The States of Guernsey will amend the Income Tax Law 1975 to state that any income paid from an international savings plan (ISP) is not subject to income tax on the island.
The island’s annual budget said that an ISP as a savings plan “aimed at benefitting employees of multinational and international companies”.
It added: “Such plans must have for their sole purpose the provision of benefits in respect of the persons; employment wholly outside Guernsey in a trade or undertaking. They must be established under the law of Guernsey and must also be administered by fiduciary licensees subject to regulation by the Guernsey Financial Services Commission (GFSC).”
The regulator added that, in order to amend income tax law, fiduciary licensees should be aware that a change to the definition of gratuity schemes will also be required.
We Are Guernsey, the financial services industry representative organisation in the island, explained that the move was a clarification of the law for ISPs, as previous guidance said Guernsey would not tax income from such savings plans.
Setting the record straight
Industry players told International Adviser that the move clarifies Guernsey’s ISP rules, considering that its Jersey counterpart was already exempt from income tax since its inception.
A spokesperson for We Are Guernsey told IA this is likely to be a tax neutrality measure but it doesn’t mean that ISP holders won’t be taxed in their jurisdiction of residence.
Sovereign Group told IA: “There has previously been a little doubt about the perimeter of legislation for ISPs.
“This clarification now puts ISPs in the same position as IPPs in terms of the scope of legislation and regulation. This confirmation will allow Guernsey providers to position themselves at the forefront of this increasingly competitive market.”
Benefits for expats
This type of savings plan has become incredibly popular in regions where there is a lack of retirement plans, or where their use is not widespread, such as the Middle East, Singapore and Hong Kong.
Chris Davies, financial planner at The Fry Group, told IA the move could benefit expat employees working in such regions “if it brings the use of ISPs to an employer’s attention as these schemes can help expats build up savings throughout their time abroad to supplement their own pensions and investments”.
“These schemes can often be cheaper than individual savings contracts sold to expats around the world as they are negotiating prices across larger asset values unachievable by single employees and the regulatory protections around fees and disclosure requirements are often more stringent than the many of the individual savings contracts sold to expat investors.”
‘Commercial war’
Sean Kelleher, chief executive of Mondial Dubai, believes the move doesn’t add “anything extraordinarily new”.
But with the Dubai International Finance Centre (DIFC) coming to the end of the first year of mandatory workplace savings, he wonders whether the current environment in Dubai will open up opportunities for ISPs, considering that the DIFC Employee Workplace Savings (Dews) plan is well established.
Kelleher added that if the “idea” of an ISP could go beyond the UAE city to the rest of the Middle East and other free zones, and that is where the crown dependencies could go to “commercial war” to each promote their own ISP offering.
