Guernsey's senior politicians have proposed a set of fiscal changes that include a zero rate of corporate tax and capping personal tax at GBP 250,000.
A package of measures have been announced which include:
- A zero rate of income tax on company profits, except for specific banking activities, which will be taxed at 10%
- Guernsey residents continue to pay tax at 20% on assessable income
- Personal tax capped at GBP 250,000 on non-Guernsey income and investment income
- Wealth taxes like inheritance tax and capital gains tax will NOT be introduced
- Taxation of Guernsey-resident shareholders on distributed company profits only
- 1% increase in Social Security contributions for employers only, with a GBP 60,000 ceiling
- No goods and services tax in the short term
- Increase in indirect taxes such alcohol, tobacco and petrol
- Run a budget deficit to be funded over 3-5 year by up to GBP100m. from the contingency reserve plus 5% annual economic growth
'This is a great package for the finance industry,' said Peter Niven, the Chief Executive of GuernseyFinance, the island's promotional agency for the finance industry.
'Guernsey already has a proven track record as a leading international finance centre and these measures really will enhance the environment for doing business in the island.
'These proposals reinforce the message that Guernsey is very much open for business and welcomes high net worth individuals. They clearly promote enterprise within the economy as a whole, in particular high-earning, low footprint activities and the feeling within the finance industry is that they will help attract new business to the island, especially niche activities like hedge fund managers.'
The States of Guernsey (the island's parliament) will debate the proposals of the Policy Council (the ministerial group) at its June sitting, which starts on Wednesday 28 June. If approved, the main strands of the package will come into effect from 1 January 2008.
The move has been made against the background of the European Union developing a Code of Conduct on Business Taxation. The EU's code deems a tax regime harmful if preferential rates are made available to non-residents but not to a jurisdiction's own residents.
Although Guernsey is not within the EU's fiscal territory and is not within the EU single market for financial services, the countries of the EU (including of course the United Kingdom) are its major economic trading partners.
'Guernsey has consistently demonstrated that it is willing to participate in constructive dialogue with the EU and this has been no exception,' said Niven, adding: 'Indeed, the result is unquestionably positive in that the it will ultimately provide an even more competitive environment for attracting business to the island.'
Of the 30,000 individuals employed in Guernsey, more than 7,000 (23%) are employed in the finance sector itself, which directly contributes 35% of the island's GDP and 65% of the export economy.