, personal allowances are available as follows: Single person 14,350 (over 65 15,900) Married/civil partnership person 23,000 (over 65 26,100) Child allowance 3,000 Spouse/civil partner working allowance 4,500 PKF Worldwide Tax Guide 2016/17 8

10 The Enhanced Child Allowance for a parent whose child is in full time higher education is 9,000. There is an Additional Personal Allowance for single parents of 3,000. There is also relief for childcare costs for a registered child carer up to 6,150 or 14,000 (dependent on type of childcare). There is interest tax relief in certain circumstances. Mortgage interest relief is deductible but only on loans up to 300,000 on an individual s principal private residence if the individual is taxed at the marginal rate of 26%. The relief is restricted to 15,000. There is tax relief for pension contributions, with the maximum relief being the lower of 50,000 or relevant earnings and the relief is restricted if the individual s income is more than 150,000. The only other deduction is for employment expenses. Some reliefs are restricted and have conditions attached to them which need to be satisfied. A longterm care fund has been set up to help those who need long-term care. If an individual pays income tax they pay into this fund. The long-term care contribution rate is 1% of total income. HIGH NET WORTH INDIVIDUALS High Value Resident individuals whose income exceeds 625,000 per annum can apply for a special residence licence to live in Jersey. The current tiered rate of tax on personal, worldwide income is taxed as follows; 20% on the first 625,000 1% on all income over 625,000 20% on income derived from Jersey property (Based on 2016 rates and allowances) I. TREATY AND NON-TREATY WITHHOLDING TAX RATES Jersey has double taxation arrangements with the United Kingdom and Guernsey. It also has full double taxation agreements following the OECD model with Estonia, Hong Kong, China, Isle of Man, Luxembourg, Malta, Qatar, and Singapore. Rwanda and Seychelles have signed double taxation agreements which need to be ratified. PKF Worldwide Tax Guide 2016/17 9

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