UK/Guernsey Double Taxation Agreement and employed individuals
If you have recently arrived in Guernsey for an extended period during the pandemic, or to relocate here, you may need to register with the Revenue Service. You can do this here. Below is information about Guernsey's Double Taxation Agreements, in particular its agreement with the UK. However if you are in doubt, you should register, or email email@example.com.
A Double Tax Agreement (DTA) interacts with domestic tax legislation to help determine the taxing rights between two jurisdictions where a person has ties with both. It will apply if a person is resident in Guernsey and/or the other jurisdiction and has income arising in either territory that could be taxable in the other. The DTA will determine who taxes what income and, where it can be taxed in both, the relief that can be given to counter the "double" taxation.
Guernsey currently has 14 full DTAs and 12 partial ones and they can be found here.
UK DTA - Residence changes
- The current UK/Guernsey DTA was signed in 2018, and it came into force for Guernsey tax purposes with effect from 1 January 2020. DTAs with other countries may have similar provisions to that in the UK/Guernsey DTA and it will be necessary to look at each DTA to confirm the actual provisions in them.
- Previously, under the "old" DTA, dating from the 1950s, a UK resident, which was defined in the DTA as someone who was resident in the UK for the purposes of UK taxation and not resident in Guernsey for Guernsey tax purposes, could be in Guernsey for up to 90 midnights* before Guernsey could tax their employment income.
- This has changed in the new DTA. The new DTA applies to "persons who are residents of one or both of the Territories" and so it no longer restricts the person to being resident in only one of them. The definition of "resident of a Territory" in the current DTA is "any person who, under the laws of that Territory, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature....", but it doesn't include "any person who is liable to tax in that territory in respect only of income or capital gains from sources in that Territory".
- There is a tie breaker in the DTA for individuals who are resident in both territories. This provides that:
- a) The individual will be resident only in the territory where they have a permanent home and if they have a permanent home in both, then they will be resident in the territory where their personal and economic relations are closer (known as centre of vital interests)
- b) If it can't be determined where the centre of vital interests is, or the individual doesn't have a permanent home in either territory, then they will be resident where they have a habitual abode
- c) If there is a habitual abode in both, or neither territory, then the Competent Authorities of the territories will settle the question by mutual agreement.
- *Although the old DTA stated 183 days, the Guernsey Tax Law was changed after the DTA, so that an individual became resident in Guernsey if they had been here for 91 midnights (or 35 if relevant) and so anyone who was here over 90 (or 34) midnights was no longer a UK resident, as defined in the DTA (as they weren't resident in the UK but not resident here) and as such the DTA did not apply to them, so their income was taxed from the day they arrived.
Income from employment
- Income from employment is covered in the new DTA in Article 14 and this says that a resident of the UK, who comes to work in Guernsey, will only be taxable in the UK,on their salary earned in Guernsey, if they are here for 183 days or less (so long as they are paid by an employer that isn't resident in Guernsey or has a permanent establishment here). If they are here longer than 183 days then the income will be taxable in Guernsey, from day 1, and the UK will give double tax relief for the Guernsey tax paid under Article 22 2 a) of the DTA. The full text of the Guernsey/UK DTA is available here.
- An individual in Guernsey, working for a Guernsey employer, will always need to pay Guernsey tax on their income.
- The 183 days isn't completely straightforward as it doesn't just relate to being in Guernsey for 183 days in a calendar year; the DTA states "....in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned; ....." The fiscal year for Guernsey tax purposes is the calendar year and what this is saying is that, for anyone who is working in Guernsey for a UK employer, the Revenue Service needs to take into account the total number of days in any twelve month period, either starting or ending in the calendar year from the date of arrival/departure of that person. We do not look at the number of days purely in the calendar year itself, to decide, under the DTA, if that employment income is taxable in Guernsey or not.
- In practice, this means the Revenue Service will take into account any days which relate to an earlier or later calendar year, due to the "aggregate" of the days in the "twelve month period", to decide if we should be taxing that income, and it may be that we are determining the taxability of that income retrospectively (if we are working backwards from the date of departure, for example). Under the DTA a day is classed as being somewhere if time is spent in that place so the day of departure, as well as the day of arrival, is counted for the purposes of deciding if the employment income is taxable in Guernsey.
- A simple example is:
- Mr A arrives in Guernsey on 7 July 2020 and doesn't leave until 10 Feb 2021. He would have been in Guernsey for 178 days in 2020 and 41 in 2021 so more than 183 days in total (from either end of his stay) and his wages would be taxable in Guernsey for both years of charge. For 2021 he would be taxed on his Guernsey wages in the same way as any other non-resident who is working in the Island. The UK would give credit for the Guernsey tax paid against the UK tax payable, on the same income, under Article 22 2 a) of the DTA.
- A more complex example is:
- Mrs B arrives in Guernsey on 7 July 2020 and leaves on 30 November 2020. This is 147 days in Guernsey (i.e. 25 in July (including day of arrival) + 31 in August, 30 in September, 31 in October + 30 in November (including day of departure)).
- She then returns to Guernsey the following year from 1 - 31 August 2021, which is a day count of 31 days.
- The question to ask is "was Mrs B in Guernsey for 183 days or more in any twelve month period starting or ending in 2020 or 2021?"
- Looking at the 12 month period from 7 July 2020, when she first arrived (7 July 2020 - 6 July 2021) she didn't do 183 days in total, similarly looking at the 12 month period before 31 August 2021, her day of departure, (1 Sept 2020 - 31 Aug 2021), she also didn't do 183 days in aggregate. The longest period spent in Guernsey in these years was 147 days in the twelve month period 7 July 2020 - 6 July 2021. As such, based on these facts alone, none of the employment income in 2020 or 2021 is taxable in Guernsey.
- If, however, she then returned to Guernsey in 2022, from 1 - 31 January (31 days), and again from 1 March - 30 June (122 days), then in the twelve month period from 1 August 2021, when she came back to Guernsey, to 31 July 2022, she would have been in Guernsey for 31 days (August 2021) + 31days (Jan 2022) + 122 days (March -June 2022) = 184 days. As such, the employment income for the periods in 2021 and 2022, when she was working in Guernsey, would be taxable in Guernsey. The UK would again give a credit for the tax paid in Guernsey under Article 22 2 a).
Registering with the Revenue Service
- It is important that, even if you think you will not have to pay Guernsey tax on your employment income because of the DTA, you register with the Revenue Service when you arrive in Guernsey and provide details of your expected income whilst in the Island. You can do this online here.
- The DTA is only being used to determine if the income is taxable in Guernsey. If you are here for 91 midnights or more, in a calendar year, you will still be regarded as resident for Guernsey tax purposes.
- More information on residence for Guernsey tax purposes is available here.
- The information used to register for tax purposes will be used to determine if there is also a requirement to register for social security contribution purposes. Generally, if an individual is working for a UK employer in Guernsey, and continues to be ordinarily resident and liable for contributions in the UK, then they are only required to register for contributions if they have been in Guernsey for 52 consecutive weeks. If an individual has been seconded to work in Guernsey, they must register and provide a certificate of continuing liability from the UK.