Overview of Tax Compliance, Accounting, and Auditing in Jersey Islands
For a long time, Jersey Island has attracted the wealth of wealthy Brits due to its no wealth and inheritance tax policy. Jersey Islands has income tax levied at the rate of 20% but it still has no inheritance, wealth, corporate, or capital gains tax. This has made it a popular offshore destination where taxes could be avoided. Personal tax is levied at 20% along with exemption thresholds and marginal rate of tax for lower incomes. Goods and Services Taxes are levied at a low rate of 5% with few exemptions. Corporate income tax is levied at the rate of 0% with certain exceptions. Jersey Island's tax department, Revenue Jersey, administers and collects personal income tax, corporate income tax, goods and services tax, and other revenues.
Every business company incorporated in Jersey Islands is required to maintain accounting records that sufficiently reflect the company's financial position with reasonable accuracy at any given time. In addition, there is an obligation on the companies to store the accounting records and source documents for at least 10 years post the relevant transaction. Such documents should be stored in a place where the directors shall deem fit. The documents must be produced at any time for examination conducted by the officers of the company and its secretary. Further, if the accounting records of a public company in Jersey Island are kept outside the country, then reports on the company's activity must be stored in Jersey Islands, and the company should be open for an examination at any time by the officers of the company or its secretaries.
Tax Compliance in Jersey Islands
A personal tax of 20% is levied. To protect people with low incomes, the government has adopted an exemption threshold. If a person's income is below the threshold, then he/she doesn't have to pay taxes. If your income is low but above the exemption threshold, then one has to pay taxes at a rate lower than 20% of your income. This is known as the marginal rate of tax. The marginal Rate of tax is a small amount of tax which gradually increases with the increase in income. However, if you're a high-value resident under the Government of Jersey Island's High-Value Residency Scheme, then the applicable tax rate will be 20% on the first £850,000 global income and 1% of the amount exceeding £850,000.
Jersey Island has an Income Tax Instalment System (ITIS) where one can calculate their tax payable amount if they're employed. On the ITIS portal, one receives an instalment rate in the form of a percentage and this percentage is deducted from gross pay. An important aspect of ITIS is that it gives the instalment rate for employment income only. For income arising from other sources, such as pension or property income, one will have to pay tax separately. However, If you are self-employed or retired and all your income is from non-salary sources, then tax can be directly debited from your account to pay the annual bill for 12 months.
Corporate Income Tax
Corporate Income Tax (CIT) is levied at the rate of 0%, subject to certain exceptions. Those exceptions are:
- If you’re a financial service company, then a CIT at the rate of 10% will be levied.
- If you’re a utility company, then a CIT at the rate of 20% will be levied.
- If your income specifically arises from Jersey property rentals or Jersey property development, then it will be taxed at the rate of 20%.
- If you're a large corporate retailer with a cumulative Jersey turnover of 2 million or more, then a variable tax rate of 20% will be applicable.
Goods and Services Tax (GST)
GST is a tax levied on the sale of goods and services in Jersey Islands. On the supply of the majority of goods and services supplied in Jersey for local use, including imports, a GST at the rate of 5% is charged. GST is collected on goods that cost £135 or more. For the release of goods from customs, one has to declare the value of goods and pay the GST owed. The deadline to pay GST on imports is 3 days from the date on which the goods arrive in Jersey Islands. Failure to pay GST within 3 days can take longer for the goods to get through Customs. For businesses with a turnover of more than £300,000, then it's a mandate for you to register with the Taxes Office. An account can be created using CAESAR on the customs website. All the GST-registered businesses collect tax from their customers and deposit it with the Revenue Jersey once every quarter. Only the GST registered businesses can charge GST to reclaim the tax. All GST-registered businesses should have their GST registration imprinted on their receipts and invoices.
Social Security Contributions
Everybody residing in Jersey Islands and is of working age is liable to pay social security contributions which are equivalent to national insurance contributions. Social Security Contributions are used towards Jersey State pension, sickness benefits, and parental benefits. The amount of social security contribution made by a person depends on his income, whether from employment or self-employment. Social Security contribution for self-employed and unemployed is 12.5% of the earning of the previous two years or at the start-up rate.
Long term care
Everybody in Jersey has to contribute towards the long-term care fund. Currently, the long-term care fund is set at an annual rate of 1.5% of taxable income. The Revenue Jersey calculates and collects the long-term care amount and it is shown in your annual tax assessment.
Accounting and Auditing in Jersey Islands
All businesses are required to maintain accounting records to prove the transactions and make it easier to judge the company's activity. The accounting record is expected to depict a company's financial position with reasonable accuracy. There is an obligation upon the companies to store the accounting records for a minimum of 10 years from the date of making the relevant transaction. Accounting records should be stored in a place where the directors decide and it should be made available for examination conducted by the officers of the company and its secretaries as and when necessary. Further, if the records of a public company are stored outside Jersey Island then reports on the company's activity must be sent to and stored in Jersey Island and it must be open at any time for examination of the officers of the company and its secretary.
The accounting principle followed for the preparation of accounting records is the Generally Accepted Accounting Principles (GAAP) which can be U.K. GAAP, U.S. GAAP, Canadian GAAP, or IFRS. Whichever GAAP is adopted for the preparation of the accounts must be stated in the accounts.
Accounts shall be prepared for not more than 18 months from the date of its incorporation or the end of the previous period. A financial statement having an auditor's opinion must be prepared and presented before the general meeting of shareholders within 10 months from the date of the end of the reporting period for private companies within 7 months for public companies.
Time for Preparation and Submission of Accounts
The financial statement must be accompanied by the auditor's opinion. A copy of the financial statement, along with the auditor's opinion, should be provided to every shareholder. If a shareholder is not provided with a copy of the financial statement of the company, he/she can apply to the company in writing requesting a copy of the financial statement. A copy should be provided within 7 days from the date of receipt of the request. The financial statements are not made available to the public and the directors of the public companies must provide the registrar within 7 months from the date of the end of reporting period with the following documents:
- A signed copy of the company’s accounts
- A copy of the auditor's opinion
- A certified copy in English if any of the above documents are not in English.
Liability for failure to meet the legal requirements
On failure to maintain the accounting records, the company's law imposes a penalty of up to £10,000 and imprisonment of up to 5 years.
In Jersey Islands, all public companies must get their accounts audited. A private company has to appoint an auditor only if it is required by the articles of associations of the company or where there is a resolution of the company's shareholders adopted at a general meeting. Further, a company whose shares circulate on the stock market should appoint an auditor who is on the Register of Recognized Auditors and approved by the Jersey Financial Services Commission.