Paying Tax in Jersey and Guernsey
Internationally renowned as offshore tax havens, there are a few financial perks to working in the Channel Islands that are worth knowing about!
Working internationally can cause some real headaches when it comes to tax. Concepts such as domicile and residency can appear a little grey, and who even knows what Double Taxation Agreements or Foreign Tax Offsets really mean??
As confusing as it can be though, don’t let tax be a reason to put you off working and travelling abroad – the benefits totally outweigh the costs! Particularly when it comes to working in the Channel Islands where you may not have to pay any tax at all…
Note: I’m writing based on my experience working in Guernsey, but Jersey has very similar arrangements. If you choose to work in either destination, be sure to check the latest Revenue Service (Tax Office) info at gov.gg and gov.je.
Individual Tax Rates
The Bailiwick of Guernsey (that being the islands of Guernsey, Herm, Alderney and Sark) is an attractive place for people to reside thanks to it’s very low income tax rate, set at a blanket 20% no matter what your income – amazing compared to Australia where you can be taxed up to 45%.
Additionally your first £11,575 of Guernsey income is tax free (known as a Personal Allowance), so you only pay tax if you earn above this threshold annually. Keep in mind though that this is calculated pro-rata if you don’t reside in Guernsey for the full year.
Amazingly though, if you’re non-resident in Guernsey you pay no tax at all!
Non-resident, resident or principally resident?
If you spend 90 days or less in the Bailiwick of Guernsey in a 12 month period you are classed as “non-resident” and do not pay any tax on your income. This is why short term locum positions are incredibly attractive!
If you spend more than 90 days but less than 182 days in Guernsey you become “resident” for tax purposes and will be liable to pay 20% tax on income above £11,575. You are generally not responsible for paying tax in Guernsey on your worldwide income, and you may be able to claim any Guernsey income tax you do pay as a Foreign Tax Relief/Offset/Credit in your home country.
If you spend more than 182 days in Guernsey you become “principally resident,” again paying 20% tax on your income. If you are principally resident, the Revenue Service may consider your ties to Guernsey stronger than anywhere else you may be resident, and you will likely pay tax in Guernsey on your worldwide income unless there is a Double Taxation Agreement in place with your home country.
Note: Please remember this is general advice, and I’m not a financial advisor! I don’t know your individual circumstances so please seek some professional advice, particularly if you intend to stay and work for more than 3 months.
Additional Note: While the Bailiwick is made up of the islands Guernsey, Alderney, Sark and Herm, if you spend any nights in Sark this does not count towards your 90 day count. I can’t tell you why, I’m sure it’s just an age old law that works to someone’s advantage that they have never had the incentive to change!
Permanent Departure
If you leave Guernsey and do not return in the same calendar year, you are considered to have permanently departed the island. Even if you do this regularly year after year, your departure is considered permanent, (unless you’re actually from Guernsey and just on long regular holidays…).
Permanent Departure is an important term when it comes to your income tax due to the strict day counts used to determine your residency status.
For example, if you leave Guernsey after working for 90 days, then return later in the same year for a visit, you would then not be treated as having left permanently. As you’ve spent more than 90 midnights on the island in the calendar year you’d then be liable to backpay any income tax you owe – that would turn out to be one expensive holiday!
Double Taxation Agreements (DTAs)
Guernsey has a few DTAs and partial DTAs in place with particular countries. What this means for you will depend on your home country as the negotiated arrangements are unique to each relationship, and not a blanket rule for all countries.
Generally, a DTA means that when you pay tax in your home country on income from that country it counts as a “credit” towards the tax you owe in Guernsey on that specific income. The aim is to prevent you from being taxed in two countries on the same income.
For example, if you are resident in the UK a full DTA is in place. If you work in Guernsey for less than 183 days in a 12 month period and pay tax on that income in the UK, you do not have to pay tax in Guernsey on that income. If you wanted to return to the island for another work period without being liable for tax you would have to wait at least 12 months from the day you first arrived.
For residents of Australia there is only a partial DTA in place (and the legal jargon is very confusing, my accountant agrees). You will be liable to pay tax in Guernsey after 91 days, but can claim relief of “three-quarters of the Guernsey effective rate”. This means that although your Guernsey income is taxed in Australia, you will still be taxed on that income in Guernsey as well, but at a reduced rate. If you are non-resident in Australia this is different again…
Being a physio and not an expert in international tax law I don’t understand things any deeper than this, so if you need any more advice I would highly recommend getting in touch with the Guernsey Revenue Service or your friendly accountant specialising in expat tax affairs.
Social Security
If you are being paid by a Guernsey-based employer you will also pay social security contributions. At the time of writing this is 6.6%, so not a massive deduction from your wages.
These contribute towards funding social security allowances such as unemployment benefits, sickness/injury benefits and parental benefits – I guess similar to what your National Insurance contributions go towards in the UK.
If you pay these contributions you have rights to these public funds/benefits if you need them.
But, if you are employed by a UK-based umbrella company you won’t pay Guernsey social security (and therefore won’t be entitled to claim any benefits if you become ill or injured).
Check out my explanation of Employment Status here if you need a hand wrapping your head around the concept of being employed in Guernsey vs the UK.
Income Tax Returns
If you’re a Guernsey employee you’ll be “taxed at source,” meaning your employer will automatically pay the Revenue Service income tax on your behalf by deducting it from your wages (essentially the same as Pay As You Go or Pay As You Earn).
If you earn below the Personal Allowance or work for less than 90 days in Guernsey you will be able to claim all of this back through either your Income Tax Return, or a Leaving Guernsey form.
Clear as mud? Yep, I thought so too.